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<SEC-DOCUMENT>0000912057-01-505830.txt : 20010402
<SEC-HEADER>0000912057-01-505830.hdr.sgml : 20010402
ACCESSION NUMBER: 0000912057-01-505830
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010330
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SINCLAIR BROADCAST GROUP INC
CENTRAL INDEX KEY: 0000912752
STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833]
IRS NUMBER: 521494660
STATE OF INCORPORATION: MD
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 000-26076
FILM NUMBER: 1587219
BUSINESS ADDRESS:
STREET 1: 2000 WEST 41ST ST
CITY: BALTIMORE
STATE: MD
ZIP: 21211
BUSINESS PHONE: 4104675005
MAIL ADDRESS:
STREET 1: 2000 W 41ST ST
CITY: BALTIMORE
STATE: MD
ZIP: 21211
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<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER: 000-26076
DECEMBER 31, 2000
SINCLAIR BROADCAST GROUP, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 52-1494660
(State of incorporation) (I.R.S. Employer Identification No.)
10706 BEAVER DAM ROAD
COCKEYSVILLE, MD 21030
(Address of principal executive offices)
(410) 568-1500
(Registrant's telephone number, including area code)
--------------------------------------
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Class A common stock, par value $.01 per share
Series D preferred stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained in this report, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
Based on the closing sales price of $7.375 per share as of March 26, 2001,
the aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $294.4 million.
As of March 26, 2001, there were 39,920,877 shares of class A common stock,
$.01 par value; 44,838,828 shares of class B common stock, and 3,450,000 shares
of series D preferred stock, $.01 par value, convertible into 7,561,644 shares
of class A common stock of the registrant issued and outstanding.
In addition, 2,000,000 shares of $200 million aggregate liquidation value
of 11 5/8% High Yield Trust Offered Preferred Securities of Sinclair Capital, a
subsidiary trust of Sinclair Broadcast Group, Inc., are issued and outstanding.
Documents Incorporated by Reference
Portions of the definitive proxy statement to be delivered to shareholders
in connection with the 2001 annual meeting of shareholders are incorporated by
reference into Part III.
<PAGE>
PART I
FORWARD-LOOKING STATEMENTS
This report includes or incorporates forward-looking statements. We have
based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are subject to
risks, uncertainties and assumptions about us, including, among other things:
o the impact of changes in national and regional economies,
o our ability to service our outstanding debt,
o successful integration of acquired television stations, including
achievement of synergies and cost reductions,
o pricing fluctuations in local and national advertising,
o volatility in programming costs, and
o the effects of governmental regulation of broadcasting.
Other matters set forth in this report, including the risk factors set
forth in Item 7 of this report, or in the documents incorporated by reference
may also cause actual results in the future to differ materially from those
described in the forward-looking statements. We undertake no obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties
and assumptions, the forward-looking events discussed in this report might not
occur.
ITEM 1. BUSINESS
We are a diversified television broadcasting company that owns or provides
programming services pursuant to local marketing agreements (LMAs) to more
television stations than all but one other commercial broadcasting group in the
United States. We currently own and operate, or provide programming services
pursuant to LMAs to, 62 television stations in 40 markets. In markets where
duopolies are permitted, we have entered into agreements to acquire the License
Assets of stations we have been programming pursuant to LMAs. Upon completion of
all pending acquisitions, we will own duopolies in 11 markets and operate a
second station pursuant to an LMA in eight markets. During 1999, we sold the
majority of our radio stations and during 2000 sold our remaining 11 radio
stations. In addition, we own equity interests in several Internet-related
companies and own an equity interest and have a strategic alliance with a
manufacturer of transmitters and other broadcast equipment.
The 62 television stations that we own and operate, or program pursuant to
LMAs are located in 40 geographically diverse markets, with 33 of the stations
in the top 47 television designated market areas (DMAs) in the United States.
Our television station group is diverse in network affiliation with 20 stations
affiliated with Fox Broadcasting Company (Fox), 21 with The WB Television
Network (WB), seven with ABC, six with United Paramount Television Network
Partnership (UPN), four with NBC and three with CBS. One station operates as an
independent.
In July 1999, we entered into an agreement to sell 46 of our radio stations
in nine markets to Entercom Communications Corporation (Entercom) for $824.5
million in cash (adjusted for closing costs). In December 1999, we completed the
sale of 41 of our radio stations in eight markets to Entercom for $700.4 million
in cash and recognized a gain net of tax of $192.4 million. We completed the
sale of four of the remaining five radio stations to Entercom in July 2000 for a
purchase price of $126.6 million and completed the sale of the remaining radio
station in Wilkes-Barre to Entercom in November 2000 for a purchase price of
$0.6 million. In addition, in June 2000, we entered into an agreement to sell,
and in October 2000, we completed the sale to Emmis Communications Corporation
(Emmis) of the remaining radio stations serving the St. Louis market for a
purchase price of $220.0 million.
We underwent rapid and significant growth from 1991 to 2000, most of which
occurred prior to the end of 1999. Since 1991, we have increased the number of
television stations we own or provide services to from three television stations
to 62 television stations. From 1991 to 2000, net broadcast revenues and
Adjusted EBITDA [as defined in Item 6, Statement of Operations Data, note (g)],
increased from $39.7 million to $727.0 million, and from $15.5 million to $316.4
million, respectively.
We are a Maryland corporation formed in 1986. Our principal offices are
located at 10706 Beaver Dam Road, Cockeysville, MD 21030, and our telephone
number is (410) 568-1500.
2
<PAGE>
TELEVISION BROADCASTING
We own and operate, provide programming services to, or have agreed to
acquire the following television stations:
<TABLE>
<CAPTION>
NUMBER OF
COMMERCIAL EXPIRATION
MARKET STATIONS IN STATION DATE OF
MARKET RANK (A) STATIONS STATUS (B) CHANNEL AFFILIATION THE MARKET (C) RANK (D) FCC LICENSE
------ -------- -------- ---------- ------- ----------- -------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Minneapolis/St. Paul, Minnesota .... 13 KMWB O&O 23 WB 7 6 4/1/06
Tampa, Florida ..................... 14 WTTA LMA 38 WB 10 6 2/1/05
Sacramento, California ............. 19 KOVR O&O 13 CBS 6 3 12/1/06
Pittsburgh, Pennsylvania ........... 20 WPGH O&O 53 FOX 8 4 8/1/07
WCWB LMA (e) 22 WB 5 8/1/07
St. Louis, Missouri ................ 22 KDNL O&O 30 ABC 6 4 2/1/06
Baltimore, Maryland ................ 24 WBFF O&O 45 FOX 6 5 10/1/04
WNUV LMA 54 WB 4 10/1/04
Indianapolis, Indiana .............. 26 WTTV O&O 4 WB 7 5 8/1/05
WTTK O&O 29 WB 4(f) 8/1/05
Raleigh-Durham, North Carolina ..... 29 WLFL O&O 22 WB 7 6 12/1/04
WRDC LMA (g) 28 UPN 5 12/1/04
Kansas City, Missouri .............. 30 KSMO O&O 62 WB 7 5 2/1/06
Nashville, Tennessee ............... 31 WZTV LMA (h) 17 FOX 6 4 8/1/05
WUXP LMA (i) 30 UPN 5 8/1/05
Cincinnati, Ohio ................... 32 WSTR O&O 64 WB 6 5 10/1/05
Milwaukee, Wisconsin ............... 33 WCGV O&O 24 UPN 6 6 12/1/05
WVTV LMA (g) 18 WB 5 12/1/05
Columbus, Ohio ..................... 34 WSYX O&O 6 ABC 5 3 10/1/05
WTTE LMA 28 FOX 4 10/1/05
Asheville, North Carolina and
Greenville/Spartanburg/
Anderson, South Carolina ........ 35 WBSC LMA (g) 40 WB 6 5 12/1/04
WLOS O&O 13 ABC 6 3 12/1/04
San Antonio, Texas ................. 37 KABB O&O 29 FOX 8 4 8/1/98(j)
KRRT LMA (g) 35 WB 6 8/1/98(j)
Birmingham, Alabama ................ 39 WTTO O&O 21 WB 8 5 4/1/05
WABM LMA (g) 68 UPN 7 4/1/05
WDBB LMA (k) 17 WB 7 4/1/05
Norfolk, Virginia .................. 41 WTVZ O&O 33 WB 8 5 10/1/04
Buffalo, New York .................. 44 WUTV LMA (h) 29 FOX 7 4 6/1/07
WNYO LMA (l) 49 WB 5 6/1/07
Oklahoma City, Oklahoma ............ 45 KOCB O&O 34 WB 9 4 6/1/06
KOKH LMA (m) 25 FOX 5 6/1/06
Greensboro/Winston-Salem,
Salem/Highpoint,
North Carolina .................. 47 WXLV LMA (h) 45 ABC 7 4 12/1/04
WUPN LMA (n) 48 UPN 7 6 12/1/04
Las Vegas, Nevada .................. 51 KVWB O&O 21 WB 9 5 10/1/06
KFBT O&O 33 IND (o) 6 10/1/06
Dayton, Ohio ....................... 55 WKEF O&O 22 NBC 5 3 10/1/05
WRGT LMA 45 FOX 4 10/1/05
Richmond, Virginia ................. 60 WRLH LMA (h) 35 FOX 5 4 10/1/04
Charleston and Huntington,
West Virginia ................... 61 WCHS O&O 8 ABC 5 5 10/1/04
WVAH LMA 11 FOX 4 10/1/04
Mobile, Alabama and
Pensacola, Florida .............. 62 WEAR O&O 3 ABC 6 2 2/1/05
WFGX LMA 35 WB 6 2/1/05
Flint/Saginaw/Bay City,
Michigan ........................ 64 WSMH O&O 66 FOX 4 4 10/1/05
Lexington, Kentucky ................ 66 WDKY O&O 56 FOX 5 4 8/1/05
Des Moines, Iowa ................... 70 KDSM O&O 17 FOX 4 4 2/1/06
Paducah, Kentucky/
Cape Girardeau, Missouri ........ 73 KBSI O&O 23 FOX 5 4 2/1/06
WDKA LMA 49 WB 5 8/1/05
Rochester, New York ................ 74 WUHF LMA 31 FOX 5 4 6/1/07
Portland, Maine .................... 79 WGME O&O 13 CBS 5 2 4/1/07
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
COMMERCIAL EXPIRATION
MARKET STATIONS IN STATION DATE OF
MARKET RANK (A) STATIONS STATUS (B) CHANNEL AFFILIATION THE MARKET (C) RANK (D) FCC LICENSE
------ -------- -------- ---------- ------- ----------- -------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Syracuse, New York ................. 80 WSYT O&O 68 FOX 5 4 6/1/07
WNYS LMA 43 WB 5 6/1/07
Springfield/Champaign, Illinois .... 83 WICS O&O 20 NBC 6 2 12/1/05
WICD O&O 15 NBC 2 12/1/05
Madison, Wisconsin ................. 84 WMSN LMA (h) 47 FOX 6 4 12/1/05
Cedar Rapids, Iowa ................. 89 KGAN O&O 2 CBS 6 3 2/1/06
Tri-Cities, Tennessee .............. 93 WEMT O&O 39 FOX 5 4 8/1/05
Charleston, South Carolina ......... 103 WMMP O&O 36 UPN 6 5 12/1/04
WTAT LMA 24 FOX 4 12/1/04
Springfield, Massachusetts ......... 105 WGGB O&O 40 ABC 3 2 4/1/07
Tyler-Longview, Texas .............. 108 KETK O&O (p) 56 NBC 5 2 8/1/06
Tallahassee, Florida ............... 110 WTWC O&O 40 NBC 5 3 2/1/05
Peoria/Bloomington, Illinois ....... 112 WYZZ O&O 43 FOX 6 4 12/1/05
</TABLE>
- -------------------
(a) Rankings are based on the relative size of a station's DMA among the 211
generally recognized DMAs in the United States as estimated by Nielsen.
(b) "O & O" refers to stations that we own and operate. "LMA" refers to
stations to which we provide programming services pursuant to a local
marketing agreement.
(c) Represents the number of television stations designated by Nielsen as
"local" to the DMA, ex cluding public television stations and stations that
do not meet the minimum Nielsen reporting standards (weekly cumulative
audience of at least 0.1%) for the Sunday-Saturday, 6:00 a.m. to 2:00 a.m.
time period.
(d) The rank of each station in its market is based upon the November 2000
Nielsen estimates of the percentage of persons tuned to each station in the
market from 6:00 a.m. to 2:00 a.m., Sunday-Saturday.
(e) The License Assets for this station are currently owned by WPTT, Inc., and
we intend to acquire these assets upon FCC approval.
(f) WTTK, a satellite of WTTV under the Federal Communications Commission (FCC)
rules, simulcasts all of the programming aired on WTTV and the station rank
applies to the combined viewership of these stations.
(g) The License Assets for these stations are currently owned by Glencairn,
Ltd. or one of its subsidiaries and we intend to acquire these assets upon
FCC approval.
(h) The License Assets for these stations are currently owned by Sullivan
Broadcasting Company II, Inc. and we intend to acquire these assets upon
FCC approval.
(i) The License Assets for this station are currently owned by Mission
Broadcasting I, Inc., and we intend to acquire these assets upon FCC
approval.
(j) License renewal application pending. A petition to deny the license
renewals was filed with the FCC. We have filed an opposition to that
petition and we are currently awaiting FCC action.
(k) WDBB simulcasts the programming broadcast on WTTO pursuant to a local
marketing agreement.
(l) The License Assets for this station are currently owned by Grant Television
II, Inc., and we intend to acquire these assets upon FCC approval.
(m) The License Assets for this station are currently owned by Sullivan
Broadcasting Company IV, Inc., and we intend to acquire these assets upon
FCC approval.
(n) The License Assets for this station are currently owned by Mission
Broadcasting II, Inc., and we intend to acquire these assets upon FCC
approval.
(o) "IND" or "Independent" refers to a station that is not affiliated with any
of ABC, CBS, NBC, Fox, WB, or UPN.
(p) Although Sinclair has sold all of the Non-License Assets of this station,
Sinclair still owns its License Assets. This station is programmed by
ComCorp Broadcasting, Inc., in return for certain payments.
OPERATING STRATEGY
Our television operating strategy includes the following key elements:
ATTRACTINGVIEWERSHIP
We seek to attract viewership and expand our audience share through
selective, high-quality programming.
POPULAR PROGRAMMING. We seek to obtain, at attractive prices, popular
syndicated programming that is complementary to the station's network
affiliation. We also believe that an important factor in attracting viewership
to our stations is their network affiliations with Fox, WB, ABC, CBS, NBC and
UPN. These affiliations enable us to attract viewers by virtue of the quality
first-run original programming provided by these networks and the networks'
promotion of such programming. We focus on obtaining popular syndicated
programming for key programming periods (generally 6:00 p.m. to 8:00 p.m.) for
broadcast on our Fox, WB and UPN affiliates. Examples of this programming
include "Friends," "Frasier," "The Simpsons," "Drew Carey" and "Seinfeld," as
well as "Spin City," which we began airing during 2000, and "Everybody Loves
Raymond" and "Just Shoot Me," which we will begin airing in 2001. In addition to
network programming, our network affiliates broadcast court show, talk show, and
relationship show programming such as "Judge Judy," "Divorce Court,"
"Entertainment Tonight," "Live with Regis and Kelly," "Blind Date" and "Change
of Heart".
4
<PAGE>
LOCAL NEWS. We believe that the production and broadcasting of local news
is an important link to the community and an aid to the station's efforts to
expand its viewership. In addition, local news programming can provide access to
advertising sources targeted specifically to local news viewers. We carefully
assess the anticipated benefits and costs of producing local news prior to
introduction at one of our stations because a significant investment in capital
equipment is required and substantial operating expenses are incurred in
introducing, developing and producing local news programming. We currently
provide local news programming at 31 of the television stations we own or
program located in 27 separate markets. The possible introduction of local news
at our other stations is reviewed periodically and we have recently expanded our
news programming in some of the markets in which we program a second station
pursuant to an LMA. We can produce news programming in these markets at
relatively low cost per hour of programming and the programming serves the local
community by providing additional news outlets in these markets, some of which
are broadcast at different times. Our policy is to institute local news
programming at a specific station only if the expected benefits of local news
programming at the station are believed to exceed the associated costs after an
appropriate start-up period. During 2000, we discontinued an unprofitable news
operation in one of our markets. On March 12, 2001, we commenced a three-hour
morning news block on WBFF-TV in Baltimore, the second entry of our Fox
affiliates into the morning news arena.
POPULAR SPORTING EVENTS. Our WB and UPN affiliated and independent stations
generally face fewer restrictions on broadcasting live local sporting events
than do their competitors that are affiliates of Fox, ABC, NBC and CBS which are
required to broadcast a greater number of hours of programming supplied by the
networks. We have been able to acquire the local television broadcast rights for
certain sporting events, including NBA basketball, Major League Baseball, NFL
football, NHL hockey, ACC basketball, Big Ten football and basketball, and SEC
football. We seek to expand our sports broadcasting in DMAs as profitable
opportunities arise. In addition, our stations that are affiliated with FOX,
ABC, NBC and CBS broadcast certain Major League Baseball games, NFL football
games and NHL hockey games as well as other popular sporting events.
COUNTER-PROGRAMMING. Our programming strategy on our Fox, WB, UPN and
independent stations also includes "counter-programming," which consists of
broadcasting programs that are alternatives to the types of programs being shown
concurrently on competing stations. This strategy is designed to attract
additional audience share in demographic groups not served by concurrent
programming on competing stations. We believe that implementation of this
strategy enables our stations to achieve competitive rankings in households in
the 18-49 and 25-54 demographics and to offer greater diversity of programming
in each of our DMAs.
CONTROL OF OPERATING AND PROGRAMMING COSTS
By employing a disciplined approach to managing programming acquisition and
other costs, we have been able to achieve operating margins that we believe are
among the highest in the television broadcast industry. We have sought and will
continue to seek to acquire quality programming for prices at or below prices
paid in the past. As an owner or provider of programming services to 62 stations
in 40 DMAs reaching approximately 25% of U.S. television households, we believe
that we are able to negotiate favorable terms for the acquisition of
programming. Moreover, we emphasize control of each of our stations' programming
and operating costs through program-specific profit analysis, detailed
budgeting, tight control over staffing levels and detailed long-term planning
models.
ATTRACT AND RETAIN HIGH QUALITY MANAGEMENT
We believe that much of our success is due to our ability to attract and
retain highly skilled and motivated managers at both the corporate and local
station levels. A portion of the compensation provided to general managers,
sales managers and other station managers is based on their achieving certain
operating results. We also provide our corporate and station managers with
deferred compensation plans offering options to acquire class A common stock.
COMMUNITY INVOLVEMENT
Each of our stations actively participates in various community activities
and offers many community services. Our activities include broadcasting
programming of local interest and sponsorship of community and charitable
events. We also encourage our station employees to become active members of
their communities and to promote involvement in community and charitable
affairs. We believe that active community involvement by our stations provides
our stations with increased exposure in their respective DMAs and ultimately
increases viewership and advertising support.
5
<PAGE>
LOCAL MARKETING AGREEMENTS AND DUOPOLIES
In the past, we have sought to increase our revenues and improve our
margins by providing programming services pursuant to an LMA to a second station
in selected DMAs where we already own one station. In certain instances, single
station operators and stations operated by smaller ownership groups do not have
the management expertise or the operating efficiencies available to us as a
multi-station broadcaster. In addition to providing additional revenue
opportunities, we believe that these arrangements assist stations whose
operations may have been marginally profitable to continue to air popular
programming and contribute to diversity of programming in their respective DMAs.
As a result of the FCC's recent revision of its duopoly rules to permit the
ownership of up to two television stations in a market in certain instances, we
have entered into agreements to acquire several stations we have been
programming pursuant to LMAs in markets where duopolies are permitted by the
FCC's rules.
In certain instances, we also enter into LMA arrangements in connection
with a station whose acquisition by us is pending FCC approval. In these
transactions, prior to receipt of FCC approval, we acquire the assets (the
Non-License Assets) other than the assets essential for broadcasting a
television signal in compliance with regulatory guidelines, generally consisting
of the FCC license, transmitter, transmission lines, technical equipment, call
letters and trademarks, and certain furniture, fixtures and equipment (the
License Assets). Following acquisition of the Non-License Assets, the License
Assets continue to be owned by the owner-operator and holder of the FCC license,
which enters into an LMA with us. After FCC approval for transfer of the License
Assets is obtained, we acquire the License Assets and the LMA arrangement is
terminated.
We believe that we can attain significant growth in operating cash flow
through the utilization of duopolies. By expanding our presence in certain of
our markets in which we already own a station, we can improve our competitive
position with respect to a demographic sector. In addition, by programming two
stations, we are able to realize significant economies of scale in marketing,
programming, overhead and capital expenditures. Upon the completion of all
pending acquisitions, we will own duopolies in 11 markets and operate a second
station pursuant to an LMA in eight markets. We currently are permitted under
FCC guidelines to establish new duopolies in the Minneapolis, Tampa,
Indianapolis and Sacramento markets, if suitable acquisitions can be identified
and negotiated under acceptable terms.
INNOVATIVE LOCAL SALES AND MARKETING
We recognize that the national market for advertising has softened due to
increased competition from other forms of media, such as cable and the Internet,
as well as a general slowdown in the economy. We believe that we can ultimately
grow faster by concentrating our sales efforts on enhancing local customer
relationships for the long-term. Our goal is to shift our revenue mix so that
75% of our time sales are derived in the local markets by 2006. Increasing our
local market penetration required increasing the number of account executives
calling on customers. During 2000, we completed the addition of one to two
additional salespersons at each station, approximately 100 new account
executives company-wide. Additionally, during 2000, we continued training
programs begun in 1999 for our sales managers, which were designed to facilitate
cross-pollinization of ideas. We also continued organizational training programs
to our sales managers and increased number of sales training programs for our
account executives. We believe our efforts will afford the stations the
resources and methodology to attract new advertisers and retain them for the
long term by developing a sense of partnership and offering new marketing ideas
and promotional campaigns.
PROGRAMMING AND AFFILIATIONS
We continually review our existing programming inventory and seek to
purchase the most profitable and cost-effective syndicated programs available
for each time period. In developing our selection of syndicated programming, we
balance the cost of available syndicated programs with their potential to
increase advertising revenue and the risk of their reduced popularity during the
term of the program contract. We seek to purchase programs with contractual
periods that permit programming flexibility and which complement a station's
overall programming and counter-programming strategy. Programs that can perform
successfully in more than one time period are more attractive due to the long
lead time and multi-year commitments inherent in program purchasing.
Sixty-one of the 62 television stations that we own and operate or to which
we provide programming services currently operate as affiliates of Fox (20
stations), WB (21 stations), ABC (7 stations), NBC (4 stations), UPN (6
stations), or CBS (3 stations). The networks produce and distribute programming
in exchange for each station's commitment to air the programming at specified
times and for commercial announcement time during the
6
<PAGE>
programming. In addition, networks other than Fox, WB and UPN pay each
affiliated station a fee for each network-sponsored program broadcast by the
station.
The Fox-affiliated stations acquired, to be acquired or being programmed by
us as a result of the Sullivan Acquisition and Max Media Acquisition continue to
carry Fox programming notwithstanding the fact that their affiliation agreements
have expired. Fox affiliation agreements are currently in effect for only eight
of our stations, which such affiliation agreements will expire on August 21,
2001, in part as a result of Fox having failed to exercise an option to renew
the affiliation agreements for these stations for an additional five years.
Although we are not currently negotiating with Fox to secure long term
affiliation agreements for either the stations that do not currently have
affiliation agreements or which have affiliation agreements that are scheduled
to expire in 2001, we do not believe that Fox has any current plans to terminate
the affiliation of any of these stations. Fox, however, has recently entered
into an agreement to acquire television stations in two markets, San Antonio and
Baltimore, where Sinclair owns stations currently affiliated with Fox. In
addition, the affiliation agreements of three ABC stations (WEAR-TV, in
Pensacola, Florida, WCHS-TV, in Charleston, West Virginia and WXLV-TV, in
Greensboro/Winston-Salem, North Carolina) have expired. Sinclair and ABC are
currently discussing long term extensions of these agreements.
In July 1997, we entered into an agreement with WB (the WB Agreement),
pursuant to which we agreed to affiliate certain of our stations with WB for a
ten-year term expiring January 15, 2008. Under the terms of the WB Agreement, as
modified by the subsequent letter agreement entered into between WB and us on
May 18, 1998, WB agreed to pay us $64 million in aggregate amount in monthly
installments during the first eight years commencing on January 16, 1998 in
consideration for entering into affiliation agreements with WB.
USE OF DIGITAL TELEVISION TECHNOLOGY
We believe that television broadcasting may be enhanced significantly by
the development and increased availability of digital broadcasting service
technology. This technology has the potential to permit us to provide viewers
multiple channels of digital television over each of our existing standard
channels, to provide certain programming in a high definition television format
(HDTV) and to deliver various forms of data, including data on the Internet, to
home and business computers. These additional capabilities may provide us with
additional sources of revenue although we may incur significant additional costs
to do so.
Implementation of digital television can improve the technical quality of
television signals received by viewers. Under certain circumstances, however,
conversion to digital operation may reduce a station's geographic coverage area
or result in some increased interference.
Testing in Baltimore and Philadelphia, using the FCC-mandated 8-vestigial
sideband (8-VSB) standard, indicated that reception with simple antennas was
highly problematic. These reception problems prompted us to explore an
alternative transmission standard. In June 1999, we conducted a study of the
comparative ability of Coded Orthogonal Frequency Division Multiplexing (COFDM)
and 8-VSB systems to deliver HDTV service to simple consumer grade antennas both
indoors and outdoors under real-world conditions. This study demonstrated to us
that while an 8-VSB signal cannot be received reliably today with a simple
indoor antenna, use of COFDM technology eliminates interference from moving
objects and permits robust reception with simple antennas even in highly dynamic
environments. In October 1999, we filed a Petition for Rulemaking with the FCC
urging it to permit broadcasters the flexibility to use COFDM modulation as an
alternative to the current 8-VSB standard. The FCC dismissed the Petition. In
the Fall of 2000, the NAB (National Association of Broadcasters) and MSTV
(Association of Maximum Service Telecasters) conducted tests of both modulations
systems. We believe that the test of the COFDM reception was seriously flawed.
Despite this, the NAB/MSTV indicated their preference for sole reliance on 8-VSB
as the DTV modulation mode. Likewise in January 2001, the FCC issued a Report
and Order which, among other things, confirmed the FCC's adoption of 8-VSB as
the sole digital transmission standard. Absent improvement in DTV receivers, we
believe that continued reliance on the 8-VSB standard will not allow us to
provide the same reception coverage with our digital signals as we can with our
current analog signals.
We cannot predict what future actions the FCC or Congress might take with
respect to DTV, nor can we predict the effect of the FCC's present DTV
implementation plan or such future actions on our business. DTV technology
currently is available in some of the top 30 viewing markets. A successful
transition from the current analog broadcast format to a digital format may take
many years. There can be no assurance that our efforts to take advantage of the
new technology will be commercially successful.
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SINCLAIR VENTURES INVESTMENT STRATEGY
Although 2000 saw a dramatic decrease in the value of Internet-related and
wireless businesses, we continue to explore opportunities for television
broadcasters to work with Internet-related and wireless businesses to increase
the profitability of Internet-related and wireless businesses and to use the
resources of the Internet and wireless outlets to enhance the offerings and
value of broadcast stations. Accordingly, in 2000, we continued the strategy of
investing in Internet-related and wireless businesses. Our focus continues to be
to identify Internet-related and wireless businesses in which we invest to
enhance their value and to develop combined broadcast and Internet/wireless
products.
During 2000, Sinclair Ventures, Inc., our wholly owned subsidiary, acquired
equity interests in the following Internet-related and wireless companies:
Chatfish, Inc., an interactive event software and services provider; How Stuff
Works, Inc., an award-winning online destination for anyone who wants to know
how anything works; and AppForge Inc., an award-winning software company that
allows Visual Basic developers the ability to create applications for the Palm
OS platform without having to learn a new or proprietary language. Additionally,
we divested our interest in BeautyBuys.com in exchange for a reduction in the
amount of commercial inventory we are to provide to BeautyBuys.com and an
increased equity position in BeautyBuys.com's corporate parent, Synergy Brands,
Inc. Sinclair Ventures, Inc. also continues to own equity interests in G1440
Inc. (formerly NetFanatics, Inc.), an Internet development and integration
company; and VisionAIR, a developer of wireless data applications specifically
designed to enhance the productivity of field service organizations,
professional services, public safety agencies and other mobile workforces.
In furtherance of our Internet strategy, we routinely review and conduct
investigations of potential Internet-related and wireless acquisitions. When we
believe a favorable opportunity exists, we seek to enter into discussions with
the owners of Internet-related and wireless businesses regarding the possibility
of an acquisition, equity investment or barter transaction. At any given time,
we may be in discussions with one or more parties. We cannot assure you that any
of these or other negotiations will lead to definitive agreements or if
agreements are reached that any transactions would be consummated.
2000 ACQUISITIONS AND DISPOSITIONS
MONTECITO ACQUISITION. In February 1998, we entered into a Stock Purchase
Agreement with Montecito Broadcasting Corporation (Montecito) and its
stockholders to acquire all of the outstanding stock of Montecito, which owned
the FCC license for television broadcast station KFBT-TV in Las Vegas, Nevada.
The FCC granted approval of the transaction and we completed the purchase of the
outstanding stock of Montecito on April 18, 2000 for a purchase price of $33.0
million.
EMMIS DISPOSITION. In June 2000, we settled our litigation with Emmis and
former CEO-designate Barry Baker regarding the sale of our St. Louis broadcast
properties. As a result of the settlement, the purchase option of our St. Louis
broadcast properties has been terminated and a subsequent agreement was entered
into whereby we would retain our St. Louis television station, KDNL-TV, and
would sell our St. Louis radio properties to Emmis for $220.0 million. In
October 2000, we completed the sale of our St. Louis radio properties to Emmis.
ENTERCOM DISPOSITION. In August 1999, we entered into an agreement to sell
the assets of all of our radio properties to Entercom Communications Corp.,
other than those radio stations located in St. Louis, Missouri. In 1999 we
completed the sale of the majority of our radio stations to Entercom. On July
20, 2000, we completed the sale of four radio stations in Kansas City to
Entercom Communications Corp. for an aggregate purchase price of $126.6 million
in cash. In November 2000, we completed the sale of WKRF-FM in Wilkes-Barre,
Pennsylvania to Entercom for $0.6 million. The 2000 sales completed the sale to
Entercom contemplated by the August 1999 Agreement, although Entercom has
asserted a claim against us as a result of our failure to sell the stock of a
company called USA Digital Radio, Inc. (USADR) to Entercom which sale was
required by the terms of the 1999 Agreement, but which could not be consumated
as the result of the exercise of certain preemptive rights by other USADR
shareholders. In addition, as of December 31, 2000, Entercom is obligated to
purchase approximately $5.0 million of advertising time from us by December 15,
2004.
WNYO ACQUISITION. In August 2000, we entered into an agreement to purchase
the stock of Grant Television, Inc. (Grant), the owner of WNYO-TV in Buffalo,
New York, for a purchase price of $51.5 million. In October 2000, we completed
the stock acquisition of Grant, obtaining the non-license assets of WNYO-TV and
began programming the television station under a time brokerage agreement. We
will complete the purchase of the
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license and related assets of WNYO-TV upon FCC approval, which is currently
pending. An informal objection was filed with the FCC against this application
and we have filed an opposition thereto.
PENDING ACQUISITIONS AND DISPOSITIONS
GLENCAIRN/WPTT, INC. ACQUISITIONS. On November 15, 1999, we entered into an
agreement to purchase substantially all of the assets of television station
WCWB-TV, Channel 22, Pittsburgh, Pennsylvania, with the owner of that television
station WPTT, Inc. for a purchase price of $17.8 million. The waiting period
under the Hart-Scott-Rodino Antitrust Act of 1976 has expired and closing on
this transaction is subject to FCC approval. A petition to deny was filed with
the FCC against the application. We have filed an opposition to the petition to
deny, and are awaiting FCC action.
On November 15, 1999, we entered into five separate plans and agreements of
merger, pursuant to which we would acquire through merger with subsidiaries of
Glencairn, Ltd., the License Assets of the television broadcast stations
WABM-TV, Birmingham, Alabama, KRRT-TV, San Antonio, Texas, WVTV-TV, Milwaukee,
Wisconsin, WRDC-TV, Raleigh, North Carolina, and WBSC-TV (formerly WFBC-TV),
Anderson, South Carolina. The consideration for these mergers is the issuance to
Glencairn of shares of our class A common voting stock. The total value of the
shares to be issued in consideration for all the mergers is $8.0 million. A
petition to deny was filed with the FCC against these applications. We have
filed an opposition to the petition to deny and are awaiting FCC action.
We currently program each of the stations we have agreed to acquire from
WPTT, Inc. and Glencairn Ltd. pursuant to local marketing agreements. As
described more fully in the material incorporated by reference in Item 13,
officers, directors and shareholders of Sinclair (or their families) have
interests in WPTT, Inc. and Glencairn Ltd.
SULLIVAN ACQUISITION. In May 1998, we filed an application to acquire by
merger Sullivan Broadcast Company II, Inc. (Sullivan II) which is the licensee
of WZTV-TV, Nashville, Tennessee; WUTV-TV, Buffalo, New York; WXLV-TV,
Winston-Salem, North Carolina; WRLH-TV, Richmond, Virginia and WMSN-TV, Madison,
Wisconsin. A petition to deny was filed with the FCC against our application. We
have filed an opposition to the petition to deny and are awaiting FCC action.
In November 1999, we filed an application to acquire the stock of Sullivan
Broadcasting Company IV, Inc. (Sullivan IV) which has obtained FCC approval to
acquire KOKH-TV, Oklahoma City, Oklahoma from Sullivan Broadcasting Company III,
Inc. A petition was filed with the FCC against our application. We have filed an
opposition to the petition to deny and are awaiting FCC action.
We currently program each of the stations owned by Sullivan II and Sullivan
IV pursuant to local marketing agreements.
WUHF ACQUISITION. In December of 1999, we entered into a stock purchase
agreement with BS&L Broadcasting, Inc. (BS&L) and its sole shareholder to
acquire the stock of BS&L, the licensee of WUHF-TV, Rochester, New York. BS&L
acquired the license of WUHF-TV from Sullivan II. One of the conditions to our
acquisition of the stock of BS&L is the receipt of FCC approval. We have not yet
filed an application with the FCC to acquire the stock of BS&L. We currently
program WUHF-TV pursuant to a local marketing agreement.
MISSION OPTION. Pursuant to our merger with Sullivan Broadcast Holdings,
Inc., which was effective July 1, 1998, we acquired options to acquire
television broadcast station WUXP-TV in Nashville, Tennessee from Mission
Broadcasting I, Inc. and television broadcast station WUPN-TV in Greensboro,
North Carolina from Mission Broadcasting II, Inc. We currently program these
stations pursuant to LMAs. On November 15, 1999, we exercised our option to
acquire both of the foregoing stations. A petition to deny was filed with the
FCC against our application. We have filed an opposition to the petition to deny
and are awaiting FCC action.
FEDERAL REGULATION OF TELEVISION BROADCASTING
The ownership, operation and sale of television stations are subject to the
jurisdiction of the FCC, which acts under authority granted by the
Communications Act of 1934, as amended (Communications Act). Among other things,
the FCC assigns frequency bands for broadcasting; determines the particular
frequencies, locations and operating power of stations; issues, renews, revokes
and modifies station licenses; regulates equipment used by stations; adopts and
implements regulations and policies that directly or indirectly affect the
ownership, operation and employment practices of stations; and has the power to
impose penalties for violations of its rules or the Communications Act.
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The following is a brief summary of certain provisions of the
Communications Act, the Telecommunications Act of 1996 (the 1996 Act) and
specific FCC regulations and policies. Reference should be made to the
Communications Act, the 1996 Act, FCC rules and the public notices and rulings
of the FCC for further information concerning the nature and extent of federal
regulation of broadcast stations.
LICENSE GRANT AND RENEWAL
Television stations operate pursuant to broadcasting licenses that are
granted by the FCC for maximum terms of eight years and are subject to renewal
upon application to the FCC. During certain periods when renewal applications
are pending, petitions to deny license renewals can be filed by interested
parties, including members of the public. The FCC will generally grant a renewal
application if it finds:
o that the station has served the public interest, convenience and
necessity;
o that there have been no serious violations by the licensee of the
Communications Act or the rules and regulations of the FCC; and
o that there have been no other violations by the licensee of the
Communications Act or the rules and regulations of the FCC that, when
taken together, would constitute a pattern of misconduct.
All of the stations that we currently own and operate or provide
programming services to pursuant to LMAs, or intend to acquire or provide
programming services pursuant to LMAs in connection with pending acquisitions,
are presently operating under regular licenses, which expire as to each station
on the dates set forth under "Television Broadcasting" above. Although renewal
of a license is granted in the vast majority of cases even when petitions to
deny are filed, there can be no assurance that the licenses of a station will be
renewed.
OWNERSHIP MATTERS
GENERAL. The Communications Act prohibits the assignment of a broadcast
license or the transfer of control of a broadcast licensee without the prior
approval of the FCC. In determining whether to permit the assignment or transfer
of control of, or the grant or renewal of, a broadcast license, the FCC
considers a number of factors pertaining to the licensee, including compliance
with various rules limiting common ownership of media properties, the
"character" of the licensee and those persons holding "attributable" interests
in that licensee, and compliance with the Communications Act's limitations on
alien ownership.
To obtain the FCC's prior consent to assign a broadcast license or transfer
control of a broadcast licensee, appropriate applications must be filed with the
FCC. If the application involves a "substantial change" in ownership or control,
the application must be placed on public notice for a period of approximately 30
days during which petitions to deny the application may be filed by interested
parties, including members of the public. If the application does not involve a
"substantial change" in ownership or control, it is a "pro forma" application.
The "pro forma" application is not subject to petitions to deny or a mandatory
waiting period, but is nevertheless subject to having informal objections filed
against it. If the FCC grants an assignment or transfer application, interested
parties have approximately 30 days from public notice of the grant to seek
reconsideration or review of the grant. Generally, parties that do not file
initial petitions to deny or informal objections against the application face
difficulty in seeking reconsideration or review of the grant. The FCC normally
has approximately an additional 10 days to set aside such grant on its own
motion. When passing on an assignment or transfer application, the FCC is
prohibited from considering whether the public interest might be served by an
assignment or transfer to any party other than the assignee or transferee
specified in the application.
The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other association. In the
case of corporations holding, or through subsidiaries controlling, broadcast
licenses, the interests of officers, directors and those who, directly or
indirectly, have the right to vote 5% or more of the corporation's stock (or 20%
or more of such stock in the case of insurance companies, investment companies
and bank trust departments that are passive investors) are generally
attributable. In August 1999, the FCC revised its attribution and multiple
ownership rules, and adopted the equity-debt-plus rule that causes certain
creditors or investors to be attributable owners of a station. Under this rule,
a major programming supplier (any programming supplier that provides more than
15% of the station's weekly programming hours) or same-market media entity will
be an attributable owner of a station if the supplier or same-market media
entity holds debt or equity, or both, in the station that is greater than 33% of
the value of the station's total debt plus equity. For purposes of this rule,
equity includes all stock, whether voting or non-voting, and equity held by
insulated limited partners in partnerships. Debt includes all liabilities
whether long-term or short-term.
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The Communications Act prohibits the issuance of broadcast licenses to, or
the holding of a broadcast license by, any corporation of which more than 20% of
the capital stock is owned of record or voted by non-U.S. citizens or their
representatives or by a foreign government or a representative thereof, or by
any corporation organized under the laws of a foreign country (collectively,
aliens). The Communications Act also authorizes the FCC, if the FCC determines
that it would be in the public interest, to prohibit the issuance of a broadcast
license to, or the holding of a broadcast license by, any corporation directly
or indirectly controlled by any other corporation of which more than 25% of the
capital stock is owned of record or voted by aliens. The FCC has issued
interpretations of existing law under which these restrictions in modified form
apply to other forms of business organizations, including partnerships.
As a result of these provisions, the licenses granted to our subsidiaries
by the FCC could be revoked if, among other restrictions imposed by the FCC,
more than 25% of our stock were directly or indirectly owned or voted by aliens.
Sinclair and its subsidiaries are domestic corporations, and the members of the
Smith family (who together hold over 90% of the common voting rights of
Sinclair) are all United States citizens. The amended and restated articles of
incorporation of Sinclair (the amended certificate) contain limitations on alien
ownership and control that are substantially similar to those contained in the
Communications Act. Pursuant to the amended certificate, Sinclair has the right
to repurchase alien-owned shares at their fair market value to the extent
necessary, in the judgment of its board of directors, to comply with the alien
ownership restrictions.
RADIO/TELEVISION CROSS-OWNERSHIP RULE. The FCC's radio/television
cross-ownership rule (the "one to a market" rule) generally permits a party to
own a combination of up to two television stations and six radio stations
depending on the number of independent media voices in the market.
LOCAL TELEVISION/CABLE CROSS-OWNERSHIP RULE. While the 1996 Act eliminates
a previous statutory prohibition against the common ownership of a television
broadcast station and a cable system that serve the same local market, the 1996
Act leaves the current FCC rule in place. The legislative history of the Act
indicates that the repeal of the statutory ban should not prejudge the outcome
of any FCC review of the rule.
BROADCAST/DAILY NEWSPAPER CROSS-OWNERSHIP RULE. The FCC's rules prohibit
the common ownership of a radio or television broadcast station and a daily
newspaper in the same market. In October 1996, the FCC initiated a rulemaking
proceeding to determine whether it should liberalize its waiver policy with
respect to cross-ownership of a daily newspaper and one or more radio stations
in the same market.
DUAL NETWORK RULE. A network entity is permitted to operate more than one
television network, provided, however, that ABC, CBS, NBC, and/or Fox are
currently prohibited, absent a waiver, from merging with each other or with
another network television entity such as WB or UPN.
ANTITRUST REGULATION. The Department of Justice (DOJ) and the Federal Trade
Commission have increased their scrutiny of the television industry since the
adoption of the 1996 Act, and have reviewed matters related to the concentration
of ownership within markets (including LMAs) even when the ownership or LMA in
question is permitted under the laws administered by the FCC or by FCC rules and
regulations. For instance, the DOJ has for some time taken the position that an
LMA entered into in anticipation of a station's acquisition with the proposed
buyer of the station constitutes a change in beneficial ownership of the station
which, if subject to filing under the HSR Act, cannot be implemented until the
waiting period required by that statute has ended or been terminated.
Expansion of our broadcast operations on both a local and national level
will continue to be subject to the FCC's ownership rules and any changes the FCC
or Congress may adopt. Concomitantly, any further relaxation of the FCC's
ownership rules may increase the level of competition in one or more of the
markets in which our stations are located, more specifically to the extent that
any of our competitors may have greater resources and thereby be in a superior
position to take advantage of such changes.
NATIONAL OWNERSHIP RULE. No individual or entity may have an attributable
interest in television stations reaching more than 35% of the national
television viewing audience. Where an individual or entity has an attributable
interest in more than one television station in a DMA, the percentage of the
national television viewing audience encompassed within that DMA is only counted
once. Historically, VHF stations have shared a larger portion of the market than
UHF stations. Therefore, only half of the households in the market area of any
UHF station are included when calculating whether an entity or individual owns
television stations reaching more than 35% of the national television viewing
audience. All but eight of the stations owned and operated by us, or to which we
provide programming services, are UHF. Upon completion of all pending
acquisitions and
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dispositions, we will reach approximately 25% of U.S. television households or
15% taking into account the FCC's UHF discount.
DUOPOLY RULE. Under the FCC's new local television ownership rules, a party
may own two television stations in adjoining DMA, even if there is Grade B
overlap between the two stations' signals and generally may own two stations in
the same market:
o if there is no Grade B overlap between the stations; or
o if the market containing both the stations contains at least eight
separately-owned full-power television stations (the "eight voices
test") and not more than one station is among the top-four rated
stations in the market.
In addition, a party may request a waiver of the rule to acquire a second
station in the market if the station to be acquired is economically distressed
or unbuilt and there is no party who does not own a local television station who
would purchase the station for a reasonable price.
LOCAL MARKETING AGREEMENTS
A number of television stations, including certain of our stations, have
entered into what have commonly been referred to as local marketing agreements
or LMAs. While these agreements may take varying forms, one typical type of LMA
is a programming agreement between two separately owned television stations
serving a common service area, whereby the licensee of one station programs
substantial portions of the broadcast day and sells advertising time during such
program segments on the other licensee's station subject to ultimate editorial
and other controls being exercised by the latter licensee. The licensee of the
station which is being substantially programmed by another entity must maintain
complete responsibility for and control over the programming, financing,
personnel and operations of its broadcast station and is responsible for
compliance with applicable FCC rules and policies. If the FCC were to find that
the owners/licensees of the stations with which we have LMAs failed to maintain
control over their operations as required by FCC rules and policies, the
licensee of the LMA station and/or Sinclair could be fined or set for hearing,
the outcome of which could be a monetary forfeiture or, under certain
circumstances, loss of the applicable FCC license.
In the past, a licensee could own one station and program and provide other
services to another station pursuant to an LMA in the same market because LMAs
were not considered attributable interests. However, under the new ownership
rules, LMAs are now attributable where a licensee owns a television station and
programs a television station in the same market. The new rules provide that
LMAs entered into on or after November 5, 1996 have until August 5, 2001 to come
into compliance with the new ownership rules, otherwise such LMAs will
terminate. LMAs entered into before November 5, 1996 will be grandfathered until
the conclusion of the FCC's 2004 biennial review. In certain cases, parties with
grandfathered LMAs, may be able to rely on the circumstances at the time the LMA
was entered into in advancing any proposal for co-ownership of the station. We
currently program 26 television stations pursuant to LMAs. We have entered into
agreements to acquire 16 of the stations that we program pursuant to an LMA. See
"-- 2000 Acquisitions and Dispositions" and "-- Pending Acquisitions and
Dispositions". Once we acquire these stations, the LMAs will terminate. Of the
remaining 10 stations, 5 LMAs were entered into before November 5, 1996, and 5
LMAs were entered into on or after November 5, 1996. Petitions for
reconsideration of the new rules, including a petition submitted by us, were
recently denied by the FCC in a Report and Order reaffirming the eight voices
test. We have filed a Petition for Review of this action in the U.S. Court of
Appeals for the D.C. Circuit.
THE SATELLITE HOME VIEWER ACT (SHVA)
In 1988, Congress enacted SHVA which enabled satellite carriers to provide
broadcast programming to those satellite subscribers who were unable to obtain
broadcast network programming over-the-air. SHVA did not permit satellite
carriers to retransmit local broadcast television signals directly to their
subscribers. The Satellite Home Viewer Improvement Act of 1999 (SHVIA) revised
SHVA to reflect changes in the satellite and broadcasting industry. This
legislation allows satellite carriers to provide local television signals by
satellite within a station market, and requires satellite carriers to carry all
local signals in any market where it carries any local signals starting January
1, 2002. SHVIA requires all television stations to elect to exercise certain
"must carry" or "retransmission consent" rights in connection with their
carriage by satellite carriers on or before July 1, 2001. We have entered into
agreements granting the two primary satellite carriers retransmission consent to
carry all of our stations (with one exception involving one of the carriers).
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MUST-CARRY/RETRANSMISSION CONSENT
Pursuant to the Cable Act of 1992, television broadcasters are required to
make triennial elections to exercise either certain "must-carry" or
"retransmission consent" rights in connection with their carriage by cable
systems in each broadcaster's local market. By electing the must-carry rights, a
broadcaster demands carriage on a specified channel on cable systems within its
Designated Market Area, in general as defined by the Nielsen DMA Market and
Demographic Rank Report of the prior year. These must-carry rights are not
absolute, and their exercise is dependent on variables such as:
o the number of activated channels on a cable system,
o the location and size of a cable system, and
o the amount of programming on a broadcast station that duplicates the
programming of another broadcast station carried by the cable system.
Therefore, under certain circumstances, a cable system may decline to carry
a given station. Alternatively, if a broadcaster chooses to exercise
retransmission consent rights, it can prohibit cable systems from carrying its
signal or grant the appropriate cable system the authority to retransmit the
broadcast signal for a fee or other consideration. In October 1999, we elected
must-carry or retransmission consent with respect to each of our stations based
on our evaluation of the respective markets and the position of our owned or
programmed station(s) within the market. Our stations continue to be carried on
all pertinent cable systems, and we do not believe that our elections have
resulted in the shifting of our stations to less desirable cable channel
locations. Many of the agreements we have negotiated for cable carriage are
short term, subject to month-to-month extensions. Accordingly, we may need to
negotiate new long term retransmission consent agreements for our stations to
ensure carriage on those relevant cable systems for the balance of this
triennial period (i.e., through December 31, 2002).
The FCC recently determined not to apply must-carry rules to require cable
companies to carry both the analog and digital signals of local broadcasters
during the DTV transition period between 2002 and 2006 when television stations
will be broadcasting both signals. As a result of this decision by the FCC,
cable customers in our broadcast markets may not receive the station's digital
signal.
SYNDICATED EXCLUSIVITY/TERRITORIAL EXCLUSIVITY
The FCC's syndicated exclusivity rules allow local broadcast television
stations to demand that cable operators black out syndicated non-network
programming carried on "distant signals" (i.e., signals of broadcast stations,
including so-called "superstations," which serve areas substantially removed
from the cable system's local community). The FCC's network non-duplication
rules allow local broadcast network television affiliates to require that cable
operators black out duplicating network programming carried on distant signals.
However, in a number of markets in which we own or program stations affiliated
with a network, a station that is affiliated with the same network in a nearby
market is carried on cable systems in our market. This is not in violation of
the FCC's network non-duplication rules. However, the carriage of two network
stations on the same cable system could result in a decline of viewership
adversely affecting the revenues of our owned or programmed station.
DIGITAL TELEVISION
The FCC has taken a number of steps to implement digital television (DTV)
broadcasting services. The FCC has adopted an allotment table that provides all
authorized television stations with a second channel on which to broadcast a DTV
signal. The FCC has attempted to provide DTV coverage areas that are comparable
to stations' existing service areas. The FCC has ruled that television broadcast
licensees may use their digital channels for a wide variety of services such as
high-definition television, multiple standard definition television programming,
audio, data, and other types of communications, subject to the requirement that
each broadcaster provide at least one free video channel equal in quality to the
current technical standard and further subject to the requirement that
broadcasters pay a fee of 5% of gross revenues on all DTV subscription services.
DTV channels are generally located in the range of channels from channel 2
through channel 51. The FCC required that affiliates of ABC, CBS, Fox and NBC in
the top 10 television markets begin digital broadcasting by May 1, 1999 and that
affiliates of these networks in markets 11 through 30 begin digital broadcasting
by November 1999. All other commercial stations are required to begin digital
broadcasting by May 1, 2002. The majority of our stations are required to
commence digital operations by May 1, 2002. Applications for digital facilities
for all of our stations were filed by November 1, 1999. The FCC's plan calls for
the DTV transition period to end in the year 2006, at which time the FCC expects
that television broadcasters will cease non-digital broadcasting and return one
of their two channels to the government, allowing that spectrum to be recovered
for
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other uses. The FCC has been authorized by Congress to extend the December
31, 2006 deadline for reclamation of a television station's non-digital channel
if, in any given case:
o one or more television stations affiliated with ABC, CBS, NBC or Fox
in a market is not broadcasting digitally, and the FCC determines that
such stations have "exercised due diligence" in attempting to convert
to digital broadcasting, or
o less than 85% of the television households in the station's market
subscribe to a multichannel video service (cable, wireless cable or
direct-to-home broadcast satellite television (DBS)) that carries at
least one digital channel from each of the local stations in that
market, or
o less than 85% of the television households in the market can receive
digital signals off the air using either a set-top converter box for
an analog television set or a new DTV television set.
Congress directed the FCC to auction channels 60-69 for commercial and
public safety services no sooner than January 1, 2001. The planned auction of
these channels was recently postponed until August 2001 and the government is
currently considering a proposal to further delay this action, perhaps until at
least 2004. Five of our television stations currently operate their analog
facilities on channels between 60-69. Although not required to return these
channels until the end of the DTV transition period (December 31, 2006), the FCC
is encouraging broadcasters to consider surrendering these analog channels
sooner. For purpose of the return of these channels, the FCC recently requested
that Congress enact legislation which would establish December 31, 2006 as a
date certain without regard to, as is currently the case, whether or not the 85%
digital penetration referred to above has been achieved. We cannot predict the
outcome of these changes.
Congress directed the FCC to auction the remaining non-digital channels by
September 30, 2002 even though they are not to be reclaimed by the government
until at least December 31, 2006. Broadcasters are permitted to bid on the
non-digital channels in cities with populations greater than 400,000, provided
the channels are used for DTV. The FCC has initiated separate proceedings to
consider the surrender of existing television channels and how these frequencies
will be used after they are eventually recovered from broadcasters.
Implementation of digital television will also impose substantial
additional costs on television stations because of the need to replace equipment
and because some stations will need to operate at higher utility costs. There
can be no assurance that our television stations will be able to increase
revenue to offset such costs. The FCC has proposed imposing new public interest
requirements on television licensees in exchange for their receipt of DTV
channels. In addition, Congress has held hearings on broadcasters' plans for the
use of their digital spectrum.
RESTRICTIONS ON BROADCAST ADVERTISING
Advertising of cigarettes and certain other tobacco products on broadcast
stations has been banned for many years. Various states also restrict the
advertising of alcoholic beverages. FCC rules also restrict the amount and type
of advertising which can appear in programming broadcast primarily for an
audience of children twelve years old and younger.
The Communications Act and FCC rules also place restrictions on the
broadcasting of advertisements by legally qualified candidates for elective
office. Among other things,
o stations must provide "reasonable access" for the purchase of time by
legally qualified candidates for federal office,
o stations must provide "equal opportunities" for the purchase of
equivalent amounts of comparable broadcast time by opposing candidates
for the same elective office, and
o during the 45 days preceding a primary or primary run-off election and
during the 60 days preceding a general or special election, legally
qualified candidates for elective office may be charged no more than
the station's "lowest unit charge" for the same class of
advertisement, length of advertisement, and daypart.
Both the former President of the United States and the former Chairman of
the FCC have called for rules that would require broadcast stations to provide
free airtime to political candidates. We cannot predict whether or not the new
administration will adopt this position. Nor can we predict the effect of any
such requirement on our stations' advertising revenues.
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<PAGE>
PROGRAMMING AND OPERATION
GENERAL. The Communications Act requires broadcasters to serve the "public
interest." The FCC has relaxed or eliminated many of the more formalized
procedures it had developed in the past to promote the broadcast of certain
types of programming responsive to the needs of a station's community of
license. FCC licensees continue to be required, however, to present programming
that is responsive to their communities' issues, and to maintain certain records
demonstrating such responsiveness. Complaints from viewers concerning a
station's programming may be considered by the FCC when it evaluates renewal
applications of a licensee, although such complaints may be filed at any time
and generally may be considered by the FCC at any time. Stations also must pay
regulatory and application fees, and follow various rules promulgated under the
Communications Act that regulate, among other things, political advertising,
sponsorship identifications, obscene and indecent broadcasts, and technical
operations, including limits on radio frequency radiation.
During 2000, the FCC adopted rules to require broadcast licensees to create
equal employment opportunity outreach programs and maintain records and make
filing with the FCC evidencing such efforts. In January 2001, the United States
Court of Appeals for the District of Columbia Circuit vacated these rules. The
FCC subsequently issued a Public Notice suspending the outreach and
record-keeping aspects of the rules. The FCC is entitled to seek further
rehearing or appeal of the case and may attempt to promulgate new regulations
that meet the Court's concerns. We cannot predict whether the FCC will take any
of these actions or the outcome should it do so.
CHILDREN'S TELEVISION PROGRAMMING. Television stations are required to
broadcast a minimum of three hours per week of "core" children's educational
programming, which the FCC defines as programming that
o has the significant purpose of servicing the educational and
informational needs of children 16 years of age and under;
o is regularly scheduled, weekly and at least 30 minutes in duration;
and
o is aired between the hours of 7:00 a.m. and 10:00 p.m. Furthermore,
"core" children's educational programs, in order to qualify as such,
are required to be identified as educational and informational
programs over the air at the time they are broadcast, and are required
to be identified in the children's programming reports required to be
placed quarterly in stations' public inspection files and filed
quarterly with the FCC.
Additionally, television stations are required to identify and provide
information concerning "core" children's programming to publishers of program
guides. The FCC is considering whether or not to require the use of the digital
broadcast spectrum for the broadcast of additional amounts of "core" children's
programming.
TELEVISION VIOLENCE. The television industry has developed a ratings system
that has been approved by the FCC. Furthermore, the FCC requires certain
television sets to include the so-called "V-chip," a computer chip that allows
blocking of rated programming.
PENDING MATTERS
The Congress and the FCC have under consideration, and in the future may
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could affect, directly or indirectly, the operation, ownership
and profitability of our broadcast stations, result in the loss of audience
share and advertising revenues for our broadcast stations, and affect our
ability to acquire additional broadcast stations or finance such acquisitions.
In addition to the changes and proposed changes noted above, such matters may
include, for example, the license renewal process, spectrum use fees, political
advertising rates, potential restrictions on the advertising of certain products
(beer, wine and hard liquor, for example), and the rules and policies with
respect to equal employment opportunity.
Other matters that could affect our broadcast properties include
technological innovations and developments generally affecting competition in
the mass communications industry, such as direct television broadcast satellite
service, creation of Class A television services, the continued establishment of
wireless cable systems and low power television stations, digital television
technologies, the Internet and the advent of telephone company participation in
the provision of video programming service.
OTHER CONSIDERATIONS
The foregoing summary does not purport to be a complete discussion of all
provisions of the Communications Act or other congressional acts or of the
regulations and policies of the FCC. For further information, reference should
be made to the Communications Act, the 1996 Act, other congressional acts, and
15
<PAGE>
regulations and public notices promulgated from time to time by the FCC. There
are additional regulations and policies of the FCC and other federal agencies
that govern political broadcasts, advertising, equal employment opportunity, and
other matters affecting our business and operations.
ENVIRONMENTAL REGULATION
Prior to our ownership or operation of our facilities, substances or waste
that are or might be considered hazardous under applicable environmental laws
may have been generated, used, stored or disposed of at certain of those
facilities. In addition, environmental conditions relating to the soil and
groundwater at or under our facilities may be affected by the proximity of
nearby properties that have generated, used, stored or disposed of hazardous
substances. As a result, it is possible that we could become subject to
environmental liabilities in the future in connection with these facilities
under applicable environmental laws and regulations. Although we believe that we
are in substantial compliance with such environmental requirements, and have not
in the past been required to incur significant costs in connection therewith,
there can be no assurance that our costs to comply with such requirements will
not increase in the future. We presently believe that none of our properties
have any condition that is likely to have a material adverse effect on our
financial condition or results of operations.
COMPETITION
Our television stations compete for audience share and advertising revenue
with other television stations in their respective DMAs, as well as with other
advertising media, such as radio, newspapers, magazines, outdoor advertising,
transit advertising, Internet, yellow page directories, direct mail, satellite
and local cable and wireless cable systems. Some competitors are part of larger
organizations with substantially greater financial, technical and other
resources than we have.
TELEVISION COMPETITION. Competition in the television broadcasting industry
occurs primarily in individual DMAs. Generally, a television broadcasting
station in one DMA does not compete with stations in other DMAs. Our television
stations are located in highly competitive DMAs. In addition, certain of our
DMAs are overlapped by both over-the-air and cable carriage of stations in
adjacent DMAs, which tends to spread viewership and advertising expenditures
over a larger number of television stations.
Broadcast television stations compete for advertising revenues primarily
with other broadcast television stations, radio stations, cable channels and
cable system operators serving the same market. Traditional network programming
generally achieves higher household audience levels than Fox, WB and UPN
programming and syndicated programming aired by our independent station. This
can be attributed to a combination of factors, including the traditional
networks' efforts to reach a broader audience, generally better signal carriage
available when broadcasting over VHF channels 2 through 13 versus broadcasting
over UHF channels 14 through 69 and the higher number of hours of traditional
network programming being broadcast weekly. In addition, satellite carriers
which are currently providing local stations are generally not including
affiliates of the WB and UPN at this time, although as a result of the law and
contractual obligations these stations will begin to be carried on January 1,
2002 in those markets where local-into-local satellite carriage exists. However,
greater amounts of advertising time are available for sale during Fox, UPN and
WB programming and non-network syndicated programming, and as a result we
believe that our programming typically achieves a share of television market
advertising revenues greater than its share of the market's audience.
Television stations compete for audience share primarily on the basis of
program popularity, which has a direct effect on advertising rates. A large
amount of a station's prime time programming is supplied by Fox, ABC, NBC and
CBS, and to a lesser extent WB and UPN. In those periods, our affiliated
stations are totally dependent upon the performance of the networks' programs in
attracting viewers. Non-network time periods are programmed by the station
primarily with syndicated programs purchased for cash, cash and barter, or
barter-only, and also through self-produced news, public affairs and other
entertainment programming.
Television advertising rates are based upon factors which include the size
of the DMA in which the station operates, a program's popularity among the
viewers that an advertiser wishes to attract, the number of advertisers
competing for the available time, the demographic makeup of the DMA served by
the station, the availability of alternative advertising media in the DMA
including radio and cable, the aggressiveness and knowledge of sales forces in
the DMA and development of projects, features and programs that tie advertiser
messages to programming. We believe that our sales and programming strategies
allow us to compete effectively for advertising within our DMAs.
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<PAGE>
Other factors that are material to a television station's competitive
position include signal coverage, local program acceptance, network affiliation,
audience characteristics and assigned broadcast frequency. Historically, our UHF
broadcast stations have suffered a competitive disadvantage in comparison to
stations with VHF broadcast frequencies. This historic disadvantage has
gradually declined through
o carriage on cable systems,
o improvement in television receivers,
o improvement in television transmitters,
o wider use of all channel antennae,
o increased availability of programming, and
o the development of new networks such as Fox, WB and UPN.
The broadcasting industry is continuously faced with technical changes and
innovations, the popularity of competing entertainment and communications media,
changes in labor conditions, and governmental restrictions or actions of federal
regulatory bodies, including the FCC, any of which could possibly have a
material effect on a television station's operations and profits. For instance,
the FCC has established Class A television service for qualifying low power
television stations. A low power television station that qualifies for Class A
has certain rights currently accorded to full-power television stations, which
may allow them to compete more effectively with full power stations. We cannot
predict effect of Class A television stations in markets where we have
full-power television stations.
There are sources of video service other than conventional television
stations, the most common being cable television, which can increase competition
for a broadcast television station by bringing into its market distant
broadcasting signals not otherwise available to the station's audience, serving
as a distribution system for national satellite-delivered programming and other
non-broadcast programming originated on a cable system and selling advertising
time to local advertisers. Other principal sources of competition include home
video exhibition and Direct Broadcast Satellite services and multichannel
multipoint distribution services (MMDS). DBS and cable operators in particular
are competing more aggressively than in the past for advertising revenues in our
TV stations' markets. This competition could adversely affect our stations'
revenues and performance in the future.
In addition, SHVIA could also have an adverse effect on our broadcast
stations' audience share and advertising revenue because it may allow satellite
carriers to provide the signal of distant stations with the same network
affiliation as our stations to more television viewers in our markets than would
have been permitted under previous law. The legislation also allows satellite
carriers to provide local television signals by satellite within a station
market, but does not require satellite carriers to carry all local stations in a
market until 2002. Satellite carriers have decided not to carry stations
affiliated with the WB and UPN until January 1, 2002, which could adversely
affect the audience share of our stations associated with those networks in
those markets where a satellite carrier provides local television signals.
Moreover, technology advances and regulatory changes affecting programming
delivery through fiber optic telephone lines and video compression could lower
entry barriers for new video channels and encourage the development of
increasingly specialized "niche" programming. Telephone companies are permitted
to provide video distribution services via radio communication, on a common
carrier basis, as "cable systems" or as "open video systems," each pursuant to
different regulatory schemes. We are unable to predict what other video
technologies might be considered in the future, or the effect that technological
and regulatory changes will have on the broadcast television industry and on the
future profitability and value of a particular broadcast television station.
We believe that television broadcasting may be enhanced significantly by
the development and increased availability of DTV technology. This technology
has the potential to permit us to provide viewers multiple channels of digital
television over each of our existing standard channels, to provide certain
programming in a high definition television format and to deliver various forms
of data, including data on the Internet, to PCs and handheld devices. These
additional capabilities may provide us with additional sources of revenue as
well as additional competition.
While DTV technology is currently available in the top 30 viewing markets,
a successful transition from the current analog broadcast format to a digital
format may take many years. We cannot assure you that our efforts to take
advantage of the new technology will be commercially successful.
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<PAGE>
We also compete for programming, which involves negotiating with national
program distributors or syndicators that sell first-run and rerun packages of
programming. Our stations compete for exclusive access to those programs against
in-market broadcast station competitors for syndicated products. Cable systems
generally do not compete with local stations for programming, although various
national cable networks from time to time have acquired programs that would have
otherwise been offered to local television stations. Public broadcasting
stations generally compete with commercial broadcasters for viewers but not for
advertising dollars.
Historically, the cost of programming has increased because of an increase
in the number of new independent stations and a shortage of quality programming.
However, we believe that over the past five years program prices generally have
stabilized or fallen on a per station basis, but aggregate programming costs
have risen as we have attempted to improve the quality of our stations'
programming line-ups.
We believe we compete favorably against other television stations because
of our management skill and experience, our ability historically to generate
revenue share greater than our audience share, our network affiliations and our
local program acceptance. In addition, we believe that we benefit from the
operation of multiple broadcast properties, affording us certain
non-quantifiable economies of scale and competitive advantages in the purchase
of programming.
EMPLOYEES
As of December 31, 2000, we had approximately 3,500 employees. With the
exception of certain employees of eight of our television stations (totaling
approximately 270 employees), none of our employees are represented by labor
unions under any collective bargaining agreement. We have not experienced any
significant labor problems and consider our overall labor relations to be good.
Due to our early voluntary retirement plan, as well as a reduction in
force, which was instituted in early 2001, as of February 28, 2001, we had
approximately 3,300 employees.
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ITEM 2. PROPERTIES
Generally, each of our stations has facilities consisting of offices,
studios and tower sites. Transmitter and tower sites are located to provide
maximum signal coverage of our stations' markets. The following is a summary of
our principal owned and leased real properties as we believe that no one
property represents a material amount of the total properties owned or leased.
<TABLE>
<CAPTION>
OWNED LEASED
----- ------
<S> <C> <C>
Office and Studio Building ........... 596,000 sq. ft 375,000 sq. ft
Office and Studio Land ............... 67 acres --
Transmitter Building Site ............ 75,000 sq. ft 21,000 sq. ft
Transmitter and Tower Land ........... 1,019 acres 307 acres
</TABLE>
We believe that all of our properties, both owned and leased, are generally
in good operating condition, subject to normal wear and tear, and are suitable
and adequate for our current business operations.
ITEM 3. LEGAL PROCEEDINGS
Lawsuits and claims are filed against us from time to time in the ordinary
course of business. These actions are in various preliminary stages and no
judgments or decisions have been rendered by hearing boards or courts. We do not
believe that these actions, individually or in the aggregate, will have a
material adverse affect on our financial condition or results of operations. In
addition to certain actions arising in the ordinary course, one potential action
relating to the disposition of assets has been asserted as described more fully
in "Item 1 - Business - 2000 Acquisitions and Dispositions."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our stockholders during the fourth
quarter of 2000.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our class A common stock is listed for trading on the NASDAQ stock market
under the symbol SBGI. The following table sets forth for the periods indicated
the high and low sales prices on the NASDAQ stock market.
<TABLE>
<CAPTION>
1999 HIGH LOW
- ---- ---- ---
<S> <C> <C> <C> <C>
First Quarter ............................ $ 20.125 $ 13.250
Second Quarter ........................... 17.000 9.250
Third Quarter ............................ 21.500 9.000
Fourth Quarter ........................... 12.875 7.938
2000 HIGH LOW
- ---- ---- ---
First Quarter ............................ $ 12.438 $ 7.750
Second Quarter ........................... 11.375 7.000
Third Quarter ............................ 13.750 9.750
Fourth Quarter ........................... 10.938 8.125
</TABLE>
As of March 20, 2001, there were approximately 91 stockholders of record of
our common stock. This number does not include beneficial owners holding shares
through nominee names. Based on information available to us, we believe we have
more than 5,000 beneficial owners of our class A common stock.
We generally have not paid a dividend on our common stock and do not expect
to pay dividends on our common stock in the foreseeable future. Our 1998 bank
credit agreement and some of our subordinated debt instruments generally
prohibits us from paying dividends on our common stock. Under the indentures
governing our 10% senior subordinated notes due 2005, 9% senior subordinated
notes due 2007 and 8 3/4% senior subordinated notes due 2007, we are not
permitted to pay dividends on our common stock unless certain specified
conditions are satisfied, including that
o no event of default then exists under the indenture or certain other
specified agreements relating to our indebtedness and
o we, after taking account of the dividend, are in compliance with
certain net cash flow requirements contained in the indenture. In
addition, under certain of our senior unsecured debt, the payment of
dividends is not permissible during a default thereunder.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data for the years ended December 31,
1996, 1997, 1998, 1999 and 2000 have been derived from our audited consolidated
financial statements. The consolidated financial statements for the years ended
December 31, 1998, 1999 and 2000 are included elsewhere in this report.
The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements included elsewhere in this report.
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<PAGE>
STATEMENT OF OPERATIONS DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net broadcast revenues (a) ...................... $ 308,888 $ 407,410 $ 564,727 $ 670,252 $ 727,017
Barter revenues ................................. 29,707 42,468 59,697 63,387 57,351
Other revenues .................................. -- -- -- -- 4,494
----------- ----------- ----------- ----------- -----------
Total revenues .................................. 338,595 449,878 624,424 733,639 788,862
----------- ----------- ----------- ----------- -----------
Operating costs (b) ............................. 117,129 153,935 220,538 283,334 329,489
Expenses from barter arrangements ............... 25,189 38,114 54,067 57,561 51,300
Depreciation and amortization (c) ............... 113,848 137,286 177,224 224,553 250,613
Stock-based compensation ........................ 739 1,410 2,908 2,494 1,801
Cumulative adjustment for change
in assets held for sale ....................... -- -- -- -- 619
----------- ----------- ----------- ----------- -----------
Operating income ................................ 81,690 119,133 169,687 165,697 155,040
Interest expense ................................ (84,314) (98,393) (138,952) (178,281) (148,906)
Subsidiary trust minority
interest expense (d) ......................... -- (18,600) (23,250) (23,250) (23,250)
Gain (loss) on sale of broadcast
assets ....................................... -- -- 1,232 (418) --
Unrealized (loss) gain on
derivative instrument ........................ -- -- (9,050) 15,747 (296)
Loss related to investments ..................... -- -- -- (504) (16,764)
Interest and other income ....................... 3,478 2,231 6,694 3,990 3,217
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes ............... 854 4,371 6,361 (17,019) (30,959)
Provision for income taxes ...................... (4,130) (13,201) (32,562) (25,107) (4,816)
----------- ----------- ----------- ----------- -----------
Net loss from continuing operations ............. (3,276) (8,830) (26,201) (42,126) (35,775)
Discontinued Operations:
Net income from discontinued
operations, net of related income
taxes ........................................ 4,407 4,466 14,102 17,538 4,876
Gain (loss) on sale of broadcast
assets, net of related income
taxes ........................................ -- (132) 6,282 192,372 108,264
Extraordinary item:
Loss on early extinguishment of debt
net of related income tax benefit ............ -- (6,070) (11,063) -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) ............................... $ 1,131 $ (10,566) $ (16,880) $ 167,784 $ 77,365
=========== =========== =========== =========== ===========
Net income (loss) available to
common shareholders .......................... $ 1,131 $ 13,329 $ (27,230) $ 157,434 $ 67,015
=========== =========== =========== =========== ===========
OTHER DATA:
Broadcast cash flow (e) ......................... $ 175,211 $ 221,631 $ 305,304 $ 332,307 $ 338,909
Broadcast cash flow margin (f) .................. 56.7% 54.4% 54.1% 49.6% 46.6%
Adjusted EBITDA (g) ............................. $ 167,441 $ 209,220 $ 288,712 $ 313,271 $ 316,352
Adjusted EBITDA margin (f) ...................... 54.2% 51.4% 51.1% 46.7% 43.5%
After tax cash flow (h) ......................... $ 77,484 $ 104,884 $ 149,759 $ 137,245 $ 145,469
Program contract payments ....................... 28,836 48,609 61,107 79,473 94,303
Corporate overhead expense ...................... 7,770 12,411 16,592 19,036 22,557
Capital expenditures ............................ 12,609 19,425 19,426 30,861 33,256
Cash flows from operating activities ............ 69,298 96,625 150,480 130,665 69,127
Cash flows from (used in) investing activities .. (1,019,853) (218,990) (1,812,682) 452,499 209,820
Cash flows from (used in) financing
activities ................................... 840,446 259,351 1,526,143 (570,024) (291,264)
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<PAGE>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
PER SHARE DATA:
Basic loss per share from
continuing operations .................... $ (0.05) $ (0.16) $ (0.39) $ (0.54) $ (0.50)
Basic earnings per share from
discontinued operations .................. $ 0.06 $ 0.06 $ 0.22 $ 2.17 1.24
Basic loss per share from extraordinary
item ..................................... $ -- $ (0.08) $ (0.12) $ -- $ --
Basic net income (loss) per share .......... $ 0.02 $ (0.19) $ (0.29) $ 1.63 $ .73
Diluted loss per share from
continuing operations .................... $ (0.05) $ (0.16) $ (0.39) $ (0.54) $ (0.50)
Diluted earnings per share from
discontinued operations .................. $ 0.06 $ 0.06 $ 0.22 $ 2.17 $ 1.24
Diluted loss per share from
extraordinary item ....................... $ -- (0.08) $ (0.12) $ -- $ --
Diluted net income (loss) per share ........ $ 0.02 $ (0.19) $ (0.29) $ 1.63 $ .73
BALANCE SHEET DATA:
Cash and cash equivalents .................. $ 2,341 $ 139,327 $ 3,268 $ 16,408 $ 4,091
Total assets ............................... 1,707,297 2,034,234 3,852,752 3,619,510 3,400,640
Total debt (i) ............................. 1,288,103 1,080,722 2,327,221 1,792,339 1,616,426
HYTOPS (j) ................................. -- 200,000 200,000 200,000 200,000
Total stockholder's equity ................. 237,253 534,288 816,043 974,917 912,530
</TABLE>
- -------------------------------------------------------------------------------
(a) "Net broadcast revenues" are defined as broadcast revenues net of agency
commissions.
(b) Operating costs include program and production expenses and selling,
general and admininstrative expenses.
(c) Depreciation and amortization includes amortization of program contract
costs and net realizable value adjustments, depreciation and amortization
of property and equipment, and amortization of acquired intangible
broadcasting assets and other assets including amortization of deferred
financing costs related to excess syndicated programming.
(d) Subsidiary trust minority interest expense represents the distributions on
the HYTOPS. See footnote j.
(e) "Broadcast cash flow" (BCF) is defined as operating income plus corporate
expenses, selling, general and administrative expenses related to internet
operations, special bonuses paid to executive officers, stock-based
compensation, depreciation and amortization (including film amortization
and amortization of deferred compensation), cumulative adjustment for
change in assets held for sale, less other revenue and cash payments for
program rights. Cash program payments represent cash payments made for
current programs payable and do not necessarily correspond to program
usage. We have presented BCF data, which we believe is comparable to the
data provided by the other companies in the industry, because such data are
commonly used as a measure of performance for broadcast companies; however,
there can be no assurance that it is comparable. However, BCF does not
purport to represent cash provided by operating activities as reflected in
our consolidated statements of cash flows and is not a measure of financial
performance under generally accepted accounting principles. In addition,
BCF should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with generally accepted accounting
principles. Management believes the presentation of BCF is relevant and
useful because 1) it is a measurement utilized by lenders to measure our
ability to service our debt, 2) it is a measurement utilized by industry
analysts to determine a private market value of our television stations and
3) it is a measurement industry analysts utilize when determining our
operating performance.
(f) "Broadcast cash flow margin" is defined as broadcast cash flow divided by
net broadcast revenues. "Adjusted EBITDA margin" is defined as Adjusted
EBITDA divided by net broadcast revenues.
(g) "Adjusted EBITDA" is defined as broadcast cash flow less corporate expenses
and is a commonly used measure of performance for broadcast companies. We
have presented Adjusted EBITDA data, which we believe is comparable to the
data provided by other companies in the industry, because such data are
commonly used as a measure of performance for broadcast companies; however,
there can be no assurances that it is comparable. Adjusted EBITDA does not
purport to represent cash provided by operating activities as reflected in
our consolidated statements of cash flows and is not a measure of financial
performance under generally accepted accounting principles. In addition,
Adjusted EBITDA should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with generally accepted
accounting principles. Management believes the presentation of Adjusted
EBITDA is relevant and useful because 1) it is a measurement utilized by
lenders to measure our ability to service our debt, 2) it is a measurement
utilized by industry analysts to determine a private market value of our
television stations and 3) it is a measurement industry analysts utilize
when determining our operating performance.
(h) "After tax cash flow" (ATCF) is defined as net income (loss) available to
common shareholders, plus extraordinary items (before the effect of related
tax benefits) plus depreciation and amortization (excluding film
amortization), stock-based compensation, the cumulative adjustment for
change in assets held for sale, the loss of equity investments (or minus
the gain), unrealized loss on derivative instrument (or minus the gain),
the deferred tax provision related to operations or minus the deferred tax
benefit, and minus the gain on sale of assets and deferred NOL carry backs.
We have presented after tax cash flow data, which we believe is comparable
to the data provided by other companies in the industry, because such data
are commonly used as a measure of perfomance for broadcast companies;
however, there can
22
<PAGE>
be no assurances that it is comparable. ATCF is presented here not as a
measure of operating results and does not purport to represent cash
provided by operating activities. ATCF should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles. Management
believes the presentation of ATCF is relevant and useful because ATCF is a
measurement utilized by industry analysts to determine a public market
value of our television stations and ATCF is a measurement analysts utilize
when determining our operating performance.
(i) "Total debt" is defined as long-term debt, net of unamortized discount, and
capital lease obligations, including current portion thereof. Total debt
does not include the HYTOPS or our preferred stock.
(j) HYTOPS represents our Obligated Mandatorily Redeemable Security of
Subsidiary Trust Holding Solely KDSM Senior Debentures representing $200
million aggregate liquidation value.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
We are a diversified broadcasting company that owns and operates or
provides programming services pursuant to LMAs to more television stations than
all but one other commercial broadcasting group in the United States. We
currently own and operate, or provide programming services pursuant to LMAs to
62 television stations in 40 markets. During 1999, we sold the majority of our
radio stations and during 2000, we sold our remaining 11 radio stations. In
addition, we own equity interests in several Internet-related companies and have
a strategic alliance with a manufacturer of transmitters and other broadcast
equipment.
Our operating revenues are derived from local and national advertisers and,
to a much lesser extent, from political advertisers and television network
compensation. Our revenues from local advertisers have continued to trend upward
and revenues from national advertisers have continued to trend downward when
measured as a percentage of gross broadcast revenue. We believe this trend is
primarily resulting from our focus on increasing local ad revenues as a
percentage of total ad revenues and from an increase in the number of media
outlets providing national advertisers a means by which to advertise their goods
or services. Our efforts to mitigate this trend include continuing our efforts
to increase local revenues and the development of innovative marketing
strategies to sell traditional and non-traditional services to national
advertisers.
Our primary operating expenses involved in owning, operating or programming
the television stations are syndicated program rights fees, commissions on
revenues, employee salaries, and news-gathering and station promotional costs.
Amortization and depreciation of costs associated with the acquisition of the
stations and interest carrying charges are significant factors in determining
our overall profitability.
23
<PAGE>
Set forth below are the principal types of broadcast revenues received
by our stations for the periods indicated and the percentage contribution of
each type to our total gross broadcast revenues:
BROADCAST REVENUE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1998 1999 2000
----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Local/regional advertising $ 317,285 48.4% $ 397,047 51.1% $ 423,902 50.3%
National advertising ..... 296,864 45.3% 354,257 45.6% 366,681 43.5%
Network compensation ..... 18,203 2.8% 19,186 2.5% 17,657 2.1%
Political advertising .... 20,422 3.1% 3,157 0.4% 30,326 3.6%
Production ............... 2,617 0.4% 3,530 0.4% 4,030 0.5%
--------- --------- --------- --------- --------- ---------
Broadcast revenues ....... 655,391 100.0% 777,177 100.0% 842,596 100.0%
========= ========= =========
Less: agency commissions . (90,664) (106,925) (115,579)
--------- --------- ---------
Broadcast revenues, net .. 564,727 670,252 727,017
Barter revenues .......... 59,697 63,387 57,351
Other revenues ........... -- -- 4,494
--------- --------- ---------
Total revenues ........... $ 624,424 $ 733,639 $ 788,862
========= ========= =========
</TABLE>
Our primary types of programming and their approximate percentages of 2000
net broadcast revenues were syndicated programming (49.2%), network programming
(29.0%), news (12.3%), direct advertising programming (5.8%), sports programming
(2.2%) and children's programming (1.1%). Similarly, our five largest categories
of advertising and their approximate percentages of 2000 net broadcast revenues
were automotive (21.5%), fast food advertising (8.7%), professional services
(6.9%), retail department stores (6.7%), and paid programming (6.0%). No other
advertising category accounted for more than 5% of our net broadcast revenues in
2000. No individual advertiser accounted for more than 2% of our consolidated
net broadcast revenues in 2000.
24
<PAGE>
The following table sets forth certain of our operating data for the years
ended December 31, 1998, 1999 and 2000. For definitions of items, see footnotes
to table in "Item 6. Selected Financial Data".
OPERATING DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Net broadcast revenue ............................ $ 564,727 $ 670,252 $ 727,017
Barter revenues .................................. 59,697 63,387 57,351
Other revenues ................................... -- -- 4,494
----------- ----------- -----------
Total revenues ................................... 624,424 733,639 788,862
----------- ----------- -----------
Operating costs .................................. 220,538 283,334 329,489
Expenses from barter arrangements ................ 54,067 57,561 51,300
Depreciation and amortization .................... 177,224 224,553 250,613
Stock-based compensation ......................... 2,908 2,494 1,801
Cumulative adjustment for assets held for sale ... -- -- 619
----------- ----------- -----------
Operating income ................................. $ 169,687 $ 165,697 $ 155,040
=========== =========== ===========
Net income (loss) ................................ $ (16,880) $ 167,784 $ 77,365
=========== =========== ===========
Net income (loss) available to common shareholders $ (27,230) $ 157,434 $ 67,015
=========== =========== ===========
OTHER DATA:
Broadcast cash flow .............................. $ 305,304 $ 332,307 $ 338,909
BCF margin ....................................... 54.1% 49.6% 46.6%
Adjust EBITDA .................................... $ 288,712 $ 313,271 $ 316,352
Adjusted EBITDA margin ........................... 51.1% 46.7% 43.5%
After tax cash flow .............................. $ 149,759 $ 137,245 $ 145,469
Program contract payments ........................ 61,107 79,473 94,303
Corporate expense ................................ 16,592 19,036 22,557
Capital expenditures ............................. 19,426 30,861 33,256
Cash flows from operating activities ............. 150,480 130,665 69,127
Cash flows from (used in) investing activities ... (1,812,682) 452,499 209,820
Cash flows from (used in) financing activities ... 1,526,143 (570,024) (291,264)
</TABLE>
25
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
YEARS ENDED DECEMBER 31, 2000 AND 1999
Net broadcast revenues increased $56.7 million to $727.0 million for the
year ended December 31, 2000 from $670.3 million for the year ended December 31,
1999, or 8.5%. The increase in net broadcast revenue for the year ended December
31, 2000 as compared to the year ended December 31, 1999 comprised of $26.2
million related to businesses acquired or disposed of by us in 1999 and 2000
(collectively the 1999 and 2000 Transactions) and a $30.5 million increase in
net broadcast revenues on a same station basis, representing a 4.7% increase
over the prior year's net broadcast revenue for these stations. The increase in
net broadcast revenues on a same station basis for the year ended December 31,
2000 as compared to the year ended December 31, 1999 primarily resulted from an
increase in political revenues and an increase in revenues from our WB
affiliates.
Other revenue for the year ended December 31, 2000 resulted from revenues
derived from G1440, Inc., our majority owned internet company which provides
e-business solutions to various clients.
Total operating costs increased $46.2 million to $329.5 million for the
year ended December 31, 2000 from $283.3 million for the year ended December 31,
1999, or 16.3%. The increase in operating costs for the year ended December 31,
2000 as compared to the year ended December 31, 1999 comprised of $23.3 million
related to the 1999 and 2000 Transactions, $3.6 million related to an increase
in corporate overhead expenses, and $19.3 million related to an increase in
operating costs on a same station basis, representing a 7.9% increase over the
prior year's operating costs for those stations. The increase in corporate
overhead expenses for the year ended December 31, 2000 related to our Internet
business development and digital television technology investments which were
not incurred during the same period in 1999. The increase in operating costs on
a same station basis primarily resulted from costs incurred during 2000 related
to our agreements with the Fox and WB networks which were not incurred during
the same period of 1999. Our payments to the Fox network related to the purchase
of additional prime time inventory and our payments to the WB network related to
our agreement with the network which requires us to make payments as ratings
increase. We expect to incur these costs in future periods. In addition, we
experienced an increase in commission rates due to an increase in the number of
local account executives during the year. The increased number of account
executives is part of our strategy to increase the percentage of our revenues
derived from local advertising. See "Item 1. Business -- Television Broadcasting
(Innovative Local Sales and Marketing)". As a result of a voluntary early
retirement plan as well as a reduction in force, each of which was instituted in
early 2001, we anticipate a decrease of approximately 186 employees and to incur
a restructuring charge of approximately $2.5 million during the first quarter of
2001.
Depreciation and amortization increased $26.0 million to $250.6 million for
the year ended December 31, 2000 from $224.6 million for the year ended December
31, 1999. The increase in depreciation and amortization related to fixed asset,
intangible asset, and program contract additions associated with the 1999 and
2000 Transactions and program contract additions related to our investment to
upgrade our programming.
Interest expense decreased $29.4 million to $148.9 million for the year
ended December 31, 2000 from $178.3 million for the year ended December 31,
1999, or 16.5%. The decrease in interest expense for the year ended
December 31, 2000 as compared to the year ended December 31, 1999 primarily
resulted from the reduction of our indebtedness using the proceeds from the
disposition of our radio broadcast assets in December 1999 and during 2000.
Subsidiary trust minority interest expense of $23.3 million for the year
ended December 31, 2000 is related to the private placement of the $200
million aggregate liquidation value 11 5/8% high yield trust offered
preferred securities (the HYTOPS) completed March 12, 1997.
Interest and other income decreased to $3.2 million for the year ended
December 31, 2000 from $4.0 million for the year ended December 31, 1999. This
decrease was primarily due to the decrease in the average cash balance during
the 2000 fiscal year as compared to the same period in 1999.
Loss related to investments increased to $16.8 million for the year ended
December 31, 2000 as compared to $0.5 million for the year ended December 31,
1999. The increase in loss related to investments for the year ended December
31, 2000 as compared to the year ended December 31, 1999 primarily relates to a
loss of $10.1 million recognized during 2000 as a result of our write-off of our
investment in Acrodyne Communications, Inc. (Acrodyne), of which we hold
approximately a 35% equity interest. Acrodyne, which manufactures transmitters
and other broadcast equipment, announced in August 2000 that it would be
restating its financial statements for the year ended December 31, 1999 and for
the three months ended March 31, 2000 due to a restatement of inventory balances
and gross profits for these periods. Acrodyne was delisted from NASDAQ as they
have not
26
<PAGE>
yet completed these restatements. No assurance can be made that we will not
incur future losses related to our investment in Acrodyne. See "Risk Factors -
Our investment in Acrodyne Communications, Inc. may not deliver the value we
paid or reach our strategic objections". We also recognized a loss of $3.7
million related to our investment in BeautyBuys.com, which includes $2.7 million
related to an agreement we entered into with BeautyBuys.com and Icon
International (Icon). Under the terms of this agreement, BeautyBuys.com would
transfer and sell to Icon its remaining amount of advertising and promotional
support to be received from us for a combination of $2.7 million in cash and
certain trade credits from Icon. The cash received by BeautyBuys.com from Icon
represents a measurement of the value of the future advertising we will need to
provide to Icon and was recognized as expense during the fourth quarter of 2000.
In addition, we recognized a loss of $2.2 million on our investment in Channel
23, LLC in Tuscaloosa, Alabama.
Net income from discontinued operations, net of taxes, decreased to $4.9
million for the year ended December 31, 2000 from $17.5 million for the year
ended December 31, 1999. The decrease in net income from discontinued
operations, net of taxes for the year ended December 31, 2000 as compared to the
year ended December 31, 1999 primarily resulted from the disposition of our
radio broadcast assets in December 1999 and during 2000.
Net income decreased for the year ended December 31, 2000 to $77.4 million
or $0.73 per share from $167.8 million or $1.63 per share for the year ended
December 31, 1999. The decrease in net income for the year ended December 31,
2000 as compared to the year ended December 31, 1999 was primarily due to a
decrease in net income and gain on sale of radio broadcast assets related to
discontinued operations, an increase in operating costs, an increase in
depreciation and amortization, a decrease in gain (loss) on derivative
instrument, and an increase in loss from equity investments offset by an
increase in net broadcast revenues and a decrease in interest expense.
As noted above, our net income for the year ended December 31, 2000
included recognition of an unrealized loss of $0.3 million on a treasury option
derivative instrument. Upon execution of the treasury option derivative
instrument, we received a cash payment of $9.5 million. The treasury option
derivative instrument required us to make five annual payments equal to the
difference between 6.14% minus the interest rate yield on five-year treasury
securities on September 30, 2000 times the $300 million notional amount of the
instrument. Upon the termination of the treasury option derivative instrument,
we made a one-time cash settlement payment of $3.0 million which was equal to
the difference between the strike price (6.14%) and the settlement rate (5.906%)
multiplied by the $300 million notional amount of the instrument discounted over
a five-year period. We realized a $6.4 million cash profit over the life of the
transaction.
Broadcast cash flow increased $6.6 million to $338.9 million for the year
ended December 31, 2000 from $332.3 million for the year ended December 31,
1999, or 2.0%. The increase in broadcast cash flow for the year ended December
31, 2000 as compared to the year ended December 31, 1999 was comprised of $7.4
million related to the 1999 and 2000 Transactions offset by a $0.8 million
decrease in broadcast cash flow on a same station basis, representing a 0.3%
decrease over the prior year's broadcast cash flow for those stations. This
decrease in broadcast cash flow on a same station basis primarily resulted from
an increase in operating expenses and film payments offset by an increase in net
broadcast revenues. Our broadcast cash flow margin decreased to 46.6% for the
year ended December 31, 2000 from 49.6% for the year ended December 31, 1999. On
a same station basis, broadcast cash flow margin decreased from 50.0% for the
year ended December 31, 1999 to 47.7% for the year ended December 31, 2000. The
decrease in broadcast cash flow margin for the year ended December 31, 2000 as
compared to the year ended December 31, 1999 primarily resulted from an increase
in operating expenses and film payments offset by an increase in net broadcast
revenues.
Adjusted EBITDA represents broadcast cash flow less corporate expenses.
Adjusted EBITDA increased $3.1 million to $316.4 million for the year ended
December 31, 2000 from $313.3 million for the year ended December 31, 1999, or
1.0%. The increase in adjusted EBITDA for the year ended December 31, 2000 as
compared to the year ended December 31, 1999 resulted from the 1999 and 2000
Transactions offset by a $3.6 million increase in corporate overhead expenses,
as described above. Our adjusted EBITDA margin decreased to 43.5% for the year
ended December 31, 2000 from 46.7% for the year ended December 31, 1999. This
decrease in adjusted EBITDA margin resulted primarily from the circumstances
affecting broadcast cash flow margins as noted above combined with an increase
in corporate expenses.
After tax cash flow increased $8.3 million to $145.5 million for the year
ended December 31, 2000 from $137.2 million for the year ended December 31,
1999, or 6.0%. The increase in after tax cash flow for the year ended December
31, 2000 as compared to the year ended December 31, 1999 primarily resulted from
an increase
27
<PAGE>
in net broadcast revenues, a decrease in interest expense and a decrease in
current taxes offset by an increase in amortization of program contracts as a
result of our investment to upgrade our television programming and a decrease in
earnings from discontinued operations resulting from the disposition of our
radio broadcast assets in December 1999 and during 2000.
YEARS ENDED DECEMBER 31, 1999 AND 1998
Net broadcast revenues increased $105.6 million to $670.3 million for the
year ended December 31, 1999 from $564.7 million for the year ended December 31,
1998, or 18.7%. The increase in net broadcast revenue for the year ended
December 31, 1999 as compared to the year ended December 31, 1998 comprised of
$106.9 million related to businesses acquired or disposed of by us in 1998 and
1999 (collectively the 1998 and 1999 Transactions) offset by a $1.3 million
decrease in net broadcast revenues on a same station basis, representing a 0.3%
decrease over prior year's net broadcast revenue for these stations. On a same
station basis, revenues were negatively impacted by a decrease in revenues in
the Raleigh, Norfolk and Sacramento markets. Our television stations in the
Raleigh and Norfolk markets experienced a decrease in ratings which resulted in
a loss in revenues and market revenue share primarily due to the loss of their
affiliation agreements with Fox, which expired on August 31, 1998. In the
Sacramento market, revenues decreased for the year ended December 31, 1999 as
compared to the same period in 1998 due to the absence of political and Olympics
revenues experienced during 1998.
On a same station basis, our national revenues decreased approximately 4.0%
and our local revenues increased approximately 4.2%. Our revenues from local
advertisers have continued to trend upward and revenues from national
advertisers have continued to trend downward when measured as a percentage of
total broadcast revenue. We believe this trend is primarily resulting from an
increase in the number of media outlets providing national advertisers a means
by which to advertise their goods or services.
Total operating costs increased $62.8 million to $283.3 million for the
year ended December 31, 1999 from $220.5 million for the year ended December 31,
1998, or 28.5%. The increase in operating costs for the year ended December 31,
1999 as compared to the year ended December 31, 1998 comprised of $55.4 million
related to the 1998 and 1999 Transactions, $2.4 million related to an increase
in corporate overhead expenses, and $5.0 million related to an increase in
operating costs on a same station basis, representing a 3.5% increase over prior
year's operating costs for those stations. The increase in corporate overhead
expenses for the year ended December 31, 1999 primarily resulted from an
increase in legal fees and an increase in salary costs incurred to manage a
larger base of operations. The increase in operating costs on a same station
basis primarily resulted from costs incurred during 1999 related to our
agreements with the Fox and WB networks which were not incurred in 1998. Our
payments to the Fox network related to the purchase of additional prime time
inventory and our payments to the WB network related to our agreement with the
network which requires us to make payments as ratings increase. We expect to
incur these costs in future periods. In addition, we experienced an increase in
commissions due to a larger number of local account executives. The increased
number of account executives is part of our strategy to increase the percentage
of our revenues derived from local advertising and we expect this to increase
further in 2000 as we add additional account executives. See "Item 1. Business
- -- Television Broadcasting (Innovative Local Sales and Marketing)".
Depreciation and amortization increased $47.4 million to $224.6 million for
the year ended December 31, 1999 from $177.2 million for the year ended December
31, 1998. The increase in depreciation and amortization was related to fixed
asset, intangible asset, and program contract additions associated with the 1998
and 1999 Transactions.
Interest expense increased $39.3 million to $178.3 million for the year
ended December 31, 1999 from $139.0 million for the year ended December 31,
1998, or 28.3%. The increase in interest expense for the year ended December 31,
1999 as compared to the year ended December 31, 1998 primarily resulted from
higher interest expense related to acquisitions closed in the second half of
1998 and a high applicable interest rate margin for borrowing under our bank
credit agreement. Subsidiary trust minority interest expense of $23.3 million
for the year ended December 31, 1999 is related to the private placement of the
$200 million aggregate liquidation value 11 5/8% high yield trust offered
preferred securities (the HYTOPS) completed March 12, 1997.
Interest and other income decreased to $4.0 million for the year ended
December 31, 1999 from $6.7 million for the year ended December 31, 1998. This
decrease was primarily due to the decrease in the average cash balance during
the 1999 fiscal year as compared to the same period in 1998.
28
<PAGE>
Net income for the year ended December 31, 1999 was $167.8 million or $1.63
per share compared to a net loss of $16.9 million or $0.29 per share for the
year ended December 31, 1998. The change in net income for the year ended
December 31, 1999 as compared to the net loss for the year ended December 31,
1998 was primarily due to the gain on the sale of radio broadcast assets related
to discontinued operations. In addition, the change in net income for the year
ended December 31, 1999 as compared to the net loss for the year ended December
31, 1998 was also attributable to the recognition of an unrealized gain on a
treasury option derivative instrument, offset by an increase in interest
expense.
As noted above, our net income for the year ended December 31, 1999
included recognition of an unrealized gain of $15.7 million on a treasury option
derivative instrument. Upon execution of the treasury option derivative
instrument, we received a cash payment of $9.5 million. The treasury option
derivative instrument will require us to make five annual payments equal to the
difference between 6.14% minus the interest rate yield on five-year treasury
securities on September 30, 2000 times the $300 million notional amount of the
instrument. If the yield on five-year treasuries is equal to or greater than
6.14% on September 30, 2000, we will not be required to make any payment under
the terms of this instrument. If the rate is below 6.14% on that date, we will
be required to make payments, as described above, and the size of the payment
will increase as the rate goes down. Each year, we recognize income or expense
equal to the change in the projected liability under this arrangement based on
interest rates at the end of the year. If the yield on five year treasuries at
September 30, 2000 were to equal the two year forward five year treasury rate on
December 31, 1999 for treasuries settled on September 30, 2000, we would not be
required to make payments.
Broadcast cash flow increased $27.0 million to $332.3 million for the year
ended December 31, 1999 from $305.3 million for the year ended December 31,
1998, or 8.8%. The increase in broadcast cash flow for the year ended December
31, 1999 as compared to the year ended December 31, 1998 was comprised of $36.0
million related to the 1998 and 1999 Transactions offset by a $9.0 million
decrease in broadcast cash flow on a same station basis, representing a 4.1%
decrease over prior year's broadcast cash flow for those stations. This decrease
in broadcast cash flow on a same station basis primarily resulted from an
increase in operating expenses and film payments combined with a slight decrease
in net broadcast revenues. Our broadcast cash flow margin decreased to 49.6% for
the year ended December 31, 1999 from 54.1% for the year ended December 31,
1998. On a same station basis, broadcast cash flow margin decreased from 52.9%
for the year ended December 31, 1998 to 50.9% for the year ended December 31,
1999. The decrease in broadcast cash flow margin for the year ended December 31,
1999 as compared to the year ended December 31, 1998 primarily resulted from an
increase in operating expenses and film payments combined with a slight decrease
in net broadcast revenues.
Adjusted EBITDA represents broadcast cash flow less corporate expenses.
Adjusted EBITDA increased $24.6 million to $313.3 million for the year ended
December 31, 1999 from $288.7 million for the year ended December 31, 1998, or
8.5%. The increase in adjusted EBITDA for the year ended December 31, 1999 as
compared to the year ended December 31, 1998 resulted from the 1998 and 1999
Transactions offset by a $2.4 million increase in corporate overhead expenses,
as described above. Our adjusted EBITDA margin decreased to 46.7% for the year
ended December 31, 1999 from 51.1% for the year ended December 31, 1998. This
decrease in adjusted EBITDA margin resulted primarily from the circumstances
affecting broadcast cash flow margins as noted above combined with an increase
in corporate expenses.
After tax cash flow decreased $12.6 million to $137.2 million for the year
ended December 31, 1999 from $149.8 million for the year ended December 31,
1998, or 8.4%. The decrease in after tax cash flow for the year ended December
31, 1999 as compared to the year ended December 31, 1998 primarily resulted from
an increase in interest expense offset by a net increase in broadcast operating
income related to the 1998 and 1999 Transactions.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended by SFAS No. 137,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE
EFFECTIVE DATE OF FASB STATEMENT NO. 133, and SFAS 138, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES requires that an entity recognize
all derivative instruments and hedging activities as either assets or
liabilities on the balance sheet measured at their fair values. Changes in fair
value of all derivative instruments and hedging activities are required to be
recognized through earnings unless specific hedge accounting criteria are met.
We do not believe that our derivative instruments and hedging activities will
meet the qualifications for hedge accounting and will therefore be required to
recognize the change in fair values of these
29
<PAGE>
instruments through earnings. We do not expect the initial adoption of SFAS No.
133 to have a material effect on our operations or financial position. We are
required to adopt SFAS No. 133 as of January 1, 2001.
During 2000, the FASB issued Emerging Issues Task Force Topic No. 00-19,
ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, AND POTENTIALLY
SETTLED IN, A COMPANY'S OWN STOCK (EITF No. 00-19) clarifying how freestanding
contracts that are indexed to, and potentially settled in, a company's own stock
should be classified and measured. As a result of the adoption of EITF No.
00-19, we reclassified our remaining equity put option contract from Additional
Paid-In Capital - Equity Put Options in the stockholders' equity section of our
December 31, 2000 balance sheet to Equity Put Option in the mezzanine section of
our December 31, 2000 balance sheet.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of liquidity is cash provided by operations and
availability under our 1998 bank credit agreement. As of December 31, 2000, we
had $4.1 million in cash balances and working capital of approximately $(94.1)
million. We anticipate that cash flow from our operations and revolving credit
facility will be sufficient to satisfy our debt service obligations, dividend
requirements, capital expenditure requirements and operating cash needs for the
next year. There can be no assurance that we will be successful in obtaining the
required amount of funds for these items. As of March 15, 2001, the remaining
balance available under the revolving credit facility was $774.0 million. Based
on pro forma trailing cash flow levels for the twelve months ended December 31,
2000, we had approximately $294.4 million available of current borrowing
capacity under our revolving credit facility.
We closed on the sale of four radio stations in Kansas City, Missouri in
July 2000 for a purchase price of $126.6 million. In October 2000, we closed on
the sale of our radio stations in the St. Louis market for a purchase price of
$220.0 million and on the purchase of the stock of Grant Television, Inc.,
including the nonlicense assets of WNYO-TV in Buffalo, New York together with a
$3.2 million note receivable issued by the company that holds the license
assets, for a purchase price of $48.0 million. In November 2000, we closed on
the sale of our radio station in Wilkes-Barre, Pennsylvania for a purchase price
of $0.6 million. These transactions are expected to generate net after-tax
proceeds of approximately $229.0 million. We used the after-tax proceeds from
these sales to repay bank debt, but we may subsequently re-borrow the money to
finance our share repurchase program or to fund other investments and
acquisitions.
On April 19, 1999, we entered into an agreement (the ATC Agreement) with
American Tower Corporation, an independent owner, operator and developer of
broadcast and wireless communication sites in the United States. Under the
agreement, we would provide American Tower access to tower sites in a number of
our markets currently expected to include Nashville, TN, Dayton, OH, Birmingham,
AL and Indianapolis, IN. American Tower would construct new towers in each of
these markets and would lease space on the towers to us. American Towers is also
expected to provide tower space for Sinclair on existing towers in Des Moines,
IA, Pensacola, FL, Greensboro, NC, Norfolk, VA, Rochester, NY, Syracuse, NY,
Flint, MI, and Las Vegas, NV. This is expected to provide us the additional
tower capacity required to develop our digital television transmission needs in
these markets at an initial capital outlay lower than would be required if we
constructed these towers ourselves. The form of the master lease has been
completed and agreed to; however, each market is subject to individual
negotiations on terms specific to that market, which are still being negotiated
with American Tower Corporation. If we cannot agree with American Tower on the
terms and conditions of the individual market leases, neither party will have
any obligation to the other under the ATC Agreement, which will then become a
nullity.
Net cash flows from operating activities decreased to $69.1 million for the
year ended December 31, 2000 from $130.7 million for the year ended December 31,
1999. We made income tax payments of $121.4 million for the year ended December
31, 2000 as compared to $7.4 million for the year ended December 31, 1999. This
increase in income tax payments was primarily due to income tax payments of
$115.1 million made in connection with the sale of our radio broadcast assets in
December 1999 and 2000. We made interest payments on outstanding indebtedness
and payments for subsidiary trust minority interest expense totaling $163.1
million for the year ended December 31, 2000 as compared to $227.2 million for
the year ended December 31, 1999. The reduction of interest payments for the
year ended December 31, 2000 as compared to the year ended December 31, 1999
primarily related to the reduction of our indebtedness as a result of the
disposition of our radio broadcast assets in December 1999 and during 2000.
Program rights payments increased to $94.3 million for the year ended December
31, 2000 from $79.5 million for the year ended December 31, 1999. This increase
in program rights payments was comprised of $2.8 million related to the 1999 and
2000 Transactions and $12.0 million related to
30
<PAGE>
an increase in programming costs on a same station basis, which increased 15.3%.
This increase in program rights payments resulted from our investment to upgrade
our television programming.
Net cash flows from investing activities decreased to $209.8 million for
the year ended December 31, 2000 from $452.5 million for the year ended December
31, 1999. For the year ended December 31, 2000, we made cash payments of
approximately $89.9 million related to the acquisition of television broadcast
assets and received cash proceeds of $346.4 million related to the sale of
broadcast assets. During the year ended December 31, 2000, we made equity
investments of approximately $13.5 million. We made payments for property and
equipment of $33.3 million for the year ended December 31, 2000. In addition, we
anticipate that future requirements for capital expenditures will include
capital expenditures incurred during the ordinary course of business, including
costs related to our conversion to digital television and additional strategic
station acquisitions and equity investments if suitable investments can be
identified on acceptable terms. We expect to fund such capital expenditures with
cash generated from operating activities and funding from our Revolving Credit
Facility.
Net cash flows used in financing activities decreased to $291.3 million for
the year ended December 31, 2000 as compared to net cash flows from financing
activities of $570.0 million for the year ended December 31, 1999. During the
year ended December 31, 2000, we repaid $879.5 million under the Term Loan
Facility and utilized borrowings under the Revolving Credit Facility of $707.5
million. In addition, we repurchased 12.6 million shares of our Class A Common
Stock for $107.3 million for the year ended December 31, 2000.
INCOME TAXES
The income tax provision decreased to $77.9 million for the year ended
December 31, 2000 from a provision of $174.9 million for the year ended December
31, 1999. For the year ended December 31, 2000, the provision for continuing
operations and discontinued operations was $4.8 million and $73.1 million,
respectively. For the year ended December 31, 1999, the provision for continuing
operations and discontinuing operations was $25.1 and $149.8 million,
respectively. For 2000, our pre-tax book loss from continuing operations was
$31.0 million and we recorded a tax expense of $4.8 million. We recognized this
provision on a pre-tax loss because our non-deductible tax items were in excess
of the pre-tax loss and these items caused continuing operations to have taxable
income. These non-deductible tax items primarily consisted of non-deductible
goodwill associated with stock acquisitions.
As of December 31, 2000, we have a net deferred tax liability of $243.1
million as compared to a net deferred tax liability of $228.7 million as of
December 31, 1999. The increase is primarily due to accelerated tax depreciation
and amortization of fixed and intangible assets. Additionally, $8.7 million of
deferred tax liabilities associated with stock acquisitions during the year were
added to the balance sheet. Our effective tax rate decreased to 15.6% for the
year ended December 31, 2000 from 147.5% for the year ended December 31, 1999.
The decrease in the effective tax rate primarily resulted from the relative
impact of the non-deductible tax items in relation to changes in pre-tax income
for these years.
The income tax provision increased to $174.9 million for the year ended
December 31, 1999 from a provision of $45.7 million for the year ended December
31, 1998. As of December 31, 1999, we had a net deferred tax liability of $228.7
million as compared to a net deferred tax liability of $165.5 million as of
December 31, 1998. This increase is primarily due to the use of federal and
state net operating losses and alternative minimum tax credits as a result of
the sale of radio assets. Additionally, accelerated tax depreciation and
amortization of fixed and intangible assets contributed to an increase in
deferred tax liabilities. Our effective tax rate decreased to 147.5% for the
year ended December 31, 1999 from 511.9% for the year ended December 31, 1998.
The decrease in the effective tax rate primarily resulted from the relative
impact of the non-deductible tax items in relation to changes in pre-tax income
for these years.
SEASONALITY
Our results usually are subject to seasonal fluctuations, which result in
fourth quarter broadcast operating income being greater usually than first,
second and third quarter broadcast operating income. This seasonality is
primarily attributable to increased expenditures by advertisers in anticipation
of holiday season spending and an increase in viewership during this period. In
addition, revenues from political advertising tend to be higher in even numbered
years.
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RISK FACTORS
We cannot identify nor can we control all circumstances that could occur in
the future that may adversely affect our business and results of operations.
Some of the circumstances that may occur and may impair our business are
described below. If any of the following circumstances were to occur, our
business could be materially adversely affected.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR OPERATIONS AND OUR
ABILITY TO FULFILL OUR OBLIGATIONS UNDER OUR DEBT SECURITIES AND HYTOPS.
We have a high level of debt and other obligations compared to
stockholders' equity. Our obligations include the following:
INDEBTEDNESS UNDER THE BANK CREDIT AGREEMENT. As of December 31, 2000, we
owed $831.0 million under our bank credit agreement and had a $794.0
million remaining balance available. Based on pro forma trailing cash flow
levels for the twelve months ended December 31, 2000, we had approximately
$294.4 million available of current borrowing capacity under our bank
credit agreement.
INDEBTEDNESS UNDER NOTES. We have issued and outstanding three series of
senior subordinated notes. The total amount outstanding under these notes
as of December 31, 2000 was $750.0 million.
OBLIGATIONS UNDER HIGH YIELD TRUST OFFERED PREFERRED SECURITIES (HYTOPS).
Sinclair Capital, a subsidiary trust of Sinclair, has issued $200 million
aggregate liquidation amount of HYTOPS. "Aggregate liquidation amount"
means the amount Sinclair Capital must pay to the holders when it redeems
the HYTOPS or upon liquidation. Sinclair Capital must redeem the HYTOPS in
2009. We are indirectly liable for the HYTOPS obligations because we issued
$206.2 million liquidation amount of series C preferred stock to KDSM,
Inc., our wholly owned subsidiary, to support $200.0 million aggregate
principal amount of 11 5/8% notes that KDSM, Inc. issued to Sinclair
Capital to support the HYTOPS.
SERIES D CONVERTIBLE EXCHANGEABLE PREFERRED STOCK. We have issued 3,450,000
shares of series D convertible exchangeable preferred stock with an
aggregate liquidation preference of approximately $172.5 million. The
liquidation preference means we would be required to pay the holder of
series D convertible exchangeable preferred stock $172.5 million before we
paid holders of common stock (or any other stock that is junior to the
series D convertible exchangeable preferred stock) in any liquidation of
Sinclair. We are not obligated to buy back or retire the series D
convertible exchangeable preferred stock, but may do so at our option
beginning in 2000 at a conversion rate of $22.8125 per share. In some
circumstances, we may also exchange the series D convertible exchangeable
preferred stock for 6% subordinated debentures due 2012 with an aggregate
principal amount of $172.5 million.
PROGRAM CONTRACTS PAYABLE AND PROGRAMMING COMMITMENTS. We enter into
contracts to purchase future programming. Under these contracts, we were
obligated on December 31, 2000 to make future payments totaling $183.7
million.
Our relatively high level of debt poses the following risks to you and to
Sinclair:
o We use a significant portion of our cash flow to pay principal and
interest on our outstanding debt and to pay dividends on preferred
stock. This will limit the amount available for other purposes. For
the year ended December 31, 2000, we would have been required to pay
$167.9 million in interest and preferred dividends (including dividend
payments on the HYTOPS) if all of our material securities and
acquisition and divestiture transactions during 2000 had been
completed as of January 1, 2000.
o Our lenders may not be as willing to lend additional amounts to us for
future working capital needs, additional acquisitions, or other
purposes.
o The interest rate under our bank credit agreement is a floating rate,
and will increase if general interest rates increase. This will
increase the portion of our cash flow that must be spent on interest
payments.
o We may be more vulnerable to adverse economic conditions than less
leveraged competitors and thus less able to withstand competitive
pressures.
o If our cash flow were inadequate to make interest and principal
payments, we might have to refinance our indebtedness or sell one or
more of our stations to reduce debt service obligations.
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Any of these effects could reduce the trading value of our securities.
OUR FLEXIBILITY IS LIMITED BY PROMISES WE HAVE MADE TO OUR LENDERS.
Our existing financing agreements prevent us from taking certain actions
and require us to meet certain tests. These restrictions and tests include the
following:
o Restrictions on additional debt,
o Restrictions on our ability to pledge our assets as security for our
indebtedness,
o Restrictions on payment of dividends, the repurchase of stock and
other payments relating to capital stock,
o Restrictions on some sales of assets and the use of proceeds of asset
sales,
o Restrictions on mergers and other acquisitions, satisfaction
of conditions for acquisitions, and a limit on the total amount of
acquisitions without consent of bank lenders,
o Restrictions on the type of businesses we and our subsidiaries may be
in,
o Restrictions on type and amounts of investments we and our
subsidiaries may make, and
o Financial ratio and condition tests including the ratio of earnings
before interest, taxes, depreciation and amortization (EBITDA) to
total interest expense, the ratio of EBITDA to certain of our fixed
expenses, and the ratio of indebtedness to EBITDA.
Future financing arrangements may contain additional restrictions and
tests. These restrictions and tests may prevent us from taking action that could
increase the value of our securities, or may require actions that decrease the
value of our securities. In addition, we may fail to meet the tests and thereby
default on one or more of our obligations (particularly if the economy continues
to soften and thereby reduce our advertising revenues). If we default on our
obligations, creditors could require immediate payment of the obligations or
foreclose on collateral. If this happened, we could be forced to sell assets or
take other action that would reduce the value of our securities.
KEY OFFICERS AND DIRECTORS HAVE FINANCIAL INTERESTS THAT ARE DIFFERENT AND
SOMETIMES OPPOSITE TO THOSE OF SINCLAIR.
Some of our officers and directors own stock or partnership interests in
businesses that engage in television broadcasting, do business with us, or
otherwise do business that conflicts with our interests. David D. Smith,
Frederick G. Smith, and J. Duncan Smith are each an officer and director of
Sinclair, and Robert E. Smith is a director. Together, the Smiths hold shares of
our stock that have a majority of the voting power. The Smiths own a television
station WTTA-TV in St. Petersburg, Florida, which is programmed pursuant to an
LMA with us. The Smiths also own businesses that lease real property and tower
space to us, buy advertising time from us, and engage in other transactions with
us. In addition, relatives of the Smiths hold a majority of the equity, and have
filed an application with the FCC to acquire the voting control of Glencairn,
Ltd. Glencairn holds the licenses for television stations that we program under
local marketing agreements with Glencairn.
Maryland law and our financing agreements limit the extent to which our
officers, directors and majority stockholders may transact business with us and
pursue business opportunities that Sinclair might pursue. These limitations do
not, however, prohibit all such transactions. Officers, directors and majority
stockholders may therefore transact some business with us even when there is a
conflict of interest.
THE SMITHS EXERCISE CONTROL OVER ALL MATTERS SUBMITTED TO A STOCKHOLDER VOTE,
AND MAY HAVE INTERESTS THAT DIFFER FROM YOURS.
David D. Smith, Frederick G. Smith, J. Duncan Smith and Robert E. Smith
control the outcome of all matters submitted to a vote of stockholders. The
Smiths hold class B common stock, which generally has 10 votes per share. Our
class A common stock has only one vote per share. Our other series of preferred
stock generally do not have voting rights. We describe in detail the voting
rights of shares of our capital stock in portions of Sinclair's proxy statement
for the 2001 annual meeting of shareholders under the heading "Security
Ownership of Certain Beneficial Owners", which we have incorporated by reference
in this report. As of December 31, 2000, the Smiths held shares representing
(90%) of the vote on most matters and representing (50%) of the vote on the few
matters for which class B shares have only one vote per share. The Smiths have
agreed with each other that until 2005 they will vote for each other as
director.
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CERTAIN FEATURES OF OUR CAPITAL STRUCTURE MAY DETER OTHERS FROM ATTEMPTING TO
ACQUIRE SINCLAIR.
The control the Smiths have over stockholder votes may discourage other
companies from trying to acquire us. In addition, our board of directors can
issue additional shares of preferred stock with rights that might further
discourage other companies from trying to acquire us. Anyone trying to acquire
us would likely offer to pay more for shares of class A common stock than the
amount those shares were trading for in market trades at the time of the offer.
If the voting rights of the Smiths or the right to issue preferred stock
discourage such takeover attempts, stockholders may be denied the opportunity to
receive such a premium. The general level of prices for class A common stock
might also be lower than it would be if these deterrents to takeovers did not
exist.
WE DEPEND ON ADVERTISING REVENUE, WHICH MAY DECREASE DEPENDING ON A NUMBER OF
CONDITIONS.
Our main source of revenue is sales of advertising time. Our ability to
sell advertising time depends on:
o the health of the economy in the areas where our stations are
located and in the nation as a whole;
o the popularity of our programming;
o changes in the makeup of the population in the areas where our
stations are located;
o the activities of our competitors; and
o other factors that may be beyond our control.
For example, a labor dispute or other disruption at a major national advertiser,
or a recession in a particular market, would make it more difficult to sell
advertising time and could reduce our revenue.
WE MUST PURCHASE TELEVISION PROGRAMMING IN ADVANCE BUT CANNOT PREDICT IF A
PARTICULAR SHOW WILL BE POPULAR ENOUGH TO COVER ITS COST.
One of our most significant costs is television programming. If a
particular program is not popular, we may not be able to sell enough advertising
time to cover the costs of the program. Since we purchase programming content
from others, we also have little control over the costs of programming. We
usually must purchase programming several years in advance, and may have to
commit to purchase more than one year's worth of programming. Finally, we may
replace programs that are doing poorly before we have recaptured any significant
portion of the costs we incurred, or accounted fully for the costs on our books
for financial reporting purposes. Any of these factors could reduce our revenues
or otherwise cause our costs to escalate relative to revenues.
WE MAY LOSE A LARGE AMOUNT OF PROGRAMMING IF A NETWORK TERMINATES ITS
AFFILIATION WITH US. WE ALSO CANNOT BE SURE THE NETWORKS WILL PROVIDE ATTRACTIVE
PROGRAMMING.
All but one of our television stations operate as affiliates of a network.
The vast majority of our prime time programming in network-affiliated stations
comes from the networks. Our Fox affiliates acquired in connection with the
Sullivan and Max Media acquisitions in 1998 (as further discussed in note 11 to
the attached financial statements) and three of our ABC affiliates do not have
affiliation agreements with their respective network. The other stations
affiliated with Fox have affiliation agreements which will terminate on August
21, 2001. The relationship between networks and station owners is currently
undergoing significant change, and the networks may seek reduced or no fees to
owners and may seek increased compensation in the form of additional
advertising, cash payments or in other forms. Networks may seek and receive
terms that reduce our revenue or increase our costs. If a network terminates or
fails to renew our affiliation, we will lose access to the programming offered
by that network. We will need to find alternative sources of programming, which
may be less attractive or more expensive.
COMPETITION FROM OTHER BROADCASTERS AND OTHER SOURCES MAY CAUSE OUR ADVERTISING
SALES TO GO DOWN OR OUR COSTS TO GO UP.
We face intense competition in our industry and markets from the following:
NEW TECHNOLOGY AND THE SUBDIVISION OF MARKETS. New technologies enable our
competitors to tailor their programming for specific segments of the listening
and viewing public to a degree not possible before. As a result, the overall
market share of broadcasters, including ourselves whose equipment may not permit
such a discriminating approach is under new pressures. The new technologies
include:
o cable,
o satellite-to-home distribution,
o pay-per-view, and
o home video and entertainment systems.
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FUTURE TECHNOLOGY UNDER DEVELOPMENT. Cable providers and direct broadcast
satellite companies are developing new techniques that allow them to transmit
more channels on their existing equipment. These so-called "video compression
techniques" will reduce the cost of creating channels, and may lead to the
division of the television industry into ever more specialized niche markets.
Video compression is available to us as well, but competitors who target
programming to such sharply defined markets may gain an advantage over us for
television advertising revenues. Lowering the cost of creating channels may also
encourage new competitors to enter our markets and compete with us for
advertising revenue.
IN-MARKET COMPETITION. We also face more conventional competition from
rivals that may be larger and have greater resources than we have. These
include:
o other local free over-the-air radio and broadcast stations, and
o other media, such as newspapers and periodicals.
DEREGULATION. Recent changes in law have also increased competition. The
Telecommunications Act of 1996 (the 1996 Act) created greater flexibility and
removed some limits on station ownership. The prices for stations have risen as
a result. Telephone, cable and some other companies are also free to provide
video services in competition with us. Other proposed legislation would relax
existing prohibitions on the simultaneous ownership of telephone and cable
businesses. As a result of these changes, new companies are able to enter our
markets and compete with us.
OUR RECENT INVESTMENTS IN INTERNET AND OTHER BUSINESSES MAY NOT DELIVER THE
VALUE WE PAID FOR THEM OR REACH OUR STRATEGIC OBJECTIVES.
Our strategy includes investing in and working with Internet-related
businesses. In pursuit of this strategy, we made several investments in
Internet-related businesses in 1999 and 2000 and intend to make additional
investments as appropriate opportunities arise. The long term value of
Internet-related businesses has yet to be determined, the stock prices of
publicly-traded Internet-related companies generally declined dramatically in
2000, and we cannot assure you that these investments will be worth the amount
of our investment, or that we will be able to develop services that are
profitable for Sinclair or the businesses in which we have invested. If the
businesses in which we have invested fail to succeed, we may lose as much as all
of our investment in the businesses. We may also spend additional funds and
devote additional resources to these businesses, and these additional
investments may also be lost.
OUR INVESTMENT IN ACRODYNE COMMUNICATIONS, INC. MAY NOT DELIVER THE VALUE WE
PAID OR REACH OUR STRATEGIC OBJECTIVES.
In January 1999, we acquired common stock of Acrodyne Communications, Inc.
and currently hold a 35% ownership interest. Acrodyne manufactures television
transmitters and other broadcast equipment. During August 2000, Acrodyne
announced that it would be restating its financial statements for the year ended
December 31, 1999 and for the three months ended March 31, 2000 due to an
overstatement of revenue, inventory balances, and gross profits. As a result of
the restatement, Acrodyne was unable to file its quarterly reporting
requirements with the SEC for the quarters ended June 30, 2000 and September 30,
2000 on a timely basis. During September 2000, Acrodyne was delisted from
NASDAQ. As a result of the above, we wrote-off our investment in Acrodyne to
zero and recorded a loss of $10.1 million as a loss from equity investments
during the year ended December 31, 2000.
In addition, as of December 31, 2000, we have placed orders for 11
transmitter systems for an aggregate purchase price of approximately $4.9
million of which $3.2 million of deposits have been paid to Acrodyne. We also
from time to time, lend funds to Acrodyne for working capital needs under
existing working capital lines of credit. As of December 31, 2000, we had loaned
Acrodyne $3.2 million, all of which has been fully reserved. We may also spend
additional funds and devote additional resources to Acrodyne and such additional
investments may be lost.
In September 2000, Acrodyne, along with two of its officers and directors,
one of which is an officer of Sinclair, was joined as a defendant in a class
action in the United States District Court for the District of Maryland. This
lawsuit asserts that Acrodyne issued false and misleading financial statements.
Acrodyne has reached a preliminary settlement with the plantiff's counsel. The
preliminary settlement requires Acrodyne to issue to the plantiffs warrants to
purchase 1,600,000 shares of Acrodyne common stock at an exercise price of $1.00
per share. The warrants expire after five years. Acrodyne has also agreed to pay
the plantiffs $750,000, with the cash portion of the settlement funded by its
officers' and directors' indemnity insurance policy. A
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Memorandum of Understanding reflecting the material terms of the settlement was
filed with the Court on March 1, 2001. By March 30, 2001, the parties are
required to submit to the Court a Stipulation of Class Certification for
Settlement Purposes and all required documents to effectuate the settlement.
Sinclair officers hold three board seats on Acrodyne's Board of Directors and
though not named in the existing class action law suit, may be subject to a
future claim.
THE PHASED INTRODUCTION OF DIGITAL TELEVISION WILL INCREASE OUR OPERATING COSTS
AND MAY EXPOSE US TO INCREASED COMPETITION.
The FCC has mandated the phased introduction of digital television from
1999 to 2006, starting with the affiliates of ABC, CBS, Fox and NBC in the top
ten markets. These stations were required to commence broadcasting in digital
format by May 1, 1999. The affiliates of these networks in the next 20 markets
were required to commence digital broadcasting by November 1999. We had no
stations that needed to have digital operations by the May 1, 1999 deadline and
initially had five stations that needed to meet the November 1999 deadline,
reduced to four stations as a result of an affiliation change of one of these
stations. As of the date of this 10-K, three of these four stations are
broadcasting in digital format. With respect to the other station, we have an
application pending for a DTV construction permit and the FCC has granted us
special temporary authority to begin digital operations prior to grant of the
construction permit. During the transition period, each existing analog
television station will be permitted to operate a second station that will
broadcast using the digital standard. After completion of the transition period,
the FCC will reclaim the non-digital channels.
There is considerable uncertainty about the final form of the FCC digital
regulations. Even so, we believe that these new developments may have the
following effects on us:
SIGNAL QUALITY ISSUES. Our tests have indicated that the digital standard
mandated (which mandate was recently reaffirmed) by the FCC, 8-level
vestigial sideband (8-VSB), is currently unable to provide for reliable
reception of a DTV signal through a simple indoor antenna. Absent
improvements in DTV receivers, or an FCC ruling allowing us to use an
alternative standard, continued reliance on the 8-VSB digital standard may
not allow us to provide the same reception coverage with our digital
signals as we can with our current analog signals. Additionally, because of
this poor reception quality and coverage, we may be forced to rely on cable
television or other alternative means of transmission to deliver our
digital signals to all of the viewers we are able to reach with our current
analog signals.
RECLAMATION OF ANALOG CHANNELS. Congress directed the FCC to begin
auctioning analog channels 60-69 later this year and the remaining
non-digital channels by September 30, 2002, even though the FCC is not to
reclaim them until 2006. Congress further permitted broadcasters to bid on
the non-digital channels in cities with populations over 400,000. If the
channels are owned by our competitors, they may exert increased competitive
pressure on our operations.
CAPITAL AND OPERATING COSTS. We will incur costs to replace equipment in
our stations in order to provide digital television. Some of our stations
will also incur increased utilities costs as a result of converting to
digital operations. We cannot be certain we will be able to increase
revenues to offset these additional costs.
SUBSCRIPTION FEES AND SYSTEM COMPATIBILITY. The FCC has determined to
assess a fee in the amount of 5% of gross revenues on digital television
subscription services. If we are unable to pass this cost through to our
subscribers, this fee will reduce our earnings from any digital television
subscription services we implement in the future. Under current regulations
(recently affirmed by the FCC), cable systems are only required to carry
non-digital signals. Given this climate of market uncertainty and
regulatory change, we cannot be sure what impact the FCC's actions might
have on our plans and results in the area of digital television.
FEDERAL REGULATION OF THE BROADCASTING INDUSTRY LIMITS OUR OPERATING
FLEXIBILITY.
The FCC regulates our business, just as it does all other companies in the
broadcasting industry. We must ask the FCC's approval whenever we need a new
license, seek to renew or assign a license, purchase a new station, or transfer
the control of one of our subsidiaries that holds a license. Our FCC licenses
and those of the stations we program pursuant to LMAs are critical to our
operations; we cannot operate without them. We cannot be certain that the FCC
will renew these licenses in the future, or approve new acquisitions.
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Federal legislation and FCC rules have changed significantly in recent
years. We anticipate further changes in the rules on digital television. We
discuss some of the possible effects of these changes elsewhere in this 10-K,
but we cannot predict all the effects that such changes may have on our
business.
THE FCC'S OWNERSHIP RESTRICTIONS LIMIT OUR ABILITY TO OPERATE MULTIPLE
TELEVISION STATIONS, AND FUTURE CHANGES IN THESE RULES MAY THREATEN OUR
EXISTING STRATEGIC APPROACH TO CERTAIN TELEVISION MARKETS.
GENERAL LIMITATIONS
The FCC's ownership rules limit us from having "attributable interests"
in television stations that reach more than 35% of all television households
in the U.S. Under the FCC's method for calculating this limit, our television
stations will reach approximately 15% of U.S. television households after we
complete our pending purchases and sales of stations.
CHANGES IN THE RULES ON TELEVISION OWNERSHIP AND LOCAL MARKETING AGREEMENTS
The FCC recently revised its local television ownership and LMA
attribution rules. In the past, a licensee could not own two television
stations in a market but could own one station and program another station
pursuant to an LMA because LMAs were not considered attributable interests.
The new television ownership rules generally treat LMAs as attributable, but
allow us to own two television stations in adjoining DMAs even if there is
Grade B overlap between the two stations and to own two stations in the same
market: (1) if there is no Grade B overlap between the stations; or (2) if the
market containing both the stations contains at least eight separately owned
full-power television stations, and not more than one is among the top-four
rated stations in the market. In addition, we may request a waiver of the rule
to acquire a second station in the market if the station to be acquired is
economically distressed or unbuilt and there is no party who does not own a
local television station who would purchase the station for a reasonable
price. We currently program 26 television stations pursuant to LMAs. We have
entered into agreements to acquire 16 of the stations that we program pursuant
to an LMA. Once we acquire these stations, the LMAs will terminate.
Under the new ownership rules, LMAs are now attributable where a licensee
owns a television station and programs a television station in the same
market. The new rules provide that LMAs entered into on or after November 5,
1996 have until August 5, 2001 to come into compliance with the new ownership
rules, otherwise such LMAs will terminate. LMAs entered into before November
5, 1996 will be grandfathered until the conclusion of the FCC's 2004 biennial
review. In certain cases, parties with grandfathered LMAs, may be able to rely
on the circumstances at the time the LMA was entered into in advancing any
proposal for co-ownership of the station. Of the remaining 10 stations that we
program pursuant to an LMA and are not acquiring, 5 LMAs were entered into
before November 5, 1996, and 5 LMAs were entered into on or after November 5,
1996. As a result of these changes, we may be forced to terminate or modify
some of our remaining LMAs.
Terminating or modifying our LMAs could affect our business in the
following ways:
LOSSES ON INVESTMENTS. As part of our LMA arrangements, we own the
non-license assets used by the stations with which we have LMAs. If
LMA arrangements are no longer permitted, we would be forced to sell
these assets, or find another use for them. If LMAs are prohibited,
the market for such assets may not be as good as when we purchased
them and we would need to sell the assets to the owner or a
purchaser of the related license assets. Therefore, we cannot be
certain we will recoup our investments.
TERMINATION PENALTIES. If the FCC requires us to modify or terminate
existing LMAs before the terms of the LMAs expire, we may be forced
to pay termination penalties under the terms of some of our LMAs.
The FCC requires the owner/licensee of a station to maintain independent
control over the programming and operations of the station. As a result, the
owners/licensees of the stations with which we have LMAs can exert their
control in ways that may be counter to our interests, including the right to
preempt programming or terminate in certain instances.
These preemption and termination rights cause us some uncertainty that we
will be able to air all of the programming that we have purchased, and
therefore uncertainty about the advertising revenues we will receive from such
programming.
FAILURE OF OWNER/LICENSEE TO EXERCISE CONTROL. In addition, if the FCC
determines that the owner/licensee is not exercising sufficient control, it
may penalize the owner/licensee by a fine, revocation of the license for the
station or a denial of the renewal of the license.
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Any one of these scenarios might affect our financial results, especially
the revocation of or denial of renewal of a license. In addition, penalties
might also affect our qualifications to hold FCC licenses, and thus place
those licenses at risk.
WE HAVE LOST MONEY IN THREE OF THE LAST FIVE YEARS, AND EXPECT TO CONTINUE TO
DO SO INDEFINITELY.
We have suffered net losses in three of the last five years. In 2000, we
reported earnings, but this was largely due to a gain on the sale of our radio
stations. Our losses are due to the following significant cash and non-cash
expenses:
CASH EXPENSES: Interest
NON-CASH EXPENSES: Depreciation, amortization (primarily of
programming and intangibles), and deferred
compensation
We expect our net losses to continue indefinitely for the same reasons.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates. To manage
our exposure to changes in interest rates, we enter into interest rate
derivative hedging agreements. Additionally, we have entered into put and call
option derivative instruments relating to our class A common stock in order to
hedge against the possible dilutive effects of employees exercising stock
options pursuant to our stock option plans. We do not enter into derivative
instruments for speculative trading purposes.
INTEREST RATE RISKS
We are exposed to market risk from changes in interest rates, which
arises from the floating rate debt. As of December 31, 2000, we were obligated
on $831 million of indebtedness carrying a floating interest rate. We enter
into interest rate derivative agreements to reduce the impact of changing
interest rates on our floating rate debt.
As of December 31, 2000, we had one floating-to-fixed interest rate swap
agreement which expires on June 3, 2004. The swap agreement effectively sets
fixed rates on our floating rate debt in the range of 6.00% to 6.55%. Floating
interest rates are based upon the three month London Interbank Offered Rate
(LIBOR), and the measurement and settlement is performed quarterly.
Settlements of this agreement are recorded as adjustments to interest expense
in the relevant periods. The notional amount related to this agreement was
$575 million at December 31, 2000. In addition, we entered into a
fixed-to-floating rate derivative with a notional amount of $250 million.
Based on our currently hedged position, $825 million or 52% of our outstanding
indebtedness is hedged.
At December 31, 2000, we had $831 million of floating rate debt of which
$575 million was effectively converted to fixed rate debt by way of a swap.
Additionally, we had $750 million of fixed rate debt at December 31, 2000 of
which $250 million was converted to floating rate debt by way of a swap.
Consequently, we had $506 million of floating rate debt at December 31, 2000
and a 1% increase in LIBOR rate would result in annualized interest expense of
approximately $5.1 million.
We are also exposed to risk from a change in interest rates to the extent
we are required to refinance existing fixed rate indebtedness at rates higher
than those prevailing at the time the existing indebtedness was incurred. As
of December 31, 2000, we have senior subordinated notes totaling $300 million
and $450 million expiring in the years 2005 and 2007, respectively. Based upon
the quoted market price, the fair value of the notes was $692.0 million as of
December 31, 2000. Generally, the fair market value of the notes will decrease
as interest rates rise and increase as interest rates fall. We estimate that a
1% increase from prevailing interest rates would result in a decrease in fair
value of the notes by approximately $29.9 million as of December 31, 2000.
EQUITY PUT OPTION DERIVATIVES
We are exposed to market risk relating to our equity put option
derivative instrument. The contract terms relating to this instrument provide
for settlement of 2.7 million options on July 2, 2001. The contract terms
require us to make a settlement payment to the counterparties to this contract
(payable in either cash or shares of our class A common stock) in an amount
that is approximately equal to the put strike price of $28.931 minus the price
of our class A common stock as of the termination date. This payment is
limited by a strike price differential of $26.038 resulting in a maximum
settlement of $2.893 per option.
38
<PAGE>
If the put strike price is less than the price of our class A common
stock as of the termination date, we would not be obligated to make a
settlement payment. We would incur settlement costs of $7.8 million assuming a
market price of $8.75 (the closing price on March 15, 2001). We would incur
settlement costs of $7.8 million assuming a market price of $7.86 (the closing
price on March 15, 2001, minus 10%).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statement and supplementary data required by this item are
filed as exhibits to this report, are listed under Item 14(a)(1) and (2), and
are incorporated by reference in this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE
None.
39
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item will be included in our proxy
statement for the 2001 annual meeting of shareholders under the caption
"Directors and Executive Officers" which will be filed with the SEC no later
than 120 days after the close of the fiscal year ended December 31, 2000, and
is incorporated by reference in this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be included in our proxy
statement for the 2001 annual meeting of shareholders under the caption
"Executive Compensation" which will be filed with the SEC no later than 120
days after the close of the fiscal year ended December 31, 2000, and is
incorporated by reference in this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this Item will be included in our proxy
statement for the 2001 annual meeting of shareholders under the caption
"Security Ownership of Certain Beneficial Owners and Management" which will be
filed with the SEC no later than 120 days after the close of the fiscal year
ended December 31, 2000, and is incorporated by reference in this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be included in our proxy
statement for the 2001 annual meeting of shareholders under the caption
"Certain Relationships and Related Transactions" which will be filed with the
SEC no later than 120 days after the close of the fiscal year ended December
31, 2000, and is incorporated by reference in this report.
40
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following financial statements required by this item are submitted in a
separate section beginning on page F-1 of this report.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SINCLAIR BROADCAST GROUP, INC. FINANCIAL STATEMENTS:
Report of Independent Public Accountants.........................................................F-2
Consolidated Balance Sheets as of December 31, 1999 and 2000.....................................F-3
Consolidated Statements of Operations for the Years Ended December 31, 1998,
1999 and 2000...............................................................................F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December
31, 1998, 1999 and 2000...........................................................F-5, F-6, F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
1999 and 2000..........................................................................F-8, F-9
Notes to Consolidated Financial Statements......................................................F-10
ACODYNE COMMUNICATIONS, INC. FINANCIAL STATEMENTS
The audited financial statements of Acrodyne Communications, Inc. for
the years ended December 31, 1999 and 2000 will be filed by amendment.
(a) (2) Financial Statements Schedules
The following financial statements schedules required by this item are
submitted on pages S-1 through S-3 of this Report.
PAGE
----
Index to Schedules...............................................................................S-1
Report of Independent Public Accountants.........................................................S-2
Schedule II-Valuation and Qualifying Accounts....................................................S-3
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the Financial Statements or the accompanying
notes.
(a) (3) Exhibits
The exhibit index in Item 14(c) is incorporated by reference in this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the registrant during the
fourth quarter of the fiscal year ended December 31, 2000.
(c) Exhibits
The following exhibits are filed with this report:
EXHIBIT
NO. EXHIBIT DESCRIPTION
--- -------------------
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 By-laws (2)
41
<PAGE>
EXHIBIT
NO. EXHIBIT DESCRIPTION
--- -------------------
4.1 Indenture, dated as of December 9, 1993, among Sinclair Broadcast
Group, Inc., its wholly-owned subsidiaries and First Union Nation
Bank of North Carolina, as trustee. (2)
4.2 Indenture, dated as of August 28, 1995, among Sinclair Broadcast
Group, Inc., its wholly-owned subsidiaries and the United States
Trust Company of New York as trustee. (2)
4.3 Subordinated Indenture, dated as of December 17, 1997, among
Sinclair Broadcast Group, Inc., and First Union National Bank, as
trustee. (3)
4.4 First Supplemental Indenture, dated as of December 17, 1997, among
Sinclair Broadcast Group, Inc., the Guarantors named therein and
First Union National Bank, as trustree, including Form of Note. (3)
10.1 Stock Option Agreement, dated April 10, 1996 by and between Sinclair
Broadcast Group, Inc. and Barry Baker. (4)
10.2 Termination Agreement by and between Sinclair Broadcast Group, Inc.,
and Barry Baker, dated February 8, 1999. (6)
10.3 Registration Rights Agreement, dated as of May 31, 1996, by and
between Sinclair Broadcast Group Inc. and River City Broadcasting,
L.P. (5)
10.4 Letter Agreement, dated August 20, 1996, between Sinclair Broadcast
Group, Inc., and River City Broadcasting, L.P. and Fox Broadcasting
Company. (7)
10.5 Promissory Note, dated as of May 17, 1990, in the principal amount
of $3,000,000 among David D. Smith, Frederick G. Smith, J. Duncan
Smith and Robert E. Smith (as makers) and Sinclair Broadcast Group,
Inc., Channel 63, Inc., Commerical Radio Institute, Inc., WTTE,
Channel 28, Inc. and Chesapeake Television, Inc. (as holders). (8)
10.6 Term Note, dated as of September 30, 1990, in the principal amount
of $7,515,000 between Sinclair Broadcast Group, Inc. (as borrower)
and Julian S. Smith (as lender). (9)
10.7 Replacement Term Note, dated as of September 30, 1990 in the
principal amount of $6,700,000 between Sinclair Broadcast Group,
Inc. (as borrower) and Carolyn C. Smith (as lender). (2)
10.8 Note, dated as of September 30, 1990 in the principal amount of
$1,500,000 between Frederick G. Smith, David D. Smith, J. Duncan
Smith and Robert E. Smith (as borrowers) and Sinclair Broadcast
Group, Inc. (as lender). (8)
10.9 Amended and Restated Note, dated as of June 30, 1992 in the
principal amount of $1,458,489 between Frederick G. Smith, David D.
Smith, J. Duncan Smith and Robert E. Smith (as borrowers) and
Sinclair Broadcast Group, Inc. (as lender). (8)
10.10 Term Note, dated August 1, 1992 in the principal amount of $900,000
between Frederick G. Smith, David D. Smith, J. Duncan Smith and
Robert E. Smith (as borrowers) and Commercial Radio Institute, Inc.
(as lender) (8)
10.11 Promissory Note, dated as of December 28, 1986 in the principal
amount of $6,421,483.53 between Sinclair Broadcast Group, Inc. (as
maker) and Frederick H. Himes, B. Stanley Resnick and Edward A.
Johnson (as representatives for the holders). (8)
10.12 Term Note, dated as of March 1, 1993 in the principal amount of
$6,559,000 between Julian S. Smith and Carolyn C. Smith (as
makers-borrowers) and Commerical Radio Institute, Inc. (as
holder-lender). (8)
10.13 Restatement of Stock Redemption Agreement by and among Sinclair
Broadcast Group, Inc. and Chesapeake Television, Inc., et al., dated
June 19, 1990. (8)
42
<PAGE>
EXHIBIT
NO. EXHIBIT DESCRIPTION
--- -------------------
10.14 Corporate Guaranty Agreement, dated as of September 30, 1990 by
Chesapeake Television, Inc., Commercial Radio, Inc., Channel 63,
Inc. and WTTE, Channel 28, Inc. (as guarantors) to Julian S. Smith
and Carolyn C. Smith (as lenders). (8)
10.15 Security Agreement, dated as of September 30, 1999 among Sinclair
Broadcast Group, Inc., Chesapeake Television, Inc., Commericial
Radio Institute, Inc., WTTE, Channel 28, Inc. and Channel 63, Inc.
(as borrowers and subsidiaries of the borrower) and Julian S. Smith
and Carolyn C. Smith (as lenders). (8)
10.16 Term Note, dated as of September 22, 1993, in the principal amount
of $1,900,000 between Gerstell Development Limited Partnership (as
maker-borrower) and Sinclair Broadcast Group, Inc. (as
holder-lender). (8)
10.17 Credit Agreement, dated as of May 28, 1998, by and among Sinclair
Broadcast Group, Inc., Certain Subsidiary Guarantors, Certain
Lenders, the Chase Manhattan Bank as Administrative Agent, Nations
Bank of Texas, N.A. as Documentation Agent and Chase Securities Inc.
as Arranger. (1)
10.18 Incentive Stock Option Plan for Designated Participants. (2)
10.19 Incentive Stock Option Plan of Sinclair Broadcast Group, Inc. (2)
10.20 First Amendment to Incentive Stock Option Plan of Sinclair
Broadcast Group, Inc., adopted April 10, 1996. (4)
10.21 Second Amendment to Incentive Stock Option Plan of Sinclair
Broadcast Group, Inc., adopted May 31, 1996. (4)
10.22 1996 Long Term Incentive Plan of Sinclair Broadcast Group, Inc. (4)
10.23 First Amendment to 1996 Long Term Incentive Plan of Sinclair
Broadcast Group, Inc. (10)
10.24 Primary Television Affiliation Agreement, dated as of March 24,
1997 by and between American Broadcasting Companies, Inc., River
City Broadcasting, L.P. and Chesapeake Television, Inc. (11)
10.25 Primary Television Affiliation Agreement, dated as of March 24,
1997 by and between American Broadcasting Companies, Inc., River
City Broadcasting, L.P. and WPGH, Inc. (11)
10.26 Stock Purchase Agreement by and among the sole stockholders of
Montecito Broadcasting Corporation, Montecito Broadcasting
Corporation and Sinclair Communications, Inc. dated as of February
3, 1998. (12)
10.27 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. (11).
10.28 Agreement and Plan of Merger among Sullivan Broadcasting Holdings,
Inc., Sinclair Broadcast Group, Inc., and ABRY Partners, Inc.
Effective as of February 23, 1998. (11).
10.29 Employment Agreement by and between Sinclair Broadcast Group, Inc.
and Frederick G. Smith, dated June 12, 1998. (12)
10.30 Employment Agreement by and between Sinclair Broadcast Group, Inc.
and J. Duncan Smith, dated June 12, 1998. (12)
10.31 Employment Agreement by and between Sinclair Broadcast Group, Inc.
and David B. Amy, dated September 15, 1998. (12)
10.32 Employment Agreement by and between Sinclair Communications, Inc.
and Barry Drake, dated February 21, 1997. (12)
10.33 First Amendment to Employment Agreement, by and between Sinclair
Broadcast Group, Inc. and Barry Baker, dated May 1998. (6)
43
<PAGE>
EXHIBIT
NO. EXHIBIT DESCRIPTION
--- -------------------
10.34 Purchase Agreement by and between Sinclair Communications, Inc. and
STC Broadcasting, Inc. dated as of March 5, 1999. (6)
10.35 Second Modification Agreement dated April 30, 1999 by and between
Guy Gannett Communications and Sinclair Communications, Inc., to
modify the Purchase Agreement dated Spetember 4, 1998 by and between
Guy Gannett Communications and Sinclair Communications Inc., as
thereafter amended and modified. (13)
10.36 Asset Purchase Agreement dated August 18, 1999 by and between
Sinclair Communications, Inc. and certain of its affiliates named
therein and Entercom Communications Corp. (13)
10.37 Asset Purchase Agreement dated August 20, 1999 among Sinclair
Communications, Inc., Sinclair Media III, Inc., Sinclair Radio of
Kansas City Licensee, LLC and Entercom Communications Corp. (13)
10.38 Amendment to Purchase Agreement, dated March 16, 1999, to amend
Purchase Agreement dated as of September 4, 1998 by and between Guy
Gannett Communications and Sinclair Communications, Inc. (13)
10.39 Modification Agreement dated April 12, 1999 by and between Guy
Gannett Communications and Sinclair Communications, Inc., to modify
the Purchase Agreement dated September 4, 1998 by and between Guy
Gannett Communications and Sinclair Communications, Inc., as
thereafter amended. (13)
10.40 Purchase Agreement dated March 16, 1999, by and between Sinclair
Communications, Inc. and STC Broadcasting, Inc. (13)
10.41 Amended and Restated Purchase Agreement dated August 20, 1999 among
Sinclair Communications, Inc. and certain of its affiliates named
therein and Entercom Communications Corp. (13)
10.42 Asset Purchase Agreement among Sinclair Broadcast Group, Inc. and
Sinclair Radio of St. Louis, Inc. and Sinclair Radio of St. Louis
Licensee, LLC as Sellers, and Emmis Communications Corporation as
Buyer dated June 21, 2000.
11 Statement re computation of per share earnings (included in
financial statements)
12 Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Registrant
23.1 Consent of Independent Public Accountants
25 Power of attorney (included in signature page)
- -------------
(1) Incorporated by reference from Sinclair's Report on Form 10-Q for the
quarter ended June 30, 1998
(2) Incorporated by reference from Sinclair's Registration Statement on Form
S-1, No. 33-90682
(3) Incorporated by reference from Sinclair's Current Report on Form 8-K,
dated as of December 16, 1997.
(4) Incorporated by reference from Sinclair's Report on Form 10-K for the
year ended December 31, 1996.
(5) Incorporated by reference from Sinclair's Report on Form 10-Q for the
quarter ended June 30, 1996.
(6) Incorporated by reference from Sinclair's Report on Form 10-K for the
year ended December 31, 1998.
(7) Incorporated by reference from Sinclair's Report on Form 10-Q for the
quarter ended September 30, 1996.
(8) Incorporated by reference from Sinclair's Registration Statement on Form
S-1, No. 33-69482.
(9) Incorporated by reference from Sinclair's Report on Form 10-K for the
year ended December 31, 1995.
(10) Incorporated by reference from Sinclair's Proxy Statement for the 1998
Annual Meeting filed on Schedule 14A.
(11) Incorporated by reference from Sinclair's Report on Form 10-K for the
year ended December 3 1, 1997
(12) Incorporated by reference from Sinclair's Report on Form 10-Q for the
quarter ended September 30, 1998
(13) Incorporated by reference from Sinclair's Report on Form 10-Q for the
quarter ended September 20, 1999.
(d) Financial Statements Schedules
The financial statement schedules required by this Item are listed under Item
14 (a) (2).
44
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized on
this 28th day of March 2001.
SINCLAIR BROADCAST GROUP, INC.
By: /S/ David D. Smith
---------------------------------
David D. Smith
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
under the heading "Signature" constitutes and appoints David B. Amy as his or
her true and lawful attorney-in-fact each acting alone, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead in any and all capacities to sign any or all amendments to this 10-K
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the SEC, granting unto said attorney-in-fact full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully for all intents
and purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact, or their substitutes, each acting
alone, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David D. Smith Chairman of the Board and March 28, 2001
- ---------------------------- Chief Executive Officer
David D. Smith (Principal Executive Officer)
/s/ David B. Amy Executive Vice President and March 28, 2001
- ---------------------------- Chief Financial Officer
David B. Amy
/s/ Frederick G. Smith Director March 28, 2001
- ----------------------------
Frederick G. Smith
/s/ J. Duncan Smith Director March 28, 2001
- ----------------------------
J. Duncan Smith
/s/ Robert E. Smith Director March 28, 2001
- ----------------------------
Robert E. Smith
/s/ Basil A. Thomas Director March 28, 2001
- ----------------------------
Basil A. Thomas
/s/ Lawrence E. Mccanna Director March 28, 2001
- ----------------------------
Lawrence E. Mccanna
</TABLE>
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES PAGE
<S> <C>
Report of Independent Public Accountants......................................................F-2
Consolidated Balance Sheets as of December 31, 1999 and 2000..................................F-3
Consolidated Statements of Operations for the Years Ended December 31, 1998,
1999 and 2000...............................................................................F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1998, 1999 and 2000.........................................................................F-5, F-6, F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
1999 and 2000...............................................................................F-8, F-9
Notes to Consolidated Financial Statements....................................................F-10
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Sinclair Broadcast Group, Inc.:
We have audited the accompanying consolidated balance sheets of Sinclair
Broadcast Group, Inc. (a Maryland corporation) and Subsidiaries as of December
31, 1999 and 2000, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sinclair Broadcast Group, Inc.
and Subsidiaries as of December 31, 1999 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Baltimore, Maryland,
January 30, 2001 (except with respect to the matter discussed
in Note 16, as to which the date is February 7, 2001)
F-2
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1999 2000
---- ----
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash ...................................................................................... $ 16,408 $ 4,091
Accounts receivable, net of allowance for doubtful accounts of $5,016 and
$5,751, respectively ..................................................................... 192,469 165,913
Current portion of program contract costs ................................................. 74,138 72,841
Prepaid expenses and other current assets ................................................. 25,292 11,461
Deferred barter costs ..................................................................... 1,823 3,472
Broadcast assets related to discontinued operations, net of liabilities ................... 172,983 --
Broadcast assets held for sale, current ................................................... 77,962 --
Deferred tax assets ....................................................................... 5,215 11,939
----------- -----------
Total current assets ................................................................... 566,290 269,717
PROGRAM CONTRACT COSTS, less current portion ................................................. 53,002 53,698
LOANS TO OFFICERS AND AFFILIATES ............................................................. 8,772 8,269
PROPERTY AND EQUIPMENT, net .................................................................. 251,783 280,987
BROADCAST ASSETS HELD FOR SALE, less current portion ......................................... 144,316 --
OTHER ASSETS ................................................................................. 108,383 103,863
ACQUIRED INTANGIBLE BROADCAST ASSETS, net of accumulated amortization of
$331,308 and $382,398, respectively ....................................................... 2,486,964 2,684,106
----------- -----------
Total Assets ........................................................................... $ 3,619,510 $ 3,400,640
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................................................................... $ 7,600 $ 6,865
Accrued liabilities ....................................................................... 67,078 80,626
Income taxes payable ...................................................................... 116,821 55,912
Notes payable, capital lease, and commercial bank financing ............................... 75,008 100,018
Notes and capital leases payable to affiliates ............................................ 5,890 5,838
Current portion of program contracts payable .............................................. 111,992 110,217
Deferred barter revenues .................................................................. 3,244 4,296
----------- -----------
Total current liabilities ............................................................... 387,633 363,772
LONG-TERM LIABILITIES:
Notes payable, capital lease, and commercial bank financing ............................... 1,677,299 1,481,561
Notes and capital leases payable to affiliates ............................................ 34,142 29,009
Program contracts payable ................................................................. 87,220 99,146
Deferred tax liability .................................................................... 233,927 255,088
Other long-term liabilities ............................................................... 20,444 46,746
----------- -----------
Total liabilities ....................................................................... 2,440,665 2,275,322
----------- -----------
EQUITY PUT OPTION ............................................................................ -- 7,811
----------- -----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ............................................... 3,928 4,977
----------- -----------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY KDSM SENIOR DEBENTURES .................................... 200,000 200,000
----------- -----------
STOCKHOLDERS' EQUITY:
Series D Preferred Stock, $.01 par value, 3,450,000 shares authorized and
3,450,000 shares issued and outstanding, liquidation preference of
$172,500,000 ............................................................................ 35 35
Class A Common Stock, $.01 par value, 500,000,000 shares authorized and
49,142,513 and 39,032,277 shares issued and outstanding, respectively ................... 491 390
Class B Common Stock, $.01 par value, 140,000,000 shares authorized and
47,608,347 and 45,479,578 shares issued and outstanding, respectively ................... 476 455
Additional paid-in capital ................................................................ 834,393 750,372
Additional paid-in capital - equity put options ........................................... 46,068 --
Additional paid-in capital - deferred compensation ........................................ (4,489) (2,618)
Retained earnings ......................................................................... 97,943 164,958
Other comprehensive loss .................................................................. -- (1,062)
----------- -----------
Total stockholders' equity .............................................................. 974,917 912,530
----------- -----------
Total Liabilities and Stockholders' Equity .............................................. $ 3,619,510 $ 3,400,640
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
REVENUES:
Station broadcast revenues, net of agency commissions
<S> <C> <C> <C>
of $90,664, $106,925 and $115,579, respectively ...................... $ 564,727 $ 670,252 $ 727,017
Revenues realized from station barter arrangements ..................... 59,697 63,387 57,351
Other revenue .......................................................... -- -- 4,494
--------- --------- ---------
Total revenues ....................................................... 624,424 733,639 788,862
--------- --------- ---------
OPERATING EXPENSES:
Program and production .................................................... 104,463 137,597 156,065
Selling, general and administrative .................................... 116,075 145,737 173,424
Expenses realized from station barter arrangements ..................... 54,067 57,561 51,300
Amortization of program contract costs and net
realizable value adjustments ......................................... 69,453 86,857 100,357
Stock-based compensation ............................................... 2,908 2,494 1,801
Depreciation and amortization of property and equipment ................ 25,216 32,042 38,111
Amortization of acquired intangible broadcast assets,
non-compete and consulting agreements and other assets ............... 82,555 105,654 112,145
Cumulative adjustment for change in assets held for sale ............... -- -- 619
--------- --------- ---------
Total operating costs ................................................ 454,737 567,942 633,822
--------- --------- ---------
Operating income ..................................................... 169,687 165,697 155,040
--------- --------- ---------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ..................... (138,952) (178,281) (148,906)
Subsidiary trust minority interest expense ............................. (23,250) (23,250) (23,250)
Net gain (loss) on sale of broadcast assets ............................ 1,232 (418) --
Unrealized gain (loss) on derivative instrument ........................ (9,050) 15,747 (296)
Interest income ........................................................ 5,672 3,371 2,645
Loss related to investments ............................................ -- (504) (16,764)
Other income ........................................................... 1,022 619 572
--------- --------- ---------
Income (loss) before income taxes ...................................... 6,361 (17,019) (30,959)
PROVISION FOR INCOME TAXES ................................................ (32,562) (25,107) (4,816)
--------- --------- ---------
Net loss from continuing operations .................................... (26,201) (42,126) (35,775)
DISCONTINUED OPERATIONS:
Net income from discontinued operations, net of related
income tax provision of $8,609, $12,340 and $3,250,
respectively ......................................................... 14,102 17,538 4,876
Gain on sale of broadcast assets, net of related income
tax provision of $4,487, $137,431 and $69,870,
respectively ......................................................... 6,282 192,372 108,264
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of related
income tax benefit of $7,370 ......................................... (11,063) -- --
--------- --------- ---------
NET INCOME (LOSS) ......................................................... $ (16,880) $ 167,784 $ 77,365
========= ========= =========
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS ........................................................... $ (27,230) $ 157,434 $ 67,015
========= ========= =========
BASIC EARNINGS PER SHARE:
Loss per share from continuing operations .............................. $ (0.39) $ (0.54) $ (0.50)
========= ========= =========
Income per share from discontinued operations .......................... $ 0.22 $ 2.17 $ 1.24
========= ========= =========
Loss per share from extraordinary item ................................. $ (0.12) $ -- $ --
========= ========= =========
Income (loss) per common share ......................................... $ (0.29) $ 1.63 $ 0.73
========= ========= =========
Weighted average common shares outstanding ............................. 94,321 96,615 91,405
========= ========= =========
DILUTED EARNINGS PER SHARE:
Loss per share from continuing operations .............................. $ (0.39) $ (0.54) $ (0.50)
========= ========= =========
Income per share from discontinued operations .......................... $ 0.22 $ 2.17 $ 1.24
========= ========= =========
Loss per share from extraordinary item ................................. $ (0.12) $ -- $ --
========= ========= =========
Income (loss) per common share ......................................... $ (0.29) $ 1.63 $ 0.73
========= ========= =========
Weighted average common and common equivalent shares
outstanding .......................................................... 95,692 96,635 91,432
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-4
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN
SERIES B SERIES D CLASS A CLASS B ADDITIONAL CAPITAL -
PREFERRED PREFERRED COMMON COMMON PAID-IN EQUITY PUT
STOCK STOCK STOCK STOCK CAPITAL OPTIONS
----- ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 ............... $ 11 $ 35 $ 274 $ 509 $ 552,557 $ 23,117
Class B Common Stock converted into
Class A Common Stock ................. -- -- 18 (18) -- --
Series B Preferred Stock converted
into Class A Common Stock ............ (11) -- 75 -- (64) --
Dividends payable on Series D Preferred
Stock ................................ -- -- -- -- -- --
Stock option grants .................... -- -- -- -- 8,383 --
Stock options exercised ................ -- -- 1 -- 1,143 --
Class A Common Stock issued pursuant
to employee benefit plans ............ -- -- 1 -- 1,989 --
Equity put options ..................... -- -- -- -- (20,083) 20,083
Repurchase and retirement of 1,505,000 . -- -- (15) -- (26,650) --
shares of Class A Common Stock
Equity put option premiums ............. -- -- -- -- (12,938) --
Issuance of Class A Common Stock ....... -- -- 120 -- 335,003 --
Amortization of deferred compensation .. -- -- -- -- -- --
Income tax benefit related to deferred
compensation ......................... -- -- -- -- (390) --
Net loss ............................... -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
BALANCE, December 31, 1998 ............... $-- $ 35 $ 474 $ 491 $ 838,950 $ 43,200
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN
CAPITAL - TOTAL
DEFERRED ACCUMULATED STOCKHOLDERS'
COMPENSATION DEFICIT EQUITY
------------ ------- ------
<S> <C> <C> <C>
BALANCE, December 31, 1997 ............... $ (954) $ (32,261) $ 543,288
Class B Common Stock converted into
Class A Common Stock ................. -- -- --
Series B Preferred Stock converted
into Class A Common Stock ............ -- -- --
Dividends payable on Series D Preferred
Stock ................................ -- (10,350) (10,350)
Stock option grants .................... (8,383) -- --
Stock options exercised ................ -- -- 1,144
Class A Common Stock issued pursuant
to employee benefit plans ............ -- -- 1,990
Equity put options ..................... -- -- --
Repurchase and retirement of 1,505,000 . -- -- (26,665)
shares of Class A Common Stock
Equity put option premiums ............. -- -- (12,938)
Issuance of Class A Common Stock ....... -- -- 335,123
Amortization of deferred compensation .. 1,721 -- 1,721
Income tax benefit related to deferred
compensation ......................... -- -- (390)
Net loss ............................... -- (16,880) (16,880)
--------- --------- ---------
BALANCE, December 31, 1998 ............... $ (7,616) $ (59,491) $ 816,043
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN
SERIES B SERIES D CLASS A CLASS B ADDITIONAL CAPITAL -
PREFERRED PREFERRED COMMON COMMON PAID-IN EQUITY PUT
STOCK STOCK STOCK STOCK CAPITAL OPTIONS
----- ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 .............. $-- $ 35 $ 474 $ 491 $ 838,950 $ 43,200
Class B Common Stock converted into
Class A Common Stock ................ -- -- 15 (15) -- --
Series B Preferred Stock converted
into Class A Common Stock ........... (1) -- 8 -- (7) --
Class A Common Stock converted to
Series B Preferred Stock ............ 1 -- (6) -- 5 --
Series B Preferred Stock redemptions .. -- -- -- -- (1,498) --
Repurchase and retirement of 320,000
shares of Class A Common Stock ...... -- -- (3) -- (3,491) --
Dividends payable on Series D Preferred
Stock ............................... -- -- -- -- -- --
Stock options exercised ............... -- -- 1 -- 1,779 --
Class A Common Stock issued pursuant .. -- -- 2 -- 3,124 --
to employee benefit plans
Equity put options .................... -- -- -- -- (2,868) 2,868
Net payments relating to equity put
options ............................. -- -- -- -- 751 --
Amortization of deferred compensation . -- -- -- -- -- --
Income tax benefit related to deferred
compensation ........................ -- -- -- -- (360) --
Deferred compensation adjustment
related to forfeited stock options .. -- -- (1,992) --
Net income ............................ -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
BALANCE, December 31, 1999 .............. $-- $ 35 $ 491 $ 476 $ 834,393 $ 46,068
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN
CAPITAL - TOTAL
DEFERRED ACCUMULATED STOCKHOLDERS'
COMPENSATION DEFICIT EQUITY
------------ ------- ------
<S> <C> <C> <C>
BALANCE, December 31, 1998 .............. $ (7,616) $ (59,491) $ 816,043
Class B Common Stock converted into
Class A Common Stock ................ -- -- --
Series B Preferred Stock converted
into Class A Common Stock ........... -- -- --
Class A Common Stock converted to
Series B Preferred Stock ............ -- -- --
Series B Preferred Stock redemptions .. -- -- (1,498)
Repurchase and retirement of 320,000
shares of Class A Common Stock ...... -- -- (3,494)
Dividends payable on Series D Preferred
Stock ............................... -- (10,350) (10,350)
Stock options exercised ............... -- -- 1,780
Class A Common Stock issued pursuant .. -- -- 3,126
to employee benefit plans
Equity put options .................... -- -- --
Net payments relating to equity put
options ............................. -- 751
Amortization of deferred compensation . 1,135 -- 1,135
Income tax benefit related to deferred
compensation ........................ -- -- (360)
Deferred compensation adjustment
related to forfeited stock options .. 1,992 -- --
Net income ............................ -- 167,784 167,784
--------- --------- ---------
BALANCE, December 31, 1999 .............. $ (4,489) $ 97,943 $ 974,917
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL ADDITIONAL
PAID-IN PAID-IN
SERIES D CLASS A CLASS B ADDITIONAL CAPITAL - CAPITAL -
PREFERRED COMMON COMMON PAID-IN EQUITY PUT DEFERRED
STOCK STOCK STOCK CAPITAL OPTIONS COMPENSATION
----- ----- ----- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1999 ................... $35 $ 491 $ 476 $ 834,393 $ 46,068 $(4,489)
Class B Common Stock converted into
Class A Common Stock ..................... -- 21 (21) -- -- --
Repurchase and retirement of 12,560,400
shares of Class A Common Stock ........... -- (126) -- (123,174) -- --
Dividends payable on Series D Preferred
Stock .................................... -- -- -- -- -- --
Stock option grants ........................ -- -- -- 558 -- (558)
Stock options exercised .................... -- -- 53 -- --
Class A Common Stock issued pursuant
to employee benefit plans ................ -- 4 -- 2,655 -- --
Equity put options ......................... -- -- -- 38,257 (38,257) --
Reclassification due to adoption of
EITF No. 00-19 ........................... -- -- -- -- (7,811) --
Amortization of deferred compensation ...... -- -- -- -- -- 92
Income tax benefit related to deferred
compensation ............................. -- -- -- (33) -- --
Deferred compensation adjustment
related to forfeited stock options ....... -- -- (2,337) -- 2,337
Net income ................................. -- -- -- -- -- --
Other comprehensive loss on
investments, net of tax benefit
of $695 ................................... -- -- -- -- -- --
Comprehensive income ....................... -- -- -- -- -- --
--- ----- ------- --------- -------- -------
BALANCE, December 31, 2000 ................... $35 $ 390 $ 455 $ 750,372 $-- $(2,618)
=== ===== ======= ========= ======== =======
</TABLE>
<TABLE>
<CAPTION>
OTHER TOTAL
RETAINED COMPREHENSIVE STOCKHOLDERS'
EARNINGS LOSS EQUITY
-------- ---- ------
<S> <C> <C> <C>
BALANCE, December 31, 1999 ................ $ 97,943 $-- $ 974,917
Class B Common Stock converted into
Class A Common Stock .................. -- -- --
Repurchase and retirement of 12,560,400
shares of Class A Common Stock ........ -- -- (123,300)
Dividends payable on Series D Preferred
Stock ................................. (10,350) -- (10,350)
Stock option grants ..................... -- -- --
Stock options exercised ................. -- -- 53
Class A Common Stock issued pursuant
to employee benefit plans ............. -- -- 2,659
Equity put options ...................... -- -- --
Reclassification due to adoption of
EITF No. 00-19 ........................ -- -- (7,811)
Amortization of deferred compensation ... -- -- 92
Income tax benefit related to deferred
compensation .......................... -- -- (33)
Deferred compensation adjustment
related to forfeited stock options .... -- --
---------
Net income .............................. 77,365 -- 77,365
Other comprehensive loss on
investments, net of tax benefit
of $695 ................................ -- (1,062) (1,062)
---------
Comprehensive income .................... -- -- 76,303
--------- ------- ---------
BALANCE, December 31, 2000 ................ $ 164,958 $(1,062) $ 912,530
========= ======= =========
The accompanying notes are an integral part of these consolidated statements
</TABLE>
F-7
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
NET CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) .................................... $ (16,880) $ 167,784 $ 77,365
Adjustments to reconcile net income (loss) to net to
cash flows from operating activities -
Extraordinary loss ................................. 18,433 -- --
(Gain) loss on sale of broadcast assets ............ (1,232) 418 --
Gain on sale of broadcast assets related to
discontinued operations ........................... (10,769) (329,803) (178,134)
Loss (gain) on derivative instrument ............... 9,050 (15,747) 296
Cumulative adjustment for change in assets held for
sale .............................................. -- -- (1,237)
Loss from equity investments ....................... -- 504 16,764
Amortization of debt discount ...................... 98 98 131
Depreciation of property and equipment ............. 29,153 36,419 40,101
Amortization of acquired intangible broadcast
assets, non-compete and consulting agreements and
other assets ...................................... 98,372 123,273 118,208
Amortization of program contract costs and net
realizable value adjustments ...................... 72,403 90,021 100,655
Amortization of deferred compensation .............. 1,721 1,135 92
Deferred tax provision related to operations ....... 30,700 25,197 11,760
Deferred tax provision (benefit) related to sale of
broadcast assets from discontinued operations ..... -- 37,988 (5,342)
Net effect of change in deferred barter revenues and
deferred barter costs ............................. (624) (911) (497)
(Decrease) increase in minority interest ........... (98) 316 (891)
Changes in assets and liabilities, net of effects of
acquisitions and dispositions -
(Increase) decrease in accounts receivable, net .... (68,207) (4,579) 31,529
(Increase) decrease in prepaid expenses and other
current assets ................................... (2,475) (6,154) 2,019
Decrease in refundable income taxes ................ 10,581 -- --
Increase (decrease) in accounts payable and accrued
liabilities ...................................... 40,878 (25,483) (344)
Increase (decrease) in income taxes payable ........ -- 106,033 (60,909)
Increase in other long-term liabilities ............ 483 3,629 11,864
Payments on program contracts payable .............. (61,107) (79,473) (94,303)
--------- --------- ---------
Net cash flows from operating activities ........... $ 150,480 $ 130,665 $ 69,127
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-8
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES ....................... $ 150,480 $ 130,665 $ 69,127
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment ...................... (19,426) (30,861) (33,256)
Payments for acquisitions of television and radio
stations ................................................ (2,068,258) (237,274) (89,936)
Distribution from (contributions in) investments ........... 665 (15,016) (13,465)
Proceeds from sale of broadcast assets ..................... 273,290 733,916 346,439
Loans to officers and affiliates ........................... (2,073) (859) (639)
Repayments of loans to officers and affiliates ............. 3,120 2,593 677
----------- --------- ---------
Net cash flows (used in) from investing activities ...... (1,812,682) 452,499 209,820
----------- --------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and commercial bank
financing ............................................... 1,822,677 357,500 707,500
Repayments of notes payable, commercial bank
financing and capital leases ............................ (578,285) (909,399) (879,500)
Repayments of notes and capital leases to affiliates ....... (1,798) (5,314) (6,079)
Payments of costs related to bank financings ............... (11,138) -- --
Repurchases of Class A Common Stock ........................ (26,665) (3,494) (107,322)
Dividends paid on Series D Preferred Stock ................. (10,350) (10,350) (10,350)
Proceeds from exercise of stock options .................... 1,144 1,780 53
Proceeds from execution/termination of derivative
instruments ............................................. 9,450 -- 4,434
Net (premiums paid) proceeds related to equity put
options ................................................. (14,015) 751 --
Payments for redemption of Series B Preferred Stock ........ -- (1,498) --
Net proceeds from issuances of Class A Common Stock ........ 335,123 -- --
----------- --------- ---------
Net cash flows from (used in) financing activities ...... 1,526,143 (570,024) (291,264)
----------- --------- ---------
NET (DECREASE) INCREASE IN CASH ................................ (136,059) 13,140 (12,317)
CASH, beginning of period ...................................... 139,327 3,268 16,408
----------- --------- ---------
CASH, end of period ............................................ $ 3,268 $ 16,408 $ 4,091
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-9
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Sinclair Broadcast Group, Inc., and all other consolidated subsidiaries, which
are collectively referred to hereafter as "the Company, Companies or SBG." The
Company owns or provides programming services pursuant to local marketing
agreements ("LMAs") to television stations throughout the United States.
DISCONTINUED OPERATIONS
In July 1999, the Company entered into an agreement to sell 46 of its radio
stations in nine markets to Entercom Communications Corporation ("Entercom") for
$824.5 million in cash (adjusted for closing costs). In December 1999, the
Company completed the sale of 41 of its radio stations in eight markets to
Entercom for $700.4 million in cash recognizing a gain, net of tax of $192.4
million. The Company completed the sale of four of the remaining five radio
stations to Entercom in July 2000 for $126.6 million in cash and completed the
sale of the remaining radio station in Wilkes-Barre to Entercom in November 2000
for a purchase price of $0.6 million in cash. In addition, in October 2000, the
Company completed its sale to Emmis Communications Corporation ("Emmis") of the
remaining radio stations serving the St. Louis market for a purchase price of
$220.0 million. The Company recognized a gain, net of tax of $108.3 million on
the sales of these remaining radio stations for the year ended December 31,
2000.
Based on the Company's strategy to divest of its radio broadcasting segment,
"Discontinued Operations" accounting has been adopted for the periods presented
in the accompanying financial statements and the notes thereto. As such, the
results from operations of the radio broadcast segment, net of related income
taxes, has been reclassified from income from operations and reflected as income
from discontinued operations in the accompanying consolidated statements of
operations for all periods presented. In addition, assets and liabilities
relating to the radio broadcast segment are reflected in "Broadcast assets
related to discontinued operations, net of liabilities" in the accompanying
consolidated balance sheets for all periods presented. Included in the balance
of "Broadcast assets related to discontinued operations, net of liabilities" as
of December 31, 1999 was property and programming assets of $13.8 million,
intangible assets of $163.9 million, other long-term assets of $1.3 million,
programming liabilities of $5.0 million and other long-term liabilities of $1.0
million. Accounts receivable related to discontinued operations, which the
Company will continue to own the rights to and collect, is included in "Accounts
receivable, net of allowance for doubtful accounts," in the accompanying
consolidated balance sheets for all periods presented. "Accounts receivable, net
of allowance for doubtful accounts" includes accounts receivable related to
discontinued operations balances of $26.9 million, net of allowance of $1.4
million and $1.8 million, net of allowance of $1.4 million as of December 31,
1999 and 2000, respectively.
"Net income from discontinued operations" includes net broadcast revenues of
$112.4 million, $133.8 million and $27.9 million for the years ended December
31, 1998, 1999 and 2000, respectively.
Discontinued operations have not been segregated in the Statement of
Consolidated Cash Flows and therefore, amounts for certain captions will not
agree with the accompanying Consolidated Statements of Operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all its wholly-owned and majority-owned subsidiaries. Minority interest
represents a minority owner's proportionate share of the equity in certain of
the Company's subsidiaries. All significant intercompany transactions and
account balances have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets,
F-10
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
liabilities, revenues and expenses in the financial statements and in the
disclosures of contingent assets and liabilities. While actual results could
differ from those estimates, management believes that actual results will not be
materially different from amounts provided in the accompanying consolidated
financial statements.
PROGRAMMING
The Company has agreements with distributors for the rights to television
programming over contract periods which generally run from one to seven years.
Contract payments are made in installments over terms that are generally shorter
than the contract period. Each contract is recorded as an asset and a liability
at an amount equal to its gross contractual commitment when the license period
begins and the program is available for its first showing. The portion of
program contracts which become payable within one year is reflected as a current
liability in the accompanying consolidated balance sheets.
The rights to program materials are reflected in the accompanying consolidated
balance sheets at the lower of unamortized cost or estimated net realizable
value. Estimated net realizable values are based upon management's expectation
of future advertising revenues net of sales commissions to be generated by the
program material. Amortization of program contract costs is generally computed
using either a four year accelerated method or based on usage, whichever yields
the greater amortization for each program. Program contract costs, estimated by
management to be amortized in the succeeding year, are classified as current
assets. Payments of program contract liabilities are typically paid on a
scheduled basis and are not affected by adjustments for amortization or
estimated net realizable value.
BARTER ARRANGEMENTS
Certain program contracts provide for the exchange of advertising air time in
lieu of cash payments for the rights to such programming. These contracts are
recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights. Network
programming is excluded from these calculations.
The Company broadcasts certain customers' advertising in exchange for equipment,
merchandise and services. The estimated fair value of the equipment, merchandise
or services received is recorded as deferred barter costs and the corresponding
obligation to broadcast advertising is recorded as deferred barter revenues. The
deferred barter costs are expensed or capitalized as they are used, consumed or
received. Deferred barter revenues are recognized as the related advertising is
aired.
OTHER ASSETS
Other assets as of December 31, 1999 and 2000 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Unamortized costs relating to securities issuances ......... $ 27,236 $ 23,307
Investments ................................................ 19,329 14,063
Notes and other accounts receivable ........................ 54,101 52,558
Deposits and other costs relating to future acquisitions ... 7,195 2,272
Fair value of derivative instrument ........................ -- 6,050
Other ...................................................... 522 5,613
-------- --------
$108,383 $103,863
======== ========
</TABLE>
F-11
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
The Company uses the equity method of accounting for investments in which it has
a 20% to 50% ownership interest or when the Company has significant influence.
For investments in which it has less than a 20% interest, the Company uses the
lower of cost or fair market value method of accounting.
The Company has a 35% ownership interest in Acrodyne Communications, Inc.
("Acrodyne"), a manufacturer of television transmitters and other broadcast
equipment. The Company accounts for its investment in Acrodyne under the equity
method of accounting. During August 2000, Acrodyne announced that it would be
restating its financial statements for the year ended December 31, 1999 and the
three months ended March 31, 2000 due to an overstatement of revenue, inventory
and gross profits. The impact of the 1999 restatement, which would have
increased the Company's equity share of Acrodyne's losses from $0.5 million to
$2.3 million was not material to the Company's 1999 net income. As a result of
the restatement, Acrodyne was unable to fulfill its quarterly reporting
requirements with the SEC for the quarters ended June 30, 2000 and September 30,
2000 on a timely basis. During September 2000, Acrodyne was delisted from
NASDAQ. As a result, the Company wrote-off its investment in Acrodyne to zero
and recorded a loss of $6.9 million, including its equity in the revised 1999
losses described above and the 2000 losses through the write-off date, which has
been reflected in the accompanying Statements of Operations as "Loss related to
investments".
In addition, during 2000, the Company advanced and guaranteed loans to Acrodyne
under two credit facilities which were fully reserved as of December 31, 2000.
Accordingly, the Company incurred a loss of $3.2 million during 2000 which has
also been reflected in the accompanying Statements of Operations as "Loss
related to investments".
In 1999, the Company made a $2.0 million investment, representing a 30%
ownership interest, in Channel 23 LLC, a start-up entity created to purchase a
FCC license and retransmit a signal in the Tuscaloosa, Alabama market. Channel
23 LLC had no operations and was abandoned by the Company during 2000 resulting
in a loss of $2.2 million which has also been reflected in the accompanying
Statements of Operations as "Loss related to investments".
The Company has no other investments, which were material, individually, or in
the aggregate to the accompanying financial statements.
ACQUIRED INTANGIBLE BROADCAST ASSETS
Acquired intangible broadcast assets are being amortized on a straight-line
basis over periods of 1 to 40 years. These amounts result from the acquisition
of certain television station license and non-license assets. The Company
monitors the individual financial performance of each of the stations and
continually evaluates the realizability of intangible and tangible assets and
the existence of any impairment to its recoverability based on the projected
undiscounted cash flows of the respective stations. As of December 31, 2000,
management believes that the carrying amounts of the Company's tangible and
intangible assets have not been impaired.
Intangible assets as of December 31, 1999 and 2000, consist of the following (in
thousands):
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD 1999 2000
------ ---- ----
<S> <C> <C> <C>
Goodwill .......................... 40 years $ 1,539,151 $ 1,733,958
Intangibles related to LMAs ....... 15 years 463,067 460,463
Decaying advertiser base .......... 3 - 15 years 92,000 88,584
FCC licenses ...................... 25 years 433,790 515,044
Network affiliations .............. 25 years 241,356 223,359
Other ............................. 1 - 40 years 48,908 45,096
----------- -----------
2,818,272 3,066,504
Less - Accumulated amortization.... (331,308) (382,398)
----------- -----------
$ 2,486,964 $ 2,684,106
=========== ===========
</TABLE>
F-12
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
ACCRUED LIABILITIES
Accrued liabilities consist of the following as of December 31, 1999 and 2000
(in thousands):
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Compensation .................................. $20,862 $18,635
Interest ...................................... 27,478 23,864
Unsettled stock repurchases ................... -- 15,979
Other accruals relating to operating expenses.. 18,738 22,148
------- -------
$67,078 $80,626
======= =======
</TABLE>
SUPPLEMENTAL INFORMATION - STATEMENT OF CASH FLOWS
During 1998, 1999 and 2000, the Company incurred the following transactions
(in thousands):
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
o Purchase accounting adjustments
related to deferred taxes.............. $ 113,950 $ -- $ --
=========== =========== ===========
o Capital leases obligations incurred..... $ 3,807 $ 22,208 $ 5,319
=========== =========== ===========
o Income taxes paid from operations...... $ 3,588 $ 7,433 $ 6,383
=========== =========== ===========
o Income taxes paid related to sale
of discontinued operations............. $ -- $ -- $ 115,054
=========== =========== ===========
o Income tax refund received............. $ 10,486 $ 2,231 $ 3,598
=========== =========== ===========
o Subsidiary trust minority interest
payments .............................. $ 23,250 $ 23,250 $ 23,250
=========== =========== ===========
o Interest paid.......................... $ 117,658 $ 203,976 $ 139,833
=========== =========== ===========
</TABLE>
LOCAL MARKETING AGREEMENTS
The Company generally enters into LMAs and similar arrangements with stations
located in markets in which the Company already owns and operates a station, and
in connection with acquisitions, pending regulatory approval of transfer of
License Assets. Under the terms of these agreements, the Company makes specified
periodic payments to the owner-operator in exchange for the grant to the Company
of the right to program and sell advertising on a specified portion of the
station's inventory of broadcast time. Nevertheless, as the holder of the
Federal Communications Commission ("FCC") license, the owner-operator retains
control and responsibility for the operation of the station, including
responsibility over all programming broadcast on the station.
Included in the accompanying consolidated statements of operations for the years
ended December 31, 1998, 1999 and 2000, are net revenues of $202.5 million,
$263.0 million and $253.9 million, respectively, that relate to LMAs.
BROADCAST ASSETS HELD FOR SALE
In March 1999, the Company entered into an agreement to sell to Sunrise
Television Corporation ("STC") the television stations WICS/WICD-TV in the
Springfield/Champaign, Illinois market and KGAN-TV in the Cedar Rapids, Iowa
market. In April 1999, the Justice Department requested additional information
in response to STC's filing under the Hart-Scott-Rodino Antitrust Improvements
Act. Pursuant to the agreement, if the transaction did not close by March 16,
2000, either STC or the Company had the option to terminate the agreement at
that time. On March 15, 2000, the Company entered into an agreement to terminate
the STC transaction. As a result of its termination, the Company recorded a
cumulative accounting adjustment during the first quarter of 2000 as the Company
had previously recorded the assets
F-13
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
and liabilities related to these stations as "Broadcast Assets Held for Sale"
and deferred the losses related to these stations until they were sold.
As of December 31, 1999, broadcast assets held for sale, less current portion,
included the assets of KDNL-TV in the St. Louis, Missouri market. The assets
were reclassified to the appropriate balance sheet classifications during the
second quarter of 2000 as the option to sell these assets was subsequently
terminated (see Note 11).
REVENUE RECOGNITION
Advertising revenues, net of agency and national representatives' commissions,
are recognized in the period during which time spots are aired. Total revenues
includes (i) cash and barter advertising revenues, net of agency and national
representatives' commissions, (ii) network compensation, and (iii) other
revenues.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform with the current year presentation.
2. PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed under the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements .......................... 10 - 35 years
Station equipment ................................... 5 - 10 years
Office furniture and equipment ...................... 5 - 10 years
Leasehold improvements .............................. 10 - 31 years
Automotive equipment ................................ 3 - 5 years
Shorter of 10 years
Property and equipment and autos under capital leases or the lease term
</TABLE>
Property and equipment consisted of the following as of December 31, 1999 and
2000 (in thousands):
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Land and improvements ............... $ 13,015 $ 17,209
Buildings and improvements .......... 67,273 82,667
Station equipment ................... 216,250 254,810
Office furniture and equipment ...... 27,060 33,409
Leasehold improvements .............. 10,441 9,418
Automotive equipment ................ 7,760 9,958
Construction in Progress ............ -- 3,184
--------- ---------
341,799 410,655
Less - Accumulated depreciation ..... (90,016) (129,668)
--------- ---------
$ 251,783 $ 280,987
========= =========
</TABLE>
3. DERIVATIVE INSTRUMENTS:
The Company enters into derivative instruments primarily for the purpose of
reducing the impact of changing interest rates on its floating rate debt, and to
reduce the impact of changing fair market values on its fixed rate debt. In
addition, the Company has entered into put and call option derivative
instruments relating to the Company's Class A Common Stock in order to hedge the
possible dilutive effect of employees exercising stock options pursuant to the
Company's stock option plans. The Company does not enter into derivative
instruments for speculative trading purposes.
STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 133
In June, 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. In June 1999, the FASB issued Statement No.
137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES -
F-14
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133. In June 2000, the FASB
issued Statement 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN
HEDGING ACTIVITIES, AN AMENDMENT OF FASB STATEMENT NO. 133. Statement 133, as
amended, establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative instrument's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for qualifying
hedges allows a derivative instrument's gains and losses to offset related
results on the hedged item in the income statement, to the extent effective, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. The Company
estimates that SFAS 133 will have the following impact on its financial
statements.
The Company's existing interest rate swap agreements are not expected to qualify
for special hedge accounting treatment under SFAS 133. As a result, both of the
Company's interest rate swap agreements will be reflected as liabilities on
January 1, 2001 at their total fair market value of $7.1 million (described
below), with subsequent changes in their fair market values recorded as other
income or loss. The transition adjustment to record the Company's
fixed-to-floating rate derivative will result in an increase in both the
derivative liability and bond discount of $1.0 million (included in the $7.1
million above) on the balance sheet. The bond discount will be amortized to
interest expense through December 15, 2007, the termination date of the swap
agreement.
SFAS 133 requires deferred gains and losses on terminated floating-to-fixed
rate hedges (described above) to be presented as other comprehensive income or
loss on the balance sheet. As a result, the Company will be required to
reclassify the $4.3 million net balance of deferred losses to other
comprehensive loss as of January 1, 2001, which will be amortized to interest
expense over the term of the related debt.
INTEREST RATE HEDGING DERIVATIVE INSTRUMENTS
As of December 31, 2000, the Company had an interest rate swap agreement with a
notional amount of $575 million which expires on June 3, 2004. The swap
agreement requires the Company to pay a fixed rate which is set in the range of
6% to 6.55% and receive a floating rate based on the three month London
Interbank Offered Rate ("LIBOR"), and the measurement and settlement is
performed quarterly. This swap agreement is reflected as a derivative obligation
of $6.1 million as a component of "Accrued liabilities" on the accompanying
consolidated balance sheet as of December 31, 2000 as a result of a modification
of the agreement during 2000. In addition, the Company has entered into an
interest rate swap agreement with a notional amount of $250 million which
expires on December 15, 2007 in which the Company receives a fixed rate of 8.75%
and pays a floating rate based on LIBOR (and the measurement and settlement is
performed quarterly). Periodic settlements of these agreements are recorded as
adjustments to interest expense in the relevant periods.
The counterparties to these agreements are international financial institutions.
The Company estimates the fair value of these instruments at December 31, 2000
to be $7.1 million, consisting of $6.1 million related to the floating-to-fixed
rate agreement and $1.0 million related to the fixed-to-floating rate agreement.
The fair value of the interest rate swap agreements is estimated by obtaining
quotations from the financial institutions which are a party to the Company's
derivative contracts (the "Banks"). The fair value is an estimate of the net
amount that the Company would pay on December 31, 2000 if the contracts were
transferred to other parties or cancelled by the Company.
The Company experienced losses of $2.6 million during 2000 as a result of
terminating two of its fixed-to-floating interest rate swap agreements. The
losses resulting from these terminations are reflected as a discount on the
Company's fixed rate debt and are being amortized to interest expense through
December 15, 2007, the expiration date of the terminated swap agreements. For
the year ended December 31, 2000, amortization of $0.03 million of the discount
was recorded to interest expense.
The Company experienced gains of $1.9 million as a result of terminating several
of its floating-to-fixed interest rate swap agreements. In addition, the Company
experienced a loss of $6.1 million as a result of modifying the terms of its
remaining floating-to-fixed interest rate swap agreement, as discussed above.
The gains and losses resulting from these terminations and modifications have
been deferred and are recorded as "Other long-term liabilities" and "Other
assets" on the accompanying consolidated balance
F-15
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
sheet as of December 31, 2000. These deferred gains and losses are being
amortized to interest income and expense through the expiration dates of the
terminated or modified swap agreements, which expire from July 9, 2001 to June
3, 2004. For the year ended December 31, 2000, amortization of $0.1 million of
the deferred gain was recorded to interest expense.
No amortization of the deferred loss was recorded because the loss occurred on
the last business day of 2000.
TREASURY OPTION DERIVATIVE INSTRUMENT
In August 1998, the Company entered into a treasury option derivative contract
(the "Option Derivative"). The Option Derivative contract provided for 1) an
option exercise date of September 27, 2000, 2) a notional amount of $300 million
and 3) a five-year treasury strike rate of 6.14%. Upon the execution of the
Option Derivative contract in 1998, the Company received a cash payment
representing an option premium of $9.5 million which was recorded in "Other
long-term liabilities" in the accompanying consolidated balance sheets. The
Company adjusted its liability to the present value of the future payments of
the settlement amounts based on the forward five-year treasury rate at the end
of each accounting period. These adjustments are reflected on the Company's
Consolidated Statement of Operations as "Unrealized gains or losses on
derivative instrument".
On September 27, 2000, the yield in the five-year treasury rate was 5.906%
resulting in a loss of $0.3 million for the year ended December 31, 2000. In
addition, the Company made a cash settlement payment of $3.0 million upon the
expiration of the Option Derivative contract which is equal to the notional
amount of $300 million multiplied by the strike rate (6.14%) less the settlement
rate (5.906%) discounted over a five-year period. The Company realized a $6.4
million cash profit over the life of the transaction.
EQUITY PUT AND CALL OPTIONS
1997 OPTIONS
In April 1997, the Company entered into put and call option contracts related to
its common stock for the purpose of hedging the dilution of the common stock
upon the exercise of stock options granted. The Company entered into 1,100,000
European style (that is, exercisable on the expiration date only) put options
for common stock with a strike price of $12.89 per share which provide for
settlement in cash or in shares, at the election of the Company. The Company
entered into 1,100,000 American style (that is, exercisable any time on or
before the expiration date) call options for common stock with a strike price of
$12.89 per share which provide for settlement in cash or in shares, at the
election of the Company. For the year ended December 31, 2000, upon the
settlement of these options, the Company repurchased 1,100,000 shares of common
stock and made payments of $14.2 million.
1998 OPTIONS
In July 1998, the Company entered into put and call option contracts related to
the Company's common stock (the "July Options"). In September 1998, the Company
entered into additional put and call option contracts related to the Company's
common stock (the "September Options"). These option contracts allow for
settlement in cash or net physically in shares, at the election of the Company.
The Company entered into these option contracts for the purpose of hedging the
dilution of the Company's common stock upon the exercise of stock options
granted. The July Options included 2,700,000 call options for common stock and
2,700,000 put options for common stock, with a strike price of $33.27 and $28.93
per common share, respectively. The September Options included 467,000 call
options for common stock and 700,000 put options for common stock, with a strike
price of $28.00 and $16.0625 per common share, respectively. For the year ended
December 31, 1998, option premium payments of $12.2 million and $0.7 million
were made relating to the July and September Options, respectively. The Company
recorded these premium payments as a reduction of additional paid-in capital. To
the extent that the Company entered into put options related to its common
stock, the additional paid-in capital amounts were reclassified accordingly and
reflected as Equity Put Options in the accompanying consolidated balance sheet
as of December 31, 1998. For the year ended December 31, 1999, the Company
recorded receipts
F-16
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
of $1.25 million relating to the 1998 September Options as an increase in
additional paid-in capital. Additionally, 200,000 of the 1998 September Options
were retired during 1999.
The 1998 July Options and September Options were exercised during March 2000.
The Company repurchased 208,400 shares and made a net payment of $1.6 million
related to this settlement. The 1998 September Options were amended during March
2000 to include 2.1 million equity put options at a put strike price of $10.125.
The Company settled the 1998 September options during December 2000 and
repurchased 1,430,000 shares of common stock and made a payment of $14.5 million
related to this settlement. Additionally, during 2000, the Emerging Issues Task
Force of the Financial Accounting Standards Board (EITF) released EITF Issue No.
00-19, ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, AND
POTENTIALLY SETTLED IN, A COMPANY'S OWN STOCK. EITF Issue No. 00-19 clarified
how freestanding contracts that are indexed to, and potentially settled in, a
company's own stock should be classified and measured. As a result of
implementing EITF Issue No. 00-19, the Company reclassified the balance relating
to the July Options of $7.8 million from Additional Paid-in Capital-Equity Put
Options to Equity Put Options as reflected in the accompanying balance sheet as
of December 31, 2000.
1999 OPTIONS
In September 1999, the Company entered into put and call option contracts
related to the Company's common stock. The Company entered into 1,700,000
European style put options for common stock with a strike price of $9.45 per
share which provide for settlement in cash or in shares, at the election of the
Company. In September 1999, the Company entered into 1,000,000 American style
call options for common stock with a strike price $10.45 per share which provide
for settlement in cash or in shares, at the election of the Company. For the
year ended December 31, 1999, option premium payments of $0.5 million were made
relating to the September call options. The Company recorded these premium
payments as a reduction of additional paid-in capital. To the extent that the
Company entered into put options related to its common stock, the additional
paid-in capital amounts were reclassified accordingly and reflected as Equity
Put Options in the accompanying consolidated balance sheet as of December 31,
1999. For the year ended December 31, 2000, upon settlement of these options,
the Company repurchased 1,030,000 shares of common stock and made payments of
$9.7 million.
4. NOTES PAYABLE AND COMMERCIAL BANK FINANCING:
1998 BANK CREDIT AGREEMENT
In order to expand its borrowing capacity to fund acquisitions and obtain more
favorable terms with its syndicate of banks, the Company obtained a new $1.75
billion senior secured credit facility (the "1998 Bank Credit Agreement"). The
1998 Bank Credit Agreement was executed in May 1998 and includes (i) a $750.0
million Term Loan Facility repayable in consecutive quarterly installments
commencing on March 31, 1999 and ending on September 15, 2005; and (ii) a $1.0
billion reducing Revolving Credit Facility. Availability under the Revolving
Credit Facility reduces quarterly, commencing March 31, 2001 and terminating on
September 15, 2005. Not more than $350.0 million of the Revolving Credit
Facility will be available for issuances of letters of credit. The 1998 Bank
Credit Agreement also includes a standby uncommitted multiple draw term loan
facility of $400.0 million. The Company is required to prepay the Term Loan
Facility and reduce the Revolving Credit Facility with (i) 100% of the net
proceeds of any casualty loss or condemnation; (ii) 100% of the net proceeds of
any sale or other disposition by the Company of any assets in excess of $100.0
million in the aggregate for any fiscal year, to the extent not used to acquire
new assets; and (iii) 50% of excess cash flow (as defined) if the Company's
ratio of debt to EBITDA (as defined) exceeds a certain threshold. The 1998 Bank
Credit Agreement contains representations and warranties, and affirmative and
negative covenants, including among other restrictions, limitations on
additional indebtedness, customary for credit facilities of this type. The 1998
Bank Credit Agreement is secured only by a pledge of the stock of each
subsidiary of the Company other than KDSM, Inc., KDSM Licensee, Inc., Cresap
Enterprises, Inc., Sinclair Capital and Sinclair Ventures, Inc. The Company is
required to maintain certain debt covenants in connection with the 1998 Bank
Credit Agreement. As of December 31, 2000, the Company was in compliance with
all debt covenants.
F-17
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
The applicable interest rate for the Term Loan Facility and the Revolving Credit
Facility is either LIBOR plus 0.5% to 1.875% or the alternative base rate plus
zero to 0.625%. The applicable interest rate for the Term Loan Facility and the
Revolving Credit Facility is adjusted based on the ratio of total debt to four
quarters' trailing earnings before interest, taxes, depreciation and
amortization. As of December 31, 2000, the Company's applicable interest rate
for borrowings under the 1998 Bank Credit Agreement is either LIBOR plus 1.5% or
the alternative base rate plus 0.25%.
As a result of entering into the Company's 1998 Bank Credit Agreement, the
Company incurred debt acquisition costs of $11.1 million and recognized an
extraordinary loss of $11.1 million net of a tax benefit of $7.4 million. The
extraordinary loss represents the write-off of debt acquisition costs associated
with indebtedness replaced by the new facility. The weighted average interest
rates for outstanding indebtedness relating to the 1998 Bank Credit Agreement
during 2000 and as of December 31, 2000 were 7.73% and 7.54%, respectively.
Interest expense relating to the 1998 Bank Credit Agreement was $108.9 million
and $79.3 million for years ended December 31, 1999 and 2000, respectively.
8 3/4% SENIOR SUBORDINATED NOTES DUE 2007:
In December 1997, the Company completed an issuance of $250 million aggregate
principal amount of 8 3/4% Senior Subordinated Notes due 2007 (the "8 3/4%
Notes") pursuant to a shelf registration statement and generated net proceeds to
the Company of $242.8 million. Of the net proceeds from the issuance, $106.2
million was utilized to tender the Company's 1993 Notes with the remainder
retained for general corporate purposes which may include payments relating to
future acquisitions.
Interest on the 8 3/4% Notes is payable semiannually on June 15 and December 15
of each year, commencing June 15, 1998. Interest expense was $21.9 million for
each of the three years ended December 31, 1998, 1999 and 2000. The 8 3/4% Notes
are issued under an Indenture among SBG, its subsidiaries (the guarantors) and
the trustee. Costs associated with the offering totaled $5.8 million, including
an underwriting discount of $5.0 million. These costs were capitalized and are
being amortized over the life of the debt.
Based upon the quoted market price, the fair value of the 8 3/4% Notes as of
December 31, 1999 and 2000 was $231.3 million and $220.4 million, respectively.
9% SENIOR SUBORDINATED NOTES DUE 2007:
In July 1997, the Company completed an issuance of $200 million aggregate
principal amount of 9% Senior Subordinated Notes due 2007 (the "9% Notes"). The
Company utilized $162.5 million of the approximately $195.6 million net proceeds
of the issuance to repay outstanding revolving credit indebtedness and utilized
the remainder to fund acquisitions.
Interest on the 9% Notes is payable semiannually on January 15 and July 15 of
each year, commencing January 15, 1998. Interest expense was $18.0 million for
each of the three years ended December 31, 1998, 1999 and 2000. The 9% Notes are
issued under an Indenture among SBG, its subsidiaries (the guarantors) and the
trustee. Costs associated with the offering totaled $4.8 million, including an
underwriting discount of $4.0 million. These costs were capitalized and are
being amortized over the life of the debt.
Based upon the quoted market price, the fair value of the 9% Notes as of
December 31, 1999 and 2000 was $186.2 million and $180.4 million, respectively.
10% SENIOR SUBORDINATED NOTES DUE 2005
In August 1995, the Company completed an issuance of $300 million aggregate
principal amount of 10% Senior Subordinated Notes (the "1995 Notes"), due 2005,
generating net proceeds to the Company of $293.2 million. The net proceeds of
this offering were utilized to repay outstanding indebtedness under the then
existing Bank Credit Agreement of $201.8 million with the remainder being
retained and eventually utilized to make payments related to certain
acquisitions consummated during 1996. Interest on the Notes is payable
semiannually on March 30 and September 30 of each year. Interest expense was
$30.0 million for each of the three years ended December 31, 1998, 1999 and
2000. The notes are issued under an indenture among SBG, its subsidiaries (the
guarantors) and the trustee. Costs associated with the
F-18
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
offering totaled $6.8 million, including an underwriting discount of $6.0
million. These costs were capitalized and are being amortized over the life of
the debt.
Based upon the quoted market price, the fair value of the 1995 Notes as of
December 31, 1999 and 2000 was $296.1 million and $291.2 million, respectively.
10% SENIOR SUBORDINATED NOTES DUE 2003 AND 1997 TENDER OFFER
In December 1993, the Company completed an issuance of $200 million aggregate
principal amount of 10% Senior Subordinated Notes (the "1993 Notes"), due 2003.
Subsequently, the Company determined that a redemption of $100.0 million was
required. This redemption and a refund of $1.0 million of fees from the
underwriters took place in the first quarter of 1994.
In December 1997, the Company completed a tender offer of $98.1 million
aggregate principal amount of the 1993 Notes (the "Tender Offer"). Total
consideration per $1,000 principal amount note tendered was $1,082.08 resulting
in total consideration paid to consummate the Tender Offer of $106.2 million. In
conjunction with the Tender Offer, the Company recorded an extraordinary loss of
$6.1 million, net of a tax benefit of $4.0 million. In the second quarter of
1999, the Company redeemed the remaining 1993 notes for a total consideration of
$1.9 million. Interest expense for the years ended December 31, 1998 and 1999,
was $0.2 million and $60,000, respectively. The Notes are issued under an
Indenture among SBG, its subsidiaries (the guarantors) and the trustee.
SUMMARY
Notes payable, capital lease and commercial bank financing consisted of the
following as of December 31, 1999 and 2000 (in thousands):
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Bank Credit Agreement, Term Loan .............................. $ 700,000 $ 625,000
Bank Credit Agreement, Revolving Credit Facility .............. 303,000 206,000
8 3/4% Senior Subordinated Notes, due 2007 .................... 250,000 250,000
9% Senior Subordinated Notes, due 2007 ........................ 200,000 200,000
10% Senior Subordinated Notes, due 2005 ....................... 300,000 300,000
Capital lease ................................................. -- 3,767
Installment note for certain real estate interest at 8.0% ..... 87 79
----------- -----------
1,753,087 1,584,846
Less: Discount on 8 3/4% Senior Subordinated
Notes, due 2007 ............................................. (780) (682)
Less: Discount from terminations of derivative
instruments on 9% and 10% notes ............................. -- (2,585)
Less: Current portion ........................................ (75,008) (100,018)
----------- -----------
$ 1,677,299 $ 1,481,561
=========== ===========
</TABLE>
F-19
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
Indebtedness under the 1998 Bank Credit Agreement, notes payable and capital
lease as of December 31, 2000, mature as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2001 ........................................................... $ 100,018
2002 ........................................................... 100,035
2003 ........................................................... 125,047
2004 ........................................................... 150,074
2005 ........................................................... 656,142
2006 and thereafter ............................................ 453,530
-----------
1,584,846
Less: Discount on 8 3/4% Senior Subordinated Notes due 2007 .... (682)
Less: Discount from swap terminations on 9% and 10% notes ...... (2,585)
-----------
$ 1,581,579
</TABLE>
Substantially all of the Company's stock in its wholly owned subsidiaries has
been pledged as security for notes payable and commercial bank financing.
5. NOTES AND CAPITAL LEASES PAYABLE TO AFFILIATES:
Notes and capital leases payable to affiliates consisted of the following as of
December 31, 1999 and 2000 (in thousands):
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Subordinated installment notes payable to former majority owners, interest at
8.75%, principal payments in varying amounts due annually beginning October
1991, with a balloon payment due at
maturity in May 2005 ...................................................... $ 7,632 $ 6,554
Capital lease for building, interest at 17.5% ............................... 676 304
Capital lease for building, interest at 6.62% ............................... 9,136 7,857
Capital leases for broadcasting tower facilities, interest
rates averaging 10% .................................................... 3,310 3,070
Capitalization of time brokerage agreements, interest at
6.20% to 8.25% ......................................................... 18,827 15,648
Capital leases for building and tower, interest at 8.25% .................... 451 1,414
-------- --------
40,032 34,847
Less: Current portion ....................................................... (5,890) (5,838)
-------- --------
$ 34,142 $ 29,009
======== ========
</TABLE>
Notes and capital leases payable to affiliates, as of December 31, 2000, mature
as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2001 ....................................................... $ 8,238
2002 ....................................................... 7,209
2003 ....................................................... 5,945
2004 ....................................................... 5,246
2005 ....................................................... 6,126
2006 and thereafter ........................................ 11,413
--------
Total minimum payments due ................................. 44,177
Less: Amount representing interest ......................... (9,330)
--------
Present value of future notes and capital lease payments ... $ 34,847
========
</TABLE>
F-20
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
6. PROGRAM CONTRACTS PAYABLE:
Future payments required under program contracts payable as of December 31,
2000 were as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2001 ................................................ $ 110,217
2002 ................................................ 54,134
2003 ................................................ 32,143
2004 ................................................ 11,493
2005 ................................................ 1,326
2006 and thereafter ................................. 50
---------
209,363
Less: Current portion ............................... (110,217)
---------
Long-term portion of program contracts payable ...... $ 99,146
=========
</TABLE>
Included in the current portion amounts are payments due in arrears of $23.6
million. In addition, the Company has entered into non-cancelable commitments
for future program rights aggregating $183.7 million as of December 31, 2000.
The Company has estimated the fair value of its program contract payables and
non-cancelable commitments at approximately $173.8 million and $145.3 million,
respectively, as of December 31, 1999, and $178.3 million and $149.3 million,
respectively, at December 31, 2000. These estimates were based on future cash
flows discounted at the Company's current borrowing rate.
7. RELATED PARTY TRANSACTIONS:
In connection with the start-up of an affiliate in 1990, certain Class B
Stockholders issued a note allowing them to borrow up to $3.0 million from the
Company. This note was amended and restated June 1, 1994, to a term loan bearing
interest of 6.88% with quarterly principal payments beginning March 31, 1996
through December 31, 1999. The note was paid in full as of December 31, 1999.
During the year ended December 31, 1993, the Company loaned Gerstell Development
Limited Partnership (a partnership owned by Class B Stockholders) $2.1 million.
The note bears interest at 6.18%, with principal payments beginning on November
1, 1994, and a final maturity date of October 1, 2013. As of December 31, 1999
and 2000, the balance outstanding was approximately $1.7 million.
Concurrently with the Company's initial public offering, the Company acquired
options from certain stockholders of Glencairn, LTD ("Glencairn") that will
grant the Company the right to acquire, subject to applicable FCC rules and
regulations, up to 97% of the capital stock of Glencairn. The Glencairn option
exercise price is based on a formula that provides a 10% annual return to
Glencairn. Glencairn is the owner-operator and FCC licensee of WNUV in
Baltimore, WVTV in Milwaukee, WRDC in Raleigh/Durham, WABM in Birmingham, KRRT
in Kerrville, WBSC in Asheville/Greenville /Spartanburg and WTTE in Columbus.
The Company has entered into five-year LMA agreements (with five-year renewal
terms at the Company's option) with Glencairn pursuant to which the Company
provides programming to Glencairn for airing on WNUV, WVTV, WRDC, WABM, KRRT,
WBSC and WTTE. During the years ended December 31, 1998, 1999 and 2000, the
Company made payments of $9.8 million, $10.8 million and $11.3 million,
respectively, to Glencairn under these LMA agreements.
During the years ended December 31, 1998, 1999 and 2000, the Company from time
to time entered into charter arrangements to lease aircraft owned by certain
Class B Stockholders. During the years ended December 31, 1998, 1999 and 2000,
the Company incurred expenses of approximately $0.6 million, $0.4 million and
$0.2 million related to these arrangements, respectively.
F-21
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
Certain assets used by the Company and its operating subsidiaries are leased
from Cunningham Communications Inc., Keyser Investment Group, Gerstel LP, and
Beaver Dam, LLC (entities owned by the Class B Stockholders). Lease payments
made to these entities were $1.5 million, $2.1 million, and $2.8 million for the
years ended December 31, 1998, 1999 and 2000, respectively.
8. INCOME TAXES:
The Company files a consolidated federal income tax return and separate company
state tax returns. The provision (benefit) for income taxes consisted of the
following for the years ended December 31, 1998, 1999 and 2000 (in thousands):
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Provision for income taxes - continuing operations .... $ 32,562 $ 25,107 $ 4,816
Provision for income taxes - discontinued operations ... 13,096 149,771 73,120
Benefit from income taxes - extraordinary item ......... (7,370) -- --
--------- -------- -------
$ 38,288 $174,878 $77,936
========= ======== =======
Current:
Federal ............................................. $ 3,953 $ 81,370 $58,079
State ............................................... 3,635 30,323 13,439
--------- -------- -------
7,588 111,693 71,518
--------- -------- -------
Deferred:
Federal ............................................. 26,012 56,576 5,829
State ............................................... 4,688 6,609 589
--------- -------- -------
30,700 63,185 6,418
--------- -------- -------
$ 38,288 $174,878 $77,936
========= ======== =======
</TABLE>
The following is a reconciliation of federal income taxes at the applicable
statutory rate to the recorded provision from continuing operations:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Statutory federal income taxes ....................... 35.0% (35.0%) (35.0%)
Adjustments-
State income and franchise taxes, net of federal
effect .......................................... 68.9 21.2 7.0
Goodwill amortization ............................. 106.8 99.5 39.0
Non-deductible expense items ...................... 168.1 57.4 6.5
Tax liability related to dividends on Parent
Preferred Stock (a) ............................. 121.7 -- --
Other ............................................. 11.4 4.4 (1.9)
----- ----- ----
Provision for income taxes ........................... 511.9% 147.5% 15.6%
===== ===== ====
</TABLE>
- ---------------
(a) In March 1997, the Company issued the HYTOPS securities. In
connection with this transaction, Sinclair Broadcast Group, Inc. (the
"Parent") issued $206.2 million of Series C Preferred Stock (the "Parent
Preferred Stock") to KDSM, Inc., a wholly owned subsidiary. Parent
Preferred Stock dividends paid to KDSM, Inc. are considered taxable
income for Federal tax purposes and not considered income for book
purposes. Also for Federal tax purposes, KDSM, Inc. is allowed a tax
deduction for dividends received on the Parent Preferred Stock in an
amount equal to Parent Preferred Stock dividends received in each taxable
year limited to the extent that the Parent's consolidated group has
"earnings and profits." To the extent that dividends received by KDSM,
Inc. are in excess of the Parent's consolidated group earnings and
profits, KDSM will reduce its tax basis in the Parent Preferred Stock
which gives rise to a deferred tax liability (to be recognized upon
redemption). During the year ended December 31, 1998, the Parent did not
generate "earnings and profits" in an amount greater than or equal to
dividends paid on the Parent Preferred Stock. This resulted in a
reduction in basis of the Parent's Series C Preferred Stock and generated
a related deferred tax liability. During the years ended December 31,
1999 and 2000, the Parent generated "earnings and profits" and avoided a
reduction in basis of its Parent Preferred Stock.
- --------------------------------------------------------------------------------
F-22
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
Temporary differences between the financial reporting carrying amounts and the
tax basis of assets and liabilities give rise to deferred taxes. The Company had
a net deferred tax liability of $228.7 million and $243.1 million as of December
31, 1999 and 2000, respectively.
The Company's remaining Federal NOL's will expire during various years from 2011
to 2019, and are subject to annual limitations under Internal Revenue Code
Section 382 and similar state provisions. The tax effects of these NOL's are
recorded in the deferred tax accounts in the accompanying consolidated balance
sheets.
Total deferred tax assets and deferred tax liabilities as of December 31, 1999
and 2000 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 2000
---- ----
Deferred Tax Assets:
<S> <C> <C>
Accruals and reserves ............................................ $ 7,868 $ 7,941
Net operating losses ............................................. 491 2,895
Tax credits ...................................................... -- 534
Investments ...................................................... 158 11,494
Other ............................................................ 1,909 2,921
--------- ---------
$ 10,426 $ 25,785
========= =========
Deferred Tax Liabilities:
FCC license ...................................................... $ (29,010) $ (44,466)
Parent Preferred Stock deferred tax liability (see (a) above) .... (25,833) (25,833)
Fixed assets and intangibles ..................................... (168,995) (181,378)
Program contracts ................................................ (8,715) (12,100)
Treasury option derivative ....................................... (2,679) --
Capital leases ................................................... (2,513) (3,232)
Other ............................................................ (1,393) (1,925)
--------- ---------
$(239,138) $(268,934)
========= =========
</TABLE>
During 2000, the Company acquired the stock of Montecito Broadcasting
Corporation ("Montecito") and Grant Television, Inc. ("Grant"). The Company
recorded net deferred tax liabilities resulting from these purchases of
approximately $8.7 million. These net deferred tax liabilities primarily relate
to the differences between financial reporting carrying amounts and tax basis
amounts as measured upon the purchase date.
9. EMPLOYEE BENEFIT PLAN:
The Sinclair Broadcast Group, Inc. 401(k) Profit Sharing Plan and Trust (the
"SBG Plan") covers eligible employees of the Company. Contributions made to
the SBG Plan include an employee elected salary reduction amount, company
matching contributions and a discretionary amount determined each year by the
Board of Directors. The Company's 401(k) expense for the years ended December
31, 1998, 1999 and 2000 was $1.2 million, $1.4 million and $1.7 million,
respectively. There were no discretionary contributions during these periods.
During December 1997, the Company registered 800,000 shares of its Class A
Common Stock with the Securities and Exchange Commission (the "Commission") to
be issued as a matching contribution for the 1997 plan year and subsequent
plan years.
F-23
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES:
LITIGATION
Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages,
and no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse
effect on the Company's financial position, results of operations or cash
flows. The Company settled its litigation with Emmis and former CEO-designate
Barry Baker regarding the sale of its St. Louis broadcast properties (see Note
11).
COMMITMENT FOR ADVERTISING
During 1999, the Company entered into an option agreement with BeautyBuys.com
("Beauty Buys") to provide radio and television advertising, promotional support
and other services (in-kind services) over a five year period ending December
31, 2004 in exchange for options to acquire an equity interest. Advertising and
promotional support would be provided to BeautyBuys from the Company's
unutilized inventory, valued as if each spot was being sold at the then-current
street rates at the time of the airing. The Company would recognize no revenue
related to its advertising, promotion or other services and would recognize
revenue as the Company's options vest in an amount equal to the fair value of
the options.
In December 2000, the Company entered into a modification agreement with
BeautyBuys and its parent, Synergy Brands, Inc. ("Synergy"), whereby the Company
divested of its option to acquire an equity interest in BeautyBuys in exchange
for a significant reduction in the amount of advertising, promotional support
and other services the Company is to provide to BeautyBuys and an increased
equity position in Synergy. Additionally, the Company, BeautyBuys and Icon
International ("Icon") entered into an agreement whereby BeautyBuys would
transfer and sell to Icon its remaining amount of advertising and promotional
support to be received from SBG for a combination of $2.7 million in cash and
certain trade credits from Icon. Simultaneously, the Company entered into an
agreement with Icon whereby the Company received $3.2 million in cash and
certain trade credits from Icon in exchange for Media Time Credits or commercial
inventory. Icon inventory spots aired will be valued and characterized the same
as other spots sold with similar cash and barter components.
The cash received by BeautyBuys and the Company from Icon was viewed by
management as a measurement of the value of the future advertising the Company
will need to provide to Icon. Therefore, the company recorded an expense of $2.7
million in "Loss related to investments" and a corresponding liability of $6.9
million to "Deferred barter revenue" on the accompanying consolidated Statement
of Operations and Balance sheet for the year ended December 31, 2000. "Deferred
barter revenue" will be amortized to broadcast revenue as the proportionate cash
component of the spots are aired.
OPERATING LEASES
The Company has entered into operating leases for certain property and
equipment under terms ranging from three to ten years. The rent expense under
these leases, as well as certain leases under month-to-month arrangements, for
the years ended December 31, 1998, 1999 and 2000, was approximately $4.0
million, $5.9 million and $6.8 million, respectively.
Future minimum payments under the leases are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2001 ........................................... 5,123
2002 ........................................... 4,254
2003 ........................................... 3,821
2004 ........................................... 3,531
2005 ........................................... 3,280
2006 and thereafter ............................ 35,178
-------
$55,187
=======
</TABLE>
F-24
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
11. ACQUISITIONS AND DISPOSITIONS
1998 ACQUISITIONS AND DISPOSITIONS
HERITAGE ACQUISITION. In July 1997, the Company entered into a purchase
agreement to acquire certain assets of the radio and television stations of
Heritage Media Group for approximately $630 million (the "Heritage
Acquisition"). Pursuant to the Heritage Acquisition, and after giving effect to
the STC Disposition, Entercom Disposition and Centennial Disposition and a third
party's exercise of its option to acquire radio station KCAZ in Kansas City,
Missouri, the Company has acquired or provided programming services to three
television stations in two separate markets and 13 radio stations in four
separate markets. In July 1998, the Company acquired three radio stations in the
New Orleans, Louisiana market and simultaneously disposed of two of those
stations (see the Centennial Disposition below). The acquisition was accounted
for under the purchase method of accounting whereby the net purchase price for
stations not sold was allocated to property and programming assets, acquired
intangible broadcasting assets and other intangible assets for $22.6 million,
$222.8 million and $102.6 million, respectively, based on an independent
appraisal.
1998 STC DISPOSITION. In February 1998, the Company entered into agreements to
sell to STC two television stations and the non-license assets and rights to
program a third television station, all of which were acquired in the Heritage
Acquisition. In April 1998, the Company closed on the sale of the non-license
assets of the three television stations in the Burlington, Vermont and
Plattsburgh, New York market for aggregate consideration of approximately $70.0
million. During the third quarter of 1998, the Company sold the license assets
for a sales price of $2.0 million.
MONTECITO ACQUISITION. In February 1998, the Company entered into an agreement
to acquire all of the capital stock of Montecito for approximately $33.0 million
(the "Montecito Acquisition"). Montecito owns all of the issued and outstanding
stock of Channel 33, Inc. which owns and operates KFBT-TV in Las Vegas, Nevada.
In April 1998, the Company began programming KFBT-TV through an LMA upon
expiration of the applicable HSR Act waiting period. On April 18, 2000 the
Company acquired the outstanding capital stock of Montecito upon receiving
approval from the FCC.
WSYX ACQUISITION AND SALE OF WTTE LICENSE ASSETS. In April 1998, the Company
exercised its option to acquire the non-license assets of WSYX-TV in Columbus,
Ohio from River City Broadcasting, LP ("River City") for an option exercise
price and other costs of approximately $228.6 million. In August 1998, the
Company exercised its option to acquire the WSYX License Assets for an option
exercise price of $2.0 million. The acquisition was accounted for under the
purchase method of accounting whereby the purchase price was allocated to
property and programming assets, acquired intangible broadcasting assets and
other intangible assets for $14.6 million, $179.3 million and $61.4 million,
respectively based on an independent appraisal. Simultaneously with the WSYX
Acquisition, the Company sold the WTTE license assets to Glencairn for a sales
price of $2.3 million. In connection with the sale of the WTTE license assets,
the Company recognized a $2.3 million gain.
SFX DISPOSITION. In May 1998, the Company completed the sale of three radio
stations to SFX Broadcasting, Inc. for aggregate consideration of approximately
$35.0 million (the "SFX Disposition"). The radio stations sold are located in
the Nashville, Tennessee market. In connection with the disposition, the Company
recognized a $5.2 million gain on the sale.
LAKELAND ACQUISITION. In May 1998, the Company acquired 100% of the stock of
Lakeland Group Television, Inc. ("Lakeland") for cash payments of approximately
$53.0 million (the "Lakeland Acquisition"). In connection with the Lakeland
Acquisition, the Company now owns television station KLGT-TV in
Minneapolis/St.Paul, Minnesota. The acquisition was accounted for under the
purchase method of accounting whereby the purchase price was allocated to
property and programming assets, acquired intangible broadcasting assets and
other intangible assets for $5.1 million, $35.1 million and $29.4 million,
respectively, based on an independent appraisal.
F-25
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
ENTERCOM DISPOSITION. In June 1998, the Company completed the sale of seven
radio stations acquired in the Heritage Acquisition. The seven stations are
located in the Portland, Oregon and Rochester, New York markets and were sold
for aggregate consideration of approximately $126.9 million.
SULLIVAN ACQUISITION. In July 1998, the Company acquired 100% of the stock of
Sullivan Broadcast Holdings, Inc. and Sullivan Broadcasting Company II, Inc. for
cash payments of approximately $951.0 million (the "Sullivan Acquisition"). The
Company financed the acquisition by utilizing indebtedness under the 1998 Bank
Credit Agreement. In connection with the acquisition, the Company has acquired
the right to program 12 additional television stations in 10 separate markets.
During 2001, the Company intends to acquire the license assets of one station
and the stock of a company that owns the license assets of six additional
stations. In addition, the Company expects to enter into new LMA agreements with
respect to three of the stations and will continue to program two of the
television stations pursuant to existing LMA agreements. The acquisition was
accounted for under the purchase method of accounting whereby the purchase price
was allocated to property and programming assets, acquired intangible
broadcasting assets and other intangible assets for $58.2 million, $336.8
million and $637.6 million, respectively, based on an independent appraisal.
MAX MEDIA ACQUISITION. In July 1998, the Company directly or indirectly acquired
all of the equity interests of Max Media Properties LLC, for $252.2 million (the
"Max Media Acquisition"). The Company financed the acquisition by utilizing
existing cash balances and indebtedness under the 1998 Bank Credit Agreement. In
connection with the transaction, the Company acquired or provided programming
services to nine television stations in six separate markets and eight radio
stations in two separate markets. The acquisition was accounted for under the
purchase method of accounting whereby the purchase price was allocated to
property and programming assets, acquired intangible broadcasting assets and
other intangible assets for $37.1 million, $144.3 million and $89.6 million,
respectively, based on an independent appraisal.
CENTENNIAL DISPOSITION. In July 1998, the Company completed the sale of the
assets of radio stations WRNO-FM, KMEZ-FM and WBYU-AM in New Orleans, Louisiana
to Centennial Broadcasting for $16.1 million in cash and recognized a loss on
the sale of $2.9 million. The Company acquired KMEZ-FM in connection with the
River City Acquisition in May of 1996 and acquired WRNO-FM and WBYU-AM in New
Orleans from Heritage Media Group, Inc. ("Heritage") in July 1998. The Company
was required to divest WRNO-FM, KMEZ-FM and WBYU-AM to meet certain regulatory
ownership guidelines.
GREENVILLE ACQUISITION. In July 1998, the Company acquired three radio stations
in the Greenville/Spartansburg market from Keymarket Radio of South Carolina,
Inc. for a purchase price consideration involving the forgiveness of
approximately $8.0 million of indebtedness to Sinclair. Concurrently with the
acquisition, the Company acquired an additional two radio stations in the same
market from Spartan Broadcasting for a purchase price of approximately $5.2
million. The acquisition was accounted for under the purchase method of
accounting whereby the purchase price was allocated to property and acquired
intangible broadcasting assets for $5.0 million and $10.1 million, respectively,
based on an independent appraisal.
RADIO UNICA DISPOSITION. In July 1998, the Company completed the sale of KBLA-AM
in Los Angeles, California to Radio Unica, Corp. for approximately $21.0 million
in cash. In connection with the disposition, the Company recognized a $8.4
million gain.
1999 ACQUISITIONS AND DISPOSITIONS
GUY GANNETT ACQUISITION. In September 1998, the Company agreed to acquire from
Guy Gannett Communications its television broadcasting assets for a purchase
price of $317.0 million in cash (the "Guy Gannett Acquisition"). As a result of
this transaction and after the completion of related dispositions, the Company
acquired five television stations in five separate markets. In April 1999, the
Company completed the purchase of WTWC-TV, WGME-TV and WGGB-TV for a purchase
price of $111.0 million. The acquisition was accounted for under the purchase
method of accounting whereby the purchase price was allocated to property and
programming assets, acquired intangible broadcasting assets
26
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
and other intangible assets for $20.9 million, $ 45.7 million, and $51.4
million, respectively, based on an independent appraisal. In July 1999, the
Company completed the purchase of WICS/WICD-TV, and KGAN-TV for a purchase price
of $81.0 million. The Company financed these acquisitions by utilizing
indebtedness under the 1998 Bank Credit Agreement.
ACKERLEY DISPOSITION. In September 1998, the Company agreed to sell the Guy
Gannett television station WOKR-TV in Rochester, New York to the Ackerley Group,
Inc. for a sales price of $125 million (the "Ackerley Disposition"). In April
1999, the Company closed on the purchase of WOKR-TV and simultaneously completed
the sale of WOKR-TV to Ackerly.
CCA DISPOSITION. In April 1999, the Company completed the sale of the
non-license assets of KETK-TV and KLSB-TV in Tyler-Longview, Texas to
Communications Corporation of America ("CCA") for a sales price of $36 million
(the "CCA Disposition"). In addition, CCA has an option to acquire the license
assets of KETK-TV for an option purchase price of $2.0 million.
ST. LOUIS RADIO ACQUISITION. In August 1999, the Company completed the purchase
of radio station KXOK-FM in St. Louis, Missouri for a purchase price of $14.1
million in cash. The acquisition was accounted for under the purchase method of
accounting whereby the purchase price was allocated to property and acquired
intangible broadcasting assets for $0.6 million and $15.2 million, respectively,
based on an independent appraisal.
BARNSTABLE DISPOSITION. In August 1999, the Company completed the sale of the
radio stations WFOG-FM and WGH-AM/FM serving the Norfolk, Virginia market to
Barnstable Broadcasting, Inc. ("Barnstable"). The stations were sold to
Barnstable for a sales price of $23.7 million.
ENTERCOM DISPOSITION. In July 1999, the Company entered into an agreement to
sell 46 radio stations in nine markets to Entercom for $824.5 million in cash.
The transaction does not include the Company's radio stations in the St. Louis
market which where sold separately during 2000 (see Emmis disposition below). In
December 1999, the Company closed on the sale of 41 radio stations in eight
markets for a purchase price of $700.4 million.
2000 ACQUISITIONS AND DISPOSITIONS
MONTECITO ACQUISITION. In February 1998, the Company entered into a Stock
Purchase Agreement with Montecito and its stockholders to acquire all of the
outstanding stock of Montecito, which owns the FCC License for television
broadcast station KFBT-TV. The FCC granted approval of the transaction and the
Company completed the purchase of the outstanding stock of Montecito on April
18, 2000 for a purchase price of $33.0 million.
EMMIS DISPOSITION In June 2000, the Company settled its litigation with Emmis
and former CEO-designate Barry Baker regarding the sale of its St. Louis
broadcast properties. As a result of the settlement, the purchase option of the
Company's St. Louis broadcast properties has been terminated and a subsequent
agreement was entered into whereby the Company would sell its St. Louis radio
properties to Emmis. In October 2000, the Company completed the sale of its St.
Louis radio properties to Emmis for $220.0 million and retained its St. Louis
television station, KDNL-TV.
ENTERCOM DISPOSITION. On July 20, 2000 the Company completed the sale of four
radio stations in Kansas City to Entercom Communications Corp. for an aggregate
purchase price of $126.6 million in cash. The stations sold were KCFX-FM,
KQRC-FM, KCIY-FM, and KXTR-FM. In November 2000, the Company completed the sale
of WKRF-FM in Wilkes-Barre, Pennsylvania to Entercom for $0.6 million.
WNYO ACQUISITION. In August 2000, the Company entered into an agreement to
purchase the stock of Grant, the owner of WNYO-TV in Buffalo, New York, for a
purchase price of $51.5 million. In October 2000, the Company completed the
stock acquisition of Grant, obtaining the non-license assets of WNYO-TV and
began programming the television station under a time brokerage agreement. The
Company will complete the purchase of the license and related assets of WNYO-TV
upon FCC approval, which is currently pending. The acquisition was accounted for
under the purchase method of accounting whereby the purchase price was allocated
to property and programming assets, acquired intangible broadcasting
F-27
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
assets and other intangible assets for $2.9 million, $3.9 million and $39.8
million, respectively, based on an independent appraisal.
PENDING ACQUISITIONS
GLENCAIRN/WPTT, INC. ACQUISITION. On November 15, 1999, we entered into an
agreement to purchase substantially all of the assets of television station
WCWB-TV, Channel 22, Pittsburgh, Pennsylvania, with the owner of that television
station WPTT, Inc. for a purchase price of $17.8 million. The waiting period
under the Hart-Scott-Rodino Antitrust Act of 1976 has expired and closing on
this transaction is subject to FCC approval.
On November 15, 1999, we entered into five separate plans and agreements of
merger, pursuant to which we would acquire through merger with subsidiaries of
Glencairn, Ltd., television broadcast stations WABM-TV, Birmingham, Alabama,
KRRT-TV, San Antonio, Texas, WVTV-TV, Milwaukee, Wisconsin, WRDC-TV, Raleigh,
North Carolina, and WBSC-TV (formerly WFBC-TV), Anderson, South Carolina. The
consideration for these mergers is the issuance to Glencairn of shares of Class
A Common voting Stock of the Company. The total value of the shares to be issued
in consideration for all the mergers is $8.0 million.
MISSION OPTION. Pursuant to our merger with Sullivan Broadcast Holdings, Inc.,
which was effective July 1, 1998, the Company acquired options to acquire
television broadcast station WUXP-TV in Nashville, Tennessee from Mission
Broadcasting I, Inc. and television broadcast station WUPN-TV in Greensboro,
North Carolina from Mission Broadcasting II, Inc. We currently program these
stations pursuant to LMAs. On November 15, 1999, the Company exercised its
option to acquire both of the foregoing stations. This acquisition is subject to
FCC approval.
12. SECURITIES ISSUANCES AND COMMON STOCK SPLIT:
COMMON STOCK SPLIT
On April 30, 1998, the Company's Board of Directors approved a two-for-one stock
split of its Class A and Class B Common Stock to be distributed in the form of a
stock dividend. As a result of this action, 23,963,013 and 24,984,432 shares of
Class A and Class B Common Stock, respectively, were issued to shareholders of
record as of May 14, 1998. The stock split has been retroactively reflected in
the accompanying consolidated financial statements and related notes thereto.
1997 OFFERING OF COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
OF SUBSIDIARY TRUST
In March 1997, the Company completed a private placement of $200 million
aggregate liquidation value of 11 5/8% High Yield Trust Offered Preferred
Securities (the "HYTOPS") of Sinclair Capital, a subsidiary trust of the
Company. The HYTOPS were issued March 12, 1997, mature March 15, 2009, and
provide for quarterly distributions to be paid in arrears beginning June 15,
1997. The HYTOPS were sold to "qualified institutional buyers" (as defined in
Rule 144A under the Securities Act of 1933, as amended) and a limited number of
institutional "accredited investors" and the offering was exempt from
registration under the Securities Act of 1933, as amended ("the Securities
Act"), pursuant to Section 4(2) of the Securities Act and Rule 144A thereunder.
The Company utilized $135.0 million of the approximately $192.8 million net
proceeds of the private placement to repay outstanding debt and retained the
remainder for general corporate purposes.
Pursuant to a Registration Rights Agreement entered into in connection with the
private placement of the HYTOPS, the Company offered holders of the HYTOPS the
right to exchange the HYTOPS for new HYTOPS having the same terms as the
existing securities, except that the exchange of the new HYTOPS for the existing
HYTOPS has been registered under the Securities Act. On May 2, 1997, the Company
filed a registration statement on Form S-4 with the Commission for the purpose
of registering the new HYTOPS to be offered in exchange for the aforementioned
existing HYTOPS issued by the Company in March 1997 (the "Exchange Offer"). The
Company's Exchange Offer was closed and became effective August 11, 1997, at
which time all of the existing HYTOPS were exchanged for new HYTOPS. Amounts
payable to the holders of HYTOPS are recorded as "Subsidiary trust minority
interest expense" in the
F-28
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
accompanying financial statements and was $23.3 million for each of the three
years ended December 31, 1998, 1999, and 2000, respectively.
1998 COMMON STOCK OFFERING
On April 14, 1998, the Company and certain stockholders of the Company completed
a public offering of 12,000,000 and 4,060,374 shares, respectively, of Class A
Common Stock (the "1998 Common Stock Offering"). The shares were sold for an
offering price of $29.125 per share and generated proceeds to the Company of
$335.1 million, net of underwriters' discount and other offering costs of
approximately $14.4 million. The Company utilized the proceeds to repay
indebtedness under the 1997 Bank Credit Agreement.
13. STOCK-BASED COMPENSATION PLANS:
STOCK OPTION PLANS
DESIGNATED PARTICIPANTS STOCK OPTION PLAN - In connection with the Company's
initial public offering in June 1995 (the "IPO"), the Board of Directors of the
Company adopted an Incentive Stock Option Plan for Designated Participants (the
Designated Participants Stock Option Plan) pursuant to which options for shares
of Class A common stock were granted to certain key employees of the Company.
The Designated Participants Stock Option Plan provides that the number of shares
of Class A Common Stock reserved for issuance under the Designated Participants
Stock Option Plan is 136,000. Options granted pursuant to the Designated
Participants Stock Option Plan must be exercised within 10 years following the
grant date. As of December 31, 2000, 34,500 shares are available for future
grants.
LONG-TERM INCENTIVE PLAN - In June 1996, the Board of Directors of the Company
adopted, upon approval of the stockholders by proxy, the 1996 Long-Term
Incentive Plan (the "LTIP"). The purpose of the LTIP is to reward key
individuals for making major contributions to the success of the Company and its
subsidiaries and to attract and retain the services of qualified and capable
employees. Options granted pursuant to the LTIP must be exercised within 10
years following the grant date. A total of 14,000,000 shares of Class A Common
Stock are reserved for awards under the plan. As of December 31, 2000,
11,002,505 shares have been granted under the LTIP and 6,752,513 shares
(including forfeited shares) are available for future grants.
INCENTIVE STOCK OPTION PLAN - In June 1996, the Board of Directors adopted, upon
approval of the stockholders by proxy, an amendment to the Company's Incentive
Stock Option Plan. The purpose of the amendment was (i) to increase the number
of shares of Class A Common Stock approved for issuance under the plan from
800,000 to 1,000,000, (ii) to lengthen the period after date of grant before
options become exercisable from two years to three and (iii) to provide
immediate termination and three-year ratable vesting of options in certain
circumstances. Options granted pursuant to the ISOP must be exercised within 10
years following the grant date. As of December 31, 2000, 714,200 shares have
been granted under the ISOP and 648,934 shares (including forfeited shares) are
available for future grants.
F-29
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
A summary of changes in outstanding stock options is as follows:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE EXERCISABLE PRICE
------- ----- ----------- -----
<S> <C> <C> <C> <C>
Outstanding at end of 1997 ............... 4,224,570 $ 17.10 2,428,152 $ 14.91
1998 Activity:
Granted .............................. 5,352,500 25.08 -- --
Exercised ............................ (86,666) 12.96 -- --
Forfeited ............................ (820,284) 23.19 -- --
---------- ---------- --------- ----------
Outstanding at end of 1998 ............... 8,670,120 20.76 3,245,120 15.01
---------- ---------- --------- ----------
1999 Activity:
Granted .............................. 881,300 24.16 -- --
Exercised ............................ (117,500) 19.77 -- --
Forfeited ............................ (1,382,500) 22.53 -- --
---------- ---------- --------- ----------
Outstanding at end of 1999 ............... 8,051,420 20.45 3,640,020 15.41
---------- ---------- --------- ----------
2000 Activity:
Granted .............................. 1,366,835 9.94 -- --
Exercised ............................ (5,667) 9.25 -- --
Forfeited ............................ (1,920,368) 23.23 -- --
---------- ---------- --------- ----------
Outstanding at end of 2000 ............... 7,492,220 $ 17.82 3,859,819 $ 14.89
========== ========== ========= ==========
</TABLE>
Additional information regarding stock options outstanding at December 31, 2000
is as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-
REMAINING REMAINING AVERAGE
EXERCISE VESTING PERIOD CONTRACTUAL LIFE EXERCISE
OUTSTANDING PRICE (IN YEARS) (IN YEARS) EXERCISABLE PRICE
- ----------- ----- ---------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
1,266,950 $7.646-12.646 2.10 8.86 405,849 $ 9.36
3,102,870 15.06 0.06 5.53 3,066,370 15.06
363,400 17.81-18.88 0.17 5.99 340,600 18.79
29,000 20.94 0.05 6.97 5,000 20.94
4,000 22.88-24.18 0.30 7.31 -- --
2,219,500 24.20 5.22 7.33 42,000 24.20
234,500 24.25-27.73 1.74 7.64 -- --
272,000 28.08-28.42 2.35 8.15 -- --
--------- -------------- ---- ---- --------- --------
7,492,220 $ 17.82 2.07 6.82 3,859,819 $ 14.89
========= ============== ==== ==== ========= ========
</TABLE>
PRO FORMA INFORMATION RELATED TO STOCK-BASED COMPENSATION
As permitted under SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company measures compensation expense for its stock-based employee compensation
plans using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and provides pro
forma disclosures of net income and earnings per share as if the fair
value-based method prescribed by SFAS No. 123 had been applied in measuring
compensation expense.
F-30
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
Had compensation cost for the Company's 1998, 1999 and 2000 grants for
stock-based compensation plans been determined consistent with SFAS No. 123, the
Company's net income, net income available to common shareholders before
extraordinary items, and net income per common share for these years would
approximate the pro forma amounts below (in thousands except per share data):
<TABLE>
<CAPTION>
1998 1999 2000
-------------------------- ------------------------- -------------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
-------- --------- -------- --------- -------- ---------
Net income (loss) before
<S> <C> <C> <C> <C> <C> <C>
extraordinary item ............... $ (5,817) $ (13,629) $ 167,784 $ 161,982 $ 77,365 $ 69,454
========== ========== ========== ========== ========== ==========
Net income (loss) ................... $ (16,880) $ (24,692) $ 167,784 $ 161,982 $ 77,365 $ 69,454
========== ========== ========== ========== ========== ==========
Net income (loss) available
to common shareholders ........... $ (27,230) $ (35,042) $ 157,434 $ 151,632 $ 67,015 $ 59,104
========== ========== ========== ========== ========== ==========
Basic net income per share
before extraordinary items ....... $ (0.17) $ (0.25) $ 1.63 $ 1.57 $ 0.73 $ 0.65
========== ========== ========== ========== ========== ==========
Basic net income per share
after extraordinary items ........ $ (0.29) $ (0.37) $ 1.63 $ 1.57 $ 0.73 $ 0.65
========== ========== ========== ========== ========== ==========
Diluted net income per share
before extraordinary items ....... $ (0.17) $ (0.25) $ 1.63 $ 1.57 $ 0.73 $ 0.65
========== ========== ========== ========== ========== ==========
Diluted net income per share
after extraordinary items ........ $ (0.29) $ (0.37) $ 1.63 $ 1.57 $ 0.73 $ 0.65
========== ========== ========== ========== ========== ==========
The Company has computed for pro forma disclosure purposes the value of all
options granted during 1998, 1999 and 2000 using the Black-Scholes option
pricing model as prescribed by SFAS No. 123 using the following weighted average
assumptions:
YEAR ENDED DECEMBER 31,
1998 1999 2000
---- ---- ----
Risk-free interest rate ................... 4.54 - 5.68% 4.80 - 5.97% 4.95 - 4.96%
Expected lives ............................ 6 years 6 years 6 years
Expected volatility ....................... 41% 61% 63%
</TABLE>
Adjustments are made for options forfeited prior to vesting.
F-31
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
14. EARNINGS PER SHARE:
The Company adopted SFAS No. 128 "Earnings per Share" which requires the
restatement of prior periods and disclosure of basic and diluted earnings per
share and related computations.
<TABLE>
<CAPTION>
THE YEARS ENDED
----------------------------------------------------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Weighted-average number of common shares .............. 94,321 96,615 91,405
Dilutive effect of outstanding stock options .......... 1,083 20 27
Dilutive effect of conversion of preferred shares ..... 288 -- --
-------------- -------------- ---------
Weighted-average number of common equivalent
shares outstanding ................................ 95,692 96,635 91,432
============== ============== =========
Net loss from continuing operations ................... $ (26,201) $ (42,126) $ (35,775)
============== ============== =========
Net income from discontinued operations, including
gain on sale of broadcast assets related to
discontinued operations ........................... $ 20,384 $ 209,910 $ 113,140
============== ============== =========
Net loss from extraordinary item ...................... $ (11,063) $ -- $ --
============== ============== =========
Net income (loss) ..................................... $ (16,880) $ 167,784 $ 77,365
Preferred stock dividends payable ..................... (10,350) (10,350) (10,350)
-------------- -------------- ---------
Net income (loss) available to common shareholders .... $ (27,230) $ 157,434 $ 67,015
============== ============== =========
BASIC EARNINGS PER SHARE:
Net loss per share from continuing operations ......... $ (0.39) $ (0.54) $ (0.50)
============== ============== =========
Net income per share from discontinued operations ..... $ 0.22 $ 2.17 $ 1.24
============== ============== =========
Net loss per share from extraordinary item ............ $ (0.12) $ -- $ --
============== ============== =========
Net income (loss) per share ........................... $ (0.29) $ 1.63 $ 0.73
============== ============== =========
DILUTED EARNINGS PER SHARE:
Net loss per share from continuing operations ......... $ (0.39) $ (0.54) $ (0.50)
============== ============== =========
Net income per share from discontinued operations ..... $ 0.22 $ 2.17 $ 1.24
============== ============== =========
Net loss per share from extraordinary item ............ $ (0.12) $ -- $ --
============== ============== =========
Net income (loss) per share ........................... $ (0.29) $ 1.63 $ 0.73
============== ============== =========
</TABLE>
F-32
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED)
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2000 2000 2000 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenues ....................................... $ 162,358 $ 190,621 $ 176,111 $ 204,549
Operating income ..................................... 26,917 55,015 37,918 45,847
Net loss from continuing operations .................. (3,062) (3,879) (16,898) (18,287)
Net income (loss) available to common
shareholders ....................................... (4,203) (1,283) (13,929) 176,849
Basic loss per share from continuing operations ...... (0.06) (0.07) (0.20) (0.22)
Diluted loss per share from continuing operations .... (0.06) (0.07) (0.20) (0.22)
Basic income (loss) per share ........................ (0.04) (0.01) (0.14) 1.82
Diluted income (loss) per share ...................... (0.04) (0.01) (0.14) 1.82
QUARTERS ENDED
------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2000 2000 2000 2000
---- ---- ---- ----
Total revenues ....................................... $ 176,427 $ 208,415 $ 187,887 $ 216,133
Operating income ..................................... 22,558 48,659 36,623 47,200
Net loss from continuing operations .................. (2,623) (1,253) (20,613) (11,286)
Net income (loss) available to common
shareholders ....................................... (4,408) (1,378) 16,259 56,542
Basic loss per share from continuing operations ...... (0.05) (0.04) (0.26) (0.16)
Diluted loss per share from continuing operations .... (0.05) (0.04) (0.26) (0.16)
Basic income (loss) per share ........................ (0.05) (0.01) 0.18 0.65
Diluted income (loss) per share ...................... (0.05) (0.01) 0.18 0.65
</TABLE>
16. SUBSEQUENT EVENT:
During the first quarter of 2001, the Company offered a voluntary early
retirement program to its eligible employees and implemented a restructuring
program to reduce overhead costs. As a result of these initiatives, the Company
reduced its staff by 186 employees and expects to incur a special charge during
the first quarter of 2001 of approximately $2.5 million.
F-33
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
INDEX TO SCHEDULES
Report of Independent Public Accountants ............................... S-2
Schedule II - Valuation and Qualifying Accounts ........................ S-3
All schedules except those listed above are omitted as not applicable or not
required or the required information is included in the consolidated financial
statements or in the notes thereto.
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Sinclair Broadcast Group, Inc.:
We have audited in accordance with auditing standards generally accepted in
the United States, the financial statements of Sinclair Broadcast Group, Inc.
and Subsidiaries included in this Form 10-K and have issued our report
thereon dated January 30, 2001 (except with respect to the matter discussed
in Note 16, as to which the date is February 7, 2001). Our audit was made for
the purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the accompanying index is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken
as a whole.
ARTHUR ANDERSEN, LLP
Baltimore, Maryland,
January 30, 2001 (except with respect to the matter discussed in
Note 16, as to which the date is February 7, 2001)
S-2
<PAGE>
SCHEDULE II
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING OF COSTS AND OTHER AT END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS (1) DEDUCTIONS PERIOD
----------- ------ -------- ------------ ---------- ------
1998
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 2,920 $ 3,234 $ 1,279 $ 2,264 $ 5,169
1999
Allowance for doubtful accounts 5,169 2,560 458 3,171 5,016
2000
Allowance for doubtful accounts 5,016 3,336 75 2,676 5,751
</TABLE>
- ---------
(1) Amount represents allowance for doubtful account balances related to the
acquisition of certain television stations.
S-3
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.42
<SEQUENCE>2
<FILENAME>a2043328zex-10_42.txt
<DESCRIPTION>EXHIBIT 10.42
<TEXT>
Execution Copy
ASSET PURCHASE AGREEMENT
AMONG
SINCLAIR BROADCAST GROUP, INC.
AND
SINCLAIR RADIO OF ST. LOUIS, INC.
SINCLAIR RADIO OF ST LOUIS LICENSEE, LLC
AS SELLERS,
AND
EMMIS COMMUNICATIONS CORPORATION
AS BUYER
JUNE 21, 2000
<PAGE>
TABLE OF CONTENTS
RECITALS 1
ARTICLE I
TERMINOLOGY 1
1.1 Defined Terms. 1
1.2 Additional Defined Terms. 5
ARTICLE II
PURCHASE AND SALE 6
2.1 Sale Assets. 6
2.2 Excluded Assets. 8
2.3 Assumption of Liabilities.9
2.4 Earnest Money. 10
2.5 Purchase Price. 10
2.6 Allocation of the Purchase Price. 11
2.7 Adjustment of Purchase Price. 12
2.8 Accounts Receivable. 14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLING PARTIES 16
3.1 Organization, Good Standing and Requisite Power. 16
3.2 Authorization and Binding Effect of Documents. 16
3.3 Absence of Conflicts. 16
3.4 Consents. 17
3.5 Sale Assets; Title. 17
3.6 FCC Licenses. 17
3.7 Station Agreements. 19
3.8 Tangible Personal Property. 21
3.9 Real Property. 21
3.10 Intellectual Property. 22
3.11 Financial Statements. 23
3.12 Absence of Certain Changes or Events. 24
3.13 Litigation. 25
3.14 Labor Matters 26
3.15 Employee Benefit Plans 27
3.16 Compliance with Law 28
3.17 Tax Returns and Payments 28
3.18 Environmental Matters 29
3.19 Broker's or Finder's Fees 30
3.20 Insurance 30
3.21 Transactions with Affiliates 30
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER 31
4.1 Organization and Good Standing 31
4.2 Authorization and Binding Effect of Documents 31
<PAGE>
4.3 Absence of Conflicts 31
4.4 Consents 32
4.5 Broker's or Finder's Fees 32
4.6 Litigation 32
4.7 Buyer's Qualification 32
4.8 Availability of Funds 33
4.9 WARN Act 33
4.10 Buyer's Defined Contribution Plan 33
ARTICLE V
OTHER COVENANTS 33
5.1 Conduct of Each Station's Business Prior to the Closing Date 33
5.2. Notification of Certain Matters 35
5.3 HSR Filings 35
5.4 FCC Filing 36
5.5 Title; Additional Documents 36
5.6 Other Consents 36
5.7 Inspection and Access 37
5.8 Confidentiality 37
5.9 Publicity 38
5.10 Material Adverse Effect 38
5.11 Commercially Reasonable Efforts 38
5.12 FCC Reports and Applications 38
5.13 Tax Returns and Payments 38
5.14 No Solicitation 39
5.15 Audited Financial Statements 39
5.16 Planned Divestiture 39
5.17 Disclosure Schedules 39
5.18 Bulk Sales Law 40
5.19 Cooperation on Tax Matters40
5.20 Lease of Studio and Office Space. 40
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATION
OF BUYER TO CLOSE 41
6.1 Accuracy of Representations and Warranties;
Closing Certificate 41
6.2 Performance of Agreement 41
6.3 FCC Order 41
6.4 HSR Act 42
6.5 Opinions of Selling Parties' Counsel 42
6.6 Required Consents43
6.7 Delivery of Closing Documents 43
6.8 No Adverse Proceedings. 43
<PAGE>
ARTICLE VII
CONDITIONS PRECEDENT TO THE
OBLIGATION OF SELLING PARTIES TO CLOSE 43
7.1 Accuracy of Representations and Warranties 43
7.2 Performance of Agreement 44
7.3 FCC Order 44
7.4 HSR Act 44
7.5 Opinion of Buyer's Counsel44
7.6 No Adverse Proceedings 44
7.7 Delivery of Closing Documents 45
ARTICLE VIII
CLOSING 45
8.1 Time and Place 45
8.2 Documents to be Delivered to Buyer by Selling Parties 45
8.3 Deliveries to Sellers by Buyer 46
ARTICLE IX
INDEMNIFICATION 47
9.1 Survival 47
9.2 Indemnification by Selling Parties 48
9.3 Indemnification by Buyer 48
9.4 Administration of Indemnification 49
9.5 Mitigation and Limitation of Damages 50
ARTICLE X
TERMINATION 50
10.1 Right of Termination 50
10.2 Obligations Upon Termination 51
10.3 Termination Notice 52
10.4 Selling Parties as a Single Party 52
ARTICLE XI
CONTROL OF STATIONS 52
ARTICLE XII
EMPLOYMENT MATTERS 52
12.1 Transfer of Employees 52
12.2 COBRA 54
12.3 Buyer's Employee Benefit Plans. 54
12.4 Union Employees. 55
12.5 Employment Agreements. 55
12.6 No Third Party Beneficiaries. 55
ARTICLE XIII
MISCELLANEOUS 56
13.1 Further Actions 56
13.2 Payment of Expenses 56
13.3 Specific Performance 56
13.4 Notices 57
13.5 Entire Agreement 59
<PAGE>
13.6 Binding Effect; Benefits 59
13.7 Assignment 59
13.8 Governing Law 60
13.9 Amendments and Waivers 60
13.10 Severability 60
13.11 Headings 61
13.12 Counterparts 61
13.13 References 61
13.14 Schedules and Exhibits 61
13.15 Joint and Several Liability 61
SCHEDULES:
Schedule 3.1 Qualification to Do Business
Schedule 3.3 Absence of Conflicts(Selling Parties)
Schedule 3.5(b) Liens to be Released Prior to Closing
Schedule 3.6 FCC Licenses
Schedule 3.7(a) Trade Agreements
Schedule 3.7(b) Station Agreements
Schedule 3.7(c) Affiliate Agreements
Schedule 3.8 Tangible Personal Property
Schedule 3.9 Real Property Interests
Schedule 3.10 Intellectual Property
Schedule 3.11 Financial Statements
Schedule 3.12 Absence of Certain Changes or Events
Schedule 3.13 Litigation Schedule 3.14(a) Employee Claims
Schedule 3.14(c) List of Employees
Schedule 3.15 Employee Benefit Plans
Schedule 3.16 Compliance with Law
Schedule 3.17 Tax Returns and Payments
Schedule 3.18 Environmental Matters
Schedule 3.19 Broker's or Finder's Fees
Schedule 3.20 Insurance
Schedule 3.21 Transactions with Affiliates
Schedule 4.3 Absence of Conflicts (Buyer)
Schedule 4.7 Buyer's Qualification
Schedule 4.10 Buyer's 401(k) Plan
Schedule 12.1(a) Potentially Excluded Employees
Schedule 12.3(b) Prior Service Credit Policy
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of June 21, 2000,
among SINCLAIR BROADCAST GROUP, INC., a Maryland corporation ("Parent");
SINCLAIR RADIO OF ST. LOUIS, INC., a Maryland corporation ("Sinclair Radio"),
SINCLAIR RADIO OF ST. LOUIS LICENSEE, LLC, a Maryland limited liability company
("Radio Licensee"), (Sinclair Radio and Radio Licensee sometimes referred to
together as "Sellers"); and EMMIS COMMUNICATIONS CORPORATION, an Indiana
corporation ("Buyer").
RECITALS:
WHEREAS, (i) Sinclair Radio owns and operates radio station KPNT-FM, 105.7
FM ("KPNT"), St. Genevieve, Missouri, radio station KIHT-FM, 96.3 FM ("KIHT"),
St. Louis, Missouri, radio station WVRV-FM, 101.1 FM ("WVRV"), East St. Louis,
Illinois, radio station WRTH-AM, 1430 AM ("WRTH"), St. Louis, Missouri, radio
station WIL-FM, 92.3 FM ("WIL"), St. Louis, Missouri, and radio station KXOK-FM,
97.1 FM ("KXOK"), Florissant, Missouri; and (ii) Radio Licensee owns the FCC
Licenses (as hereinafter defined) used in or relating to KPNT's, KIHT's, WVRV's,
WRTH's, WIL's and KXOK's radio broadcasting;
WHEREAS, Parent (indirectly) owns all of the outstanding equity interests
of the Sellers; and
WHEREAS, Buyer desires to acquire substantially all the assets used or
useful in the business and operation of such stations (as more fully described
below), and Sellers are willing to convey such assets to Buyer.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Parent, Sellers and Buyer agree as
follows:
ARTICLE I
TERMINOLOGY
1.1 DEFINED TERMS.
As used herein, the following terms shall have the meanings indicated:
<PAGE>
AFFILIATE: With respect to any specified Person, another Person which,
directly or indirectly controls, is controlled by, or is under common control
with, the specified Person.
APPRAISAL FIRM: BIA Consulting, Inc.
ASSUMED PLANS: The Benefit Plans to which any Selling Party is required to
contribute pursuant to the collective bargaining agreements and labor union
contracts that are Station Agreements.
CODE: The Internal Revenue Code of 1986, as amended.
DOCUMENTS: This Agreement, all Exhibits and Schedules hereto, and each
other agreement, certificate or instrument delivered in connection with this
Agreement.
EARNEST MONEY: As of a given date, the amount deposited as of such date
with the Escrow Agent under the Escrow Agreement, together with the interest and
other earnings thereon as of such date.
ESCROW AGENT: Bank One Trust Company, NA.
ESCROW AGREEMENT: The Escrow Agreement, dated as of the date hereof, by and
among Selling Parties, Buyer and the Escrow Agent relating to the deposit,
holding, investment and disbursement of the Earnest Money.
EXCESS STATIONS: Those FM radio stations serving the St. Louis, Missouri
metropolitan area now owned by Affiliates of Buyer or to be acquired pursuant to
this Agreement that are to be sold or otherwise divested in order for Buyer to
avoid noncompliance with radio station ownership restrictions under the Act (as
defined below) and the rules, regulations and policies of the Department of
Justice and the Federal Trade Commission.
FCC: Federal Communications Commission.
FCC ORDER: The order or decision of the FCC (or its delegatee) granting its
consent to the transfer of all of the FCC Licenses to Buyer.
FINAL ACTION: An action of the FCC that has not been reversed, stayed,
enjoined, set aside, annulled or suspended; with respect to which no timely
petition for reconsideration or administrative or judicial appeal or SUA SPONTE
action of the FCC with comparable effect is pending; and as to which the
normally applicable time for filing any such petition or appeal (administrative
or judicial) or for the taking of any such SUA SPONTE action of the FCC has
expired.
<PAGE>
KNOWLEDGE (or any derivative thereof): With respect to the Sellers,
exclusively, the actual Knowledge of the President and Chief Executive Officer
or the Chief Financial Officer of Parent or Sinclair Communications, Inc.
("SCI"), any other employee of Parent or SCI designated as a "vice president,"
any other officer of any of the Sellers, Parent or SCI, or the General Manager,
Sales Manager or Chief Engineer of any of the Stations.
LIABILITIES: As to any Person, all debts, adverse claims, liabilities and
obligations, direct, indirect, absolute or contingent of such Person, whether
accrued, vested or otherwise, whether in contract, tort, strict liability or
otherwise and whether or not actually reflected, or required by generally
accepted accounting principles to be reflected, in such Person's balance sheets
or other books and records.
LIEN: Any mortgage, deed of trust, pledge, hypothecation, title defect,
right of first refusal, security or other adverse interest, encumbrance,
easement, restriction, claim, option, lien or charge of any kind, whether
voluntarily incurred or arising by operation of law or otherwise, affecting any
assets or property, including any agreement to give or grant any of the
foregoing, any conditional sale or other title retention agreement, and the
filing of or agreement to give any financing statement with respect to any
assets or property under the Uniform Commercial Code or comparable law of any
jurisdiction.
LOSS: With respect to any Person, any and all costs, obligations,
liabilities, demands, claims, settlement payments, awards, judgments, fines,
penalties, damages and reasonable out-of-pocket expenses, including court costs
and reasonable attorney fees, whether or not arising out of a third party claim.
MATERIAL ADVERSE CONDITION: A condition which would adversely affect or
impair, in any material respect, the right of Buyer to the ownership, use,
control or operation of any Station; provided, however, that any condition which
requires (i) that Buyer or any of its subsidiaries file periodic reports with
the FCC regarding compliance with rules and policies of the FCC pertaining to
affirmative action and equal opportunity employment, or (ii) that a Station be
operated in accordance with conditions similar to and not more adverse than
those contained in the present FCC Licenses issued for operation of such
Station, shall not be a Material Adverse Condition.
MATERIAL ADVERSE EFFECT: A material adverse effect on the assets, business,
operations, financial condition or results of operations of the Stations taken
as a whole, except for any such effect resulting from (i) general economic
conditions applicable to the radio broadcast industry, (ii) general conditions
in the markets in which the Stations operate, or (iii) circumstances that are
not likely to recur and either have been substantially remedied or can be
substantially remedied without substantial cost or delay.
<PAGE>
PERMITTED LIEN: (i) Any statutory Lien (including encumbrances of a
landlord) which secures a payment not yet due that arises, and is customarily
discharged, in the ordinary course of the applicable Seller's business; (ii)
Liens arising in connection with equipment or maintenance financing or leasing
under the terms of any Station Agreement; (iii) encumbrances for Taxes not yet
delinquent or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on Sellers'
books in accordance with generally accepted accounting principles, and (iv) any
other Liens or imperfections in a Seller's title to any Sale Assets or
properties that, individually and in the aggregate, are not material in
character or amount to the Sale Assets of such Seller and are not reasonably
expected to materially detract from the value or materially interfere with the
existing use of any of such Sale Assets in the operation of the applicable
Station.
PERSON: Any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
PLANNED DIVESTITURE: The sale or other divestiture, prior to or
simultaneously with the Closing, by Buyer or one or more of its Affiliates of
the FCC licenses and authorizations pertaining to the Excess Stations.
SELLING PARTIES: Sellers and Parent.
STATIONS: KIHT, KPNT, KXOK, WIL, WRTH, and WVRV.
SUBSIDIARY: With respect to any Person, a corporation, partnership, limited
liability company, or other entity of which shares of stock or other ownership
interests having ordinary voting power to elect a majority of the directors of
such corporation, or other Persons performing similar functions for such entity,
are owned, directly or indirectly, by such Person.
TAXES: All federal, state, local and foreign taxes including, without
limitation, income, gains, transfer, unemployment, withholding, payroll, social
security, real property, personal property, excise, sales, use and franchise
taxes, levies, assessments, imposts, duties, licenses and registration fees and
charges of any nature whatsoever, including interest, penalties and additions
with respect thereto and any interest in respect of such additions or penalties.
<PAGE>
TAX RETURN: Any return, filing, report, declaration, questionnaire or other
document required to be filed for any period with any taxing authority (whether
domestic or foreign) in connection with any Taxes (whether or not payment is
required to be made with respect to such document).
TRANSFER TAXES: All sales, use, conveyance, recording and other similar
transfer Taxes and fees applicable to, imposed upon or arising out of the sale
by Sellers and the purchase by Buyer of the Stations whether now in effect or
hereinafter adopted and regardless of which party such Transfer Tax is imposed
upon. Transfer Taxes shall in no event include any net or gross income Taxes.
1.2 ADDITIONAL DEFINED TERMS.
As used herein, the following terms shall have the meanings defined in the
section indicated below:
Acquisition Proposal Section 5.14
Act Section 3.6(b)
Adjustment Amount Section 2.7(a)
Agreement Introduction
Appraisal Report Section 2.6(a)
Arbitrating Firm Section 2.7(e)
Assumed Obligations Section 2.3(a)
Benefit Plans Section 3.15(a)
Buyer Introduction
Buyer's 401(k) Plan Section 4.10
Buyer's Loss Section 9.2(a)
Buyer's Plans Section 12.3(a)
Buyer's Trade Credit Section 2.7(b)
Cap Section 9.2(b)
CERCLA Section 3.18(f)
Closing Section 8.1
Closing Date Section 8.1
Collection Period Section 2.8(b)
Dispute Notice Section 2.7(d)
Employees Section 3.15(a)
ERISA Section 3.15(a)
Excluded Assets Section 2.2
FCC Licenses Section 3.6(a)
Final Proration Notice Section 2.7(d)
HSR Act Section 5.3
HSR Filings Section 5.3
<PAGE>
Indemnified Party Section 9.4(a)
Indemnifying Party Section 9.4(a)
Initial Closing Period Section 2.5(c)
Intellectual Property Section 2.1(e)
Interim Balance Sheet Section 3.11
KIHT Recitals
KPNT Recitals
KXOK Recitals
Leased Real Property Section 3.9(c)
Multiemployer Plan Section 3.15(c)
Owned Real Property Section 3.9(b)
Parent Introduction
Permits Section 2.1(c)
Preliminary Adjustment Report Section 2.7(d)
Purchase Price Section 2.5(a)
Radio Licensee Introduction
Real Property Section 2.1(b)
Real Property Lease Section 3.9(c)
Related Persons Section 3.15(a)
Retained Receivables Section 2.8(a)
Sale Assets Section 2.1
Sellers Introduction
Selling Parties' Enforcement Costs Section 10.2(c)
Selling Parties' Payment Amount Section 10.2(c)
Sinclair Radio Introduction
Stations Agreements Section 2.1(d)
Survival Period Section 9.1
Tangible Personal Property Section 2.1(a)
Threshold Section 9.2(b)
Trade Agreements Section 3.7(a)
Transferred Employees Section 12.1(a)
WIL Recitals
WRTH Recitals
WVRV Recitals
<PAGE>
ARTICLE II
PURCHASE AND SALE
2.1 SALE ASSETS.
Upon and subject to the terms and conditions provided herein, on the
Closing Date, Sellers will sell, transfer, assign and convey to Buyer, and Buyer
will purchase from Sellers, all of Sellers' right, title and interest in and to
all tangible and intangible assets (except Excluded Assets) used in the
operation of the Stations as now or previously operated (the "Sale Assets"),
including the following (but excluding any real or tangible personal property
located at 1215 Cole Street, St. Louis, Missouri, other than such tangible
personal property used in the operation of any of the Stations that is
specifically listed in SCHEDULE 3.8 or 3.9):
(a) TANGIBLE PERSONAL PROPERTY. All transmitter, antenna and other
broadcast equipment, studio equipment, furniture, parts, computers and office
equipment, supplies, programming library and other tangible personal property
owned or leased by Sellers and used in connection with the Stations, including
but not limited to the applicable items listed on SCHEDULE 3.8 (but excluding
any real or tangible personal property located at 1215 Cole Street, St. Louis,
Missouri, other than such tangible personal property used in the operation of
any of the Stations that is specifically listed in SCHEDULE 3.8 or 3.9),
together with such modifications, replacements, improvements and additional
items, and subject to such deletions therefrom, made or acquired collectively
between the date hereof and the Closing Date in accordance with the terms and
provisions of this Agreement (collectively, the "Tangible Personal Property").
(b) REAL PROPERTY. All interests of Sellers (including, but not limited to,
leaseholds) in the real estate listed on SCHEDULE 3.9 and all fixtures and
improvements thereon, together with such additional improvements and interests
in real estate made or acquired between the date hereof and the Closing Date
(collectively, the "Real Property").
(c) PERMITS. The FCC Licenses, and all other governmental permits, licenses
and authorizations (and any renewals, extensions, amendments or modifications
thereof) currently in effect and now held by any Seller or hereafter obtained by
any Seller between the date hereof and the Closing Date, that are necessary for
or related to the operation of any Station (the "Permits").
(d) STATIONS AGREEMENTS. All rights of Sellers in, to and under all
contracts, leases, agreements, commitments and other arrangements, and any
amendments or modifications, used in the operation of such any Station as of the
date hereof (including, but not limited to, those listed on SCHEDULE 3.7(A),
3.7(B) or 3.9) or made or entered into by Sellers between the date hereof and
the Closing Date in compliance with this Agreement (collectively, the "Station
Agreements").
(e) INTELLECTUAL PROPERTY. All trade names, trademarks, service marks,
copyrights, patents, jingles, slogans, symbols, logos, the applicable call
letters, internet
<PAGE>
websites and domain names, inventions, and any other proprietary material,
process, trade secret or trade right used by any Seller in the operation of any
Station, and all registrations, applications and licenses for any of the
foregoing, including, without limitation, those set forth on SCHEDULE 3.10; any
additional such items acquired or used by any Seller in connection with the
operation of any Station between the date hereof and the Closing Date; and all
goodwill associated with any of the foregoing (collectively, the "Intellectual
Property"); PROVIDED, HOWEVER, that the Intellectual Property shall not include,
and Selling Parties shall retain exclusive rights to, all right, title and
interest whatsoever in or to the name "Sinclair" or any derivations thereof.
(f) RECORDS. The originals or true and complete copies of all of the books,
records, accounts, files, logs, ledgers and journals pertaining to or used in
the operation of any Station, including, but not limited to, computer-readable
disk or tape copies of any of such items stored on computer disks or tapes.
(g) MISCELLANEOUS ASSETS. Any other tangible or intangible assets,
properties or rights of any kind or nature not otherwise described above in this
SECTION 2.1 and now or before Closing owned or used by any Seller principally in
connection with the operation of any Station, including but not limited to all
goodwill of each Station (but excluding any real or tangible personal property
located at 1215 Cole Street, St. Louis, Missouri, other than such tangible
personal property used in the operation of any of the Stations that is
specifically listed in SCHEDULE 3.8 or 3.9).
2.2 EXCLUDED ASSETS.
Notwithstanding any provision of this Agreement to the contrary, the Sale
Assets shall not include the following (the "Excluded Assets"):
(a) Any and all cash, bank deposits and other cash equivalents,
certificates of deposit, securities, cash deposits made by any Seller to secure
contract obligations (except to the extent Sellers receive a credit therefor
under SECTION 2.7), and all accounts receivable (other than non-cash receivables
under Trade Agreements) for services performed or for goods sold or delivered by
Sellers prior to the Closing Date;
(b) All rights and claims of any Seller whether mature, contingent or
otherwise, against third parties with respect to, or which are made under or
pursuant to, other Excluded Assets or which relate to the period prior to the
Closing;
(c) All prepaid expenses (and rights arising therefrom or related thereto)
except to the extent taken into account in determining the Adjustment Amount
under SECTION 2.7;
<PAGE>
(d) All Benefit Plans (other than Assumed Plans);
(e) All Tax Returns (and supporting materials) and all claims of any Seller
with respect to any Tax refunds;
(f) All of any Seller's rights under or pursuant to this Agreement or any
other rights in favor of any Seller pursuant to the other Documents;
(g) All loan agreements, letters of credit and other instruments evidencing
indebtedness for borrowed money;
(h) All contracts of insurance, all coverages and proceeds thereunder and
all rights in connection therewith, including, without limitation, rights
arising from any refunds due with respect to insurance premium payments to the
extent they relate to such insurance policies;
(i) All tangible personal property disposed of or consumed between the date
hereof and the Closing Date in accordance with the terms and provisions of this
Agreement;
(j) Each Seller's minute books, ownership transfer records and other entity
records, and any records relating to Excluded Assets and to Liabilities other
than the Assumed Obligations;
(k) All rights to the names "Sinclair Broadcast Group," "Sinclair
Communications," Sinclair and any logo or variation thereof and goodwill
associated therewith;
(l) All assets which are owned by the Sellers and used, or which Sellers
have the right to acquire and are to be used, principally in connection with any
television station owned and/or programmed by any of the Sellers, including,
without limitation, the Real Property and tangible personal property located at
1215 Cole Street, St. Louis, Missouri, other than such tangible personal
property used in the operation of any of the Stations that is specifically
listed in SCHEDULE 3.8 or 3.9; and
(m) All shares of capital stock, partnership interests, interests in
limited liability companies or other equity interest, including, but not limited
to, any options, warrants or voting trusts relating thereto which are owned by
Sellers and not expressly specified in SECTION 2.1.
<PAGE>
2.3 ASSUMPTION OF LIABILITIES.
(a) Buyer shall at Closing assume and agree to pay, discharge and perform
the following Liabilities of Sellers (collectively, the "Assumed Obligations"):
(i) All Liabilities arising under all Stations Agreements and the
Permits assigned and transferred to Buyer in accordance with this Agreement
to the extent such Liabilities arise during and relate to any period on or
after the Closing Date (excluding, however, any Liability arising from
either (A) the breach of any Station Agreement by reason of its assignment
to Buyer without a required consent or (B) any other breach or default by
any Seller upon or prior to Closing under any Station Agreement).
(ii) Provided that Sellers pay Buyer the amount, if any, owed by
Sellers after Closing under SECTION 2.7, the Assumed Obligations shall also
include such other Liabilities of Sellers to the extent, and only to the
extent, the amount thereof is included as a credit to Buyer in calculating
the Adjustment Amount as ultimately determined pursuant to SECTION 2.7.
(b) Except for the Assumed Obligations, Buyer shall not assume or in any
manner be liable for any Liabilities of any Selling Party of any kind or nature,
all of which such Selling Party shall pay, discharge and perform when due.
2.4 EARNEST MONEY.
(a) Concurrently with the execution of this Agreement, Buyer has deposited
with the Escrow Agent in immediately available funds the sum of Twenty-Two
Million Dollars ($22,000,000).
(b) The Escrow Agent shall hold the Earnest Money under the terms of the
Escrow Agreement in trust for the benefit of the Selling Parties and Buyer.
(c) If Closing does not occur, the Earnest Money shall be delivered to
Sellers or returned to Buyer in accordance with SECTION 10.2, and if Closing
does occur, the Earnest Money shall be applied at Closing as provided in SECTION
2.5.
2.5 PURCHASE PRICE.
(a) Subject to increase as provided in SECTION 2.5(C) and adjustment as
provided in SECTION 2.7, the purchase price for the Sale Assets ("Purchase
Price") shall be Two Hundred Twenty Million Dollars ($220,000,000), payable as
follows:
<PAGE>
(i) An amount equal to the Earnest Money shall be paid by the Escrow
Agent's disbursement of the Earnest Money to Sellers by wire transfer of
immediately available funds pursuant to joint written instructions from
Sellers and Buyer.
(ii) The difference of (A) the Purchase Price minus (B) the Earnest
Money shall be paid by Buyer to Sellers on the Closing Date by wire
transfer of immediately available funds pursuant to written instructions
from Sellers to Buyer.
(b) Sellers shall furnish Buyer wire instructions at least two (2) business
days prior to the Closing Date.
(c) The Purchase Price shall be increased:
(i) By One Million Dollars ($1,000,000) upon expiration of the 60-day
period following publication of notice by the FCC that
applications for the FCC Order have been accepted for filing (the
"Initial Closing Period") if, and only if, (A) Closing has not
occurred prior to expiration of the Initial Closing Period
because the FCC has failed to grant the FCC Order or the waiting
period (including any extensions) under the HSR Act applicable to
the transactions contemplated by this Agreement has not expired
or been terminated, and (B) such failure of the FCC, or such
failure of such waiting period (including any extensions) to
expire or be terminated, is the result of facts relating to Buyer
or its Affiliates, including, but not limited to, the facts
disclosed on SCHEDULE 4.7; and
(ii) By an additional One Million Dollars ($1,000,000) upon expiration
of each consecutive 30-day period following the Initial Closing
Period (up to a maximum of four (4) such 30-day periods) if, and
only if, (A) Closing has not occurred prior to expiration of such
30-day period because the FCC has failed to grant the FCC Order
or the waiting period (including any extensions) under the HSR
Act applicable to the transactions contemplated by this Agreement
has not expired or terminated, and (B) such failure of the FCC,
or such failure of such waiting period (including any extensions)
to expire or be terminated, is the result of facts relating to
Buyer or its Affiliates, including, but not limited to, the facts
disclosed on SCHEDULE 4.7;
provided, however, that the aggregate increase in the Purchase Price under this
SECTION 2.5(C) shall in no event exceed Five Million Dollars ($5,000,000).
<PAGE>
2.6 ALLOCATION OF THE PURCHASE PRICE.
(a) Promptly after the Closing, Sellers and Buyer agree to retain the
Appraisal Firm to appraise the classes of Sale Assets. The Appraisal Firm shall
be instructed to perform an appraisal of the classes of Sale Assets and to
deliver a report to Sellers and Buyer as soon as reasonably practicable (the
"Appraisal Report"). Buyer shall pay the fees, costs and expenses of the
Appraisal Firm; PROVIDED, Seller shall use reasonable efforts to make available
to Buyer and the Appraisal Firm copies of any appraisals prepared in connection
with Sellers' acquisitions of the Stations.
(b) Buyer and Sellers each agree to report the allocation determined in
accordance with SECTION 2.6(a) to the Internal Revenue Service in the form
required by Treasury Regulations Section 1.1060-IT and to use such allocation
for all other reporting purposes after Closing in connection with federal, state
and local income and, to the extent permitted under applicable law, franchise
Taxes.
2.7 ADJUSTMENT OF PURCHASE PRICE.
(a) All operating income and operating expenses of the Stations shall be
adjusted and allocated between Sellers and Buyer, and an adjustment in the
Purchase Price shall be made as provided in this Section, to the extent
necessary to reflect the principle that all such income and expenses
attributable to the operation of the Stations on or before the date preceding
the Closing Date shall be for the account of Sellers, and all such income and
expenses attributable to the operation of the Stations on and after the Closing
Date shall be for the account of Buyer. The net amount by which the Purchase
Price is to be increased or decreased in accordance with this Section is herein
referred to as the "Adjustment Amount".
(b) Without limiting the generality of the foregoing:
(i) Sellers shall receive a credit for the unapplied portion, as of
Closing, of the security deposits made by Sellers under those Stations
Agreements assumed by Buyer at Closing in accordance with SECTION 2.3.
(ii) Buyer shall be given a credit ("Buyer's Trade Credit") in the
amount, if any, by which the fair market value of all advertising time
required to be broadcast on the Stations on or after the Closing Date under
the Trade Agreements exceeds by more than $250,000, the fair market value
of the goods and services to be received on or after the Closing Date under
the Trade Agreements. Sellers shall be given a credit in the amount, if
any, by which the fair market value of the goods or services to be received
on or after the Closing Date under the Trade Agreements exceeds by more
than $250,000 the fair
<PAGE>
market value of any advertising time required to be broadcast on the
Stations on or after the Closing Date.
(iii) Buyer shall be given a credit equal to the amount of cash
consideration that Sellers have not paid prior to the Closing Date for
programming run by the Stations prior to the Closing Date.
(iv) With respect to each vacation day or portion thereof earned but
not taken before the Closing Date by the Stations' employees hired by
Buyer, Buyer shall receive a credit equal to the compensation equivalent
thereof.
(v) An adjustment and proration shall be made in favor of Sellers for
the amount, if any, of prepaid expenses, the benefit of which accrues to
Buyer hereunder, and other current assets acquired by Buyer hereunder which
are paid by Sellers to the extent such prepaid expenses and other current
assets relate to the period after the Closing, provided that the credit
given Sellers for each prepaid expense shall not exceed an amount
commensurate with the benefit therefrom to be received by Buyer after
Closing.
(vi) There shall be no proration for sick leave.
(vii) There shall be no proration for any payments made by Interep to
any of the Sellers in connection with obtaining the right to serve as the
national sales representative of any of the Stations.
(c) To the extent not inconsistent with the express provisions of this
Agreement, the allocations made pursuant to this Section shall be made in
accordance with generally accepted accounting principles.
(d) Three (3) business days prior to the Closing Date, Sellers shall
provide Buyer with a statement setting forth a detailed computation of Sellers'
reasonable and good faith estimate of the Adjustment Amount as of the Closing
Date (the "Preliminary Adjustment Report"). If the Adjustment Amount reflected
on the Preliminary Adjustment Report is a credit to Buyer, the Purchase Price
payable on the Closing Date shall be reduced by the amount of the preliminary
Adjustment Amount, and if the Adjustment Amount reflected on the Preliminary
Adjustment Report is a charge to Buyer, the Purchase Price payable on the
Closing Date shall be increased by the amount of such preliminary Adjustment
Amount. Within ninety (90) days after the Closing Date, Buyer shall deliver to
Sellers in writing and in reasonable detail a good faith final determination of
the Adjustment Amount determined as of the Closing Date ("Final Proration
Notice"). Sellers shall assist Buyer in making such determination, and Buyer
shall provide Sellers with reasonable access to the properties, books and
records relating to the Stations for
<PAGE>
the purpose of determining the Adjustment Amount. Sellers shall have the right
to review the computations and workpapers used in connection with Buyer's
preparation of the Adjustment Amount. If Sellers disagree with the amount of the
Adjustment Amount determined by Buyer, Sellers shall so notify Buyer in writing
(the "Dispute Notice") within forty-five (45) days after the date of receipt of
Buyer's Final Proration Notice, specifying in detail any point of disagreement;
PROVIDED, HOWEVER, that if Sellers fail to notify Buyer in writing of Sellers'
disagreement within such 45-day period, Buyer's determination of the Adjustment
Amount, as indicated in the Final Proration Notice shall be final, conclusive
and binding on Sellers and Buyer. After the receipt of any notice of
disagreement, Buyer and Sellers shall negotiate in good faith to resolve any
disagreements regarding the Adjustment Amount. If agreement is reached within
forty-five (45) days after Buyer's receipt of the Dispute Notice, then upon
reaching such agreement, Sellers shall pay to Buyer or Buyer shall pay to
Sellers, as the case may be, an amount equal to the difference between (i) the
agreed Adjustment Amount and (ii) the preliminary Adjustment Amount indicated in
the Preliminary Adjustment Report. Any such payment shall be made as provided in
SECTION 2.7(f). If agreement is not reached within such 30-day period, then the
dispute resolutions of SECTION 2.7(e) shall apply.
(e) If Sellers and their auditors and Buyer and its auditors do not, within
the 30-day period specified in SECTION 2.7(d), reach an agreement on the
Adjustment Amount as of the Closing Date, then an independent accounting firm of
recognized national standing (the "Arbitrating Firm") which has not regularly
provided services to either the Buyer or Sellers in the last three (3) years,
which shall be knowledgeable and experienced in the operation of radio
broadcasting stations, shall be selected by Sellers and Buyer to resolve the
disputed items. If Sellers and Buyer do not agree on the Arbitrating Firm within
five (5) days, the Arbitrating Firm shall be a nationally recognized accounting
firm selected by lot (after excluding one firm designated by Sellers and one
firm designated by Buyer). Buyer and Sellers shall each inform the Arbitrating
Firm in writing as to their respective positions concerning the Adjustment
Amount as of the Closing Date, and each shall make readily available to the
Arbitrating Firm any books and records and work papers relevant to the
preparation of such firm's computation of the Adjustment Amount. The Arbitrating
Firm shall be instructed to complete its analysis within thirty (30) days from
the date of its engagement and upon completion to inform the parties in writing
of its own determination of the Adjustment Amount and the basis for its
determination. Any determination by the Arbitrating Firm in accordance with this
Section shall be final and binding on the parties for purposes of this Section.
Within five (5) days after the Arbitrating Firm delivers to the parties its
written determination of the Adjustment Amount, Sellers shall pay to Buyer, or
Buyer shall pay to Sellers, as the case may be, an amount equal to the
difference between (i) the Adjustment Amount as determined by the Arbitrating
Firm and (ii) the preliminary Adjustment Amount indicated in the Preliminary
Adjustment Report. Any such payment shall be made as provided in SECTION 2.7(f).
<PAGE>
(f) Any payments required under SECTION 2.7(d) OR (e) shall be paid by wire
transfer in immediately available funds to the account of the payee at a
financial institution in the United States and shall for all purposes constitute
an adjustment to the Purchase Price.
2.8 ACCOUNTS RECEIVABLE.
(a) Within ten (10) days after the Closing Date, Sellers shall furnish to
Buyer a true and complete list of Sellers' accounts receivable (other than
non-cash receivables under Trade Agreements) arising from the operation of the
Stations prior to the Closing Date (the "Retained Receivables"), which list
shall set forth for each Retained Receivable the name of the debtor, the date of
the invoice, the amount of any payments previously received on account and the
balance due.
(b) For a period of one hundred eighty (180) days after the Closing Date
(the "Collection Period"), Buyer will, without charge to Sellers, use its usual
and customary procedures (which may include referral to a collection agency) to
collect the Retained Receivables as Sellers' agent for collection, provided that
(i) Buyer shall not be required to commence litigation, employ legal counsel or
make any other extraordinary collection efforts, and (ii) Buyer's obligation to
act as Sellers' agent in the collection of the Retained Receivables shall
terminate upon expiration of the Collection Period. For the purpose of
determining amounts collected by Buyer with respect to the Retained Receivables,
each payment by an account debtor shall be applied to the older or oldest
accounts receivable of such account debtor unless the account debtor in writing
(a copy of which Buyer shall provide to Sellers) identifies such an account as
being in dispute and directs that a particular payment be applied to a specific
newer account receivable.
(c) Every four (4) weeks during the Collection Period (and within fifteen
(15) days after the end of the Collection Period), Buyer shall deliver to
Sellers a statement showing all collections of Retained Receivables made on
behalf of Sellers since the last previous report and shall pay such collections
to Sellers by check, or by wire transfer, as specified by Sellers, at the time
such statement is delivered. Buyer shall have no right to setoff amounts owed
hereunder by Buyer to Seller against any amounts owed hereunder by Sellers to
Buyer.
(d) Sellers shall not engage in any collection efforts against account
debtors under the Retained Receivables during the first ninety (90) days of the
Collection Period, other than with respect to accounts receivable identified as
in dispute as provided in foregoing SECTION 2.8(B). After the first ninety (90)
days of the Collection Period, Sellers shall have the right, at their expense,
to assist and participate with Buyer
<PAGE>
in the collection of unpaid Retained Receivables, PROVIDED, HOWEVER, Sellers'
collection efforts shall be commercially reasonable and consistent with its past
practices.
(e) Buyer shall not, without Sellers' prior written consent, compromise or
settle for less than full value any of the Retained Receivables unless Buyer
pays Sellers the full amount of any deficiency. Buyer shall be entitled to
purchase from Sellers any Retained Receivable for the full amount thereof at any
time during or at the expiration of the Collection Period.
(f) At the end of the Collection Period, Buyer shall return to Sellers all
files concerning the collection or attempts to collect the Retained Receivables
and Buyer's responsibility for the collection of the Retained Receivables shall
cease; provided, Buyer shall promptly pay over to Sellers any amounts received
with respect to the Retained Receivables after the Collection Period, together
with a statement setting forth the components of such amounts.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLING PARTIES
Selling Parties, jointly and severally, represent and warrant to Buyer as
follows;
3.1 ORGANIZATION, GOOD STANDING AND REQUISITE POWER.
Each Selling Party, other than Radio Licensee, is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland, and has all requisite power to own, operate and lease those Sale
Assets which it owns and carry on its business. Radio Licensee is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Maryland and has all requisite power to own, operate
and lease those Sale Assets which it owns and carry on its business. Each Seller
is duly licensed, qualified to do business and in good standing as a foreign
entity under the laws of the jurisdiction listed beside such Seller's name in
SCHEDULE 3.1.
<PAGE>
3.2 AUTHORIZATION AND BINDING EFFECT OF DOCUMENTS.
Each Selling Party has all requisite corporate power and authority (or
other appropriate power and authority based on the structure of such Selling
Party) to enter into this Agreement and the other Documents and to consummate
the transactions contemplated by this Agreement and each of the other Documents.
The execution and delivery of this Agreement and each of the other Documents by
each Selling Party and the consummation by each Selling Party of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action (including all necessary shareholder or member approvals, if
any) on the part of each Selling Party. This Agreement has been, and each of the
other Documents at or prior to Closing will be, duly executed and delivered by
each Selling Party. This Agreement constitutes (and each of the other Documents,
when executed and delivered, will constitute) the valid and binding obligation
of each Selling Party enforceable against each Selling Party in accordance with
its terms except as the enforceability of this Agreement or of any of the other
Documents may be affected by bankruptcy, insolvency, or similar laws affecting
creditors' rights generally and by judicial discretion in the enforcement of
equitable remedies.
3.3 ABSENCE OF CONFLICTS.
Except as set forth on SCHEDULE 3.3, and except for necessary clearances or
approvals under the HSR Act or the Act, the execution, delivery and performance
by each Selling Party of this Agreement and the other Documents, and
consummation by each Selling Party of the transactions contemplated hereby and
thereby, do not and will not (i) conflict with or result in any breach of any of
the terms, conditions or provisions of, (ii) constitute a default under, (iii)
result in a violation of, (iv) give any third party the right to modify,
terminate or accelerate any obligation under, or (v) result in the creation of
any Lien upon the Sale Assets under, the provisions of the organizational
documents of such Selling Party, any material indenture, mortgage, lease, loan
agreement or other material agreement or instrument to which such Selling Party
is bound or affected, or any law, statute, rule, judgment, order or decree to
which such Selling Party is subject.
3.4 CONSENTS.
Except as set forth on SCHEDULE 3.3, SCHEDULE 3.7 or SCHEDULE 3.9, and
except for any necessary clearances or approvals under the HSR Act or the Act,
the execution, delivery and performance by each Selling Party of this Agreement
and the other Documents, and consummation by each Selling Party of the
transactions contemplated hereby and thereby, do not and will not require the
authorization, consent, approval, exemption, clearance or other action by or
notice or declaration to, or filing with, any court, any administrative or other
governmental body, or any other third party.
<PAGE>
3.5 SALE ASSETS; TITLE.
(a) The Sale Assets constitute all of the assets, properties and rights of
every type and description, real, personal and mixed, tangible and intangible,
that are currently used in or material to the operation of the Stations, with
the exception of the Excluded Assets (which Excluded Assets include the traffic
system used in the operation of KPNT, WVRV and KXOK at 1215 Cole Street, St.
Louis, Missouri, the other assets described as Excluded Assets in SECTION
2.2(l), and all other assets described as Excluded Assets in SECTION 2.2).
(b) Together, Sellers own and have good title to, or a valid lessee's or
licensee's interest (pursuant to one or more Station Agreements) in, all of the
Sale Assets free and clear of all Liens except (i) Liens described on SCHEDULE
3.5(b) which Sellers shall cause to be released prior to Closing and (ii)
Permitted Liens.
3.6 FCC LICENSES.
Except as set forth on SCHEDULE 3.6:
(a) Radio Licensee is the valid and legal holder of each of the licenses,
permits and authorizations of the FCC listed on SCHEDULE 3.6 (together as to all
Stations, the "FCC Licenses"), and any action of the FCC with respect to each
FCC License is a Final Action with the exception of the FCC Order. The
expiration date of the term of each main FCC License is shown on SCHEDULE 3.6.
(b) The FCC Licenses (i) are valid and in full force and effect, and
constitute all of the licenses, permits and authorizations used in or required
for the current operation of the Stations under the Communications Act of 1934,
as amended, and the rules, regulations and policies of the FCC thereunder
(collectively, the "Act"), and (ii) constitute all the currently in effect
licenses and authorizations, including amendments and modifications thereto,
issued by the FCC for the operation of the Stations.
(c) Other than as set forth in the FCC Licenses or restrictions applicable
to the radio broadcast industry generally, none of the FCC Licenses is subject
to any restriction or condition which limits in any material respect the full
operation of the applicable Station as now conducted, and as of the Closing
Date, none of the FCC Licenses shall be subject to any restriction or condition
which would limit in any material respect the full operation of such Station as
currently operated.
<PAGE>
(d) Each Station is being operated by the applicable Seller in all material
respects in accordance with the terms and conditions of the FCC Licenses and the
Act, including but not limited to those pertaining to RF emissions.
(e) No applications, complaints or proceedings are pending or, to the
Knowledge of any Selling Party, are threatened which may result in the
revocation, modification, non-renewal or suspension of any of the FCC Licenses,
the denial of any pending applications, the issuance of any cease and desist
order or the imposition of any material fines, forfeitures or other
administrative actions by the FCC with respect to any Station or its operation,
other than actions or proceedings affecting the radio broadcasting industry in
general.
(f) Sellers have complied in all material respects with all requirements to
file registrations, reports, applications and other documents with the FCC with
respect to each Station, and all such registrations, reports, applications and
documents are true, correct and complete in all material respects.
(g) Other than actions or proceedings affecting the radio broadcasting
industry in general or facts relating to Buyer, no Seller has Knowledge of
matters (i) which might reasonably be expected to result in the adverse
modification, suspension or revocation of or the refusal to renew any of the FCC
Licenses or the imposition of any material fines or forfeitures by the FCC
against any Selling Party, or (ii) which might reasonably be expected to result
in the FCC's denial or delay of approval of the assignment to Buyer of any FCC
License or the imposition of any Material Adverse Condition in connection with
approval of the transfer to Buyer of any FCC License.
(h) There are no unsatisfied or otherwise outstanding citations issued by
the FCC with respect to any Station or its operation.
(i) True, complete and accurate copies of all FCC Licenses material to the
operation of each Station as now conducted have been delivered by Sellers to
Buyer.
(j) Except for the FCC Licenses, there are no material licenses, permits or
authorizations from governmental or regulatory authorities required for the
lawful operation and conduct of the Stations as previously and currently
operated by Sellers.
<PAGE>
3.7 STATION AGREEMENTS.
(a) SCHEDULE 3.7(a) lists all agreements, contracts, understandings and
commitments (including, without limitation, programming agreements which may be
listed on SCHEDULE 3.7(b)) as of the date indicated thereon for the sale of time
on any Station for other than monetary consideration ("Trade Agreements"), and
sets forth the parties thereto, the financial value of the time required to be
provided from and after the date of such Schedule and the estimated financial
value of the goods or services to be received by each Seller from and after the
date of such Schedule. True and complete copies of all written Trade Agreements
in effect as of such date involving broadcast time of more than $25,000,
including all amendments, modifications and supplements thereto, have been
delivered to Buyer, and each Trade Agreement involving broadcast time of more
than $25,000 entered into by any Seller between the date of this Agreement and
Closing shall be promptly delivered to Buyer.
(b) SCHEDULE 3.7(b) lists all the following types of agreements used in or
relating to the operation of each Station:
(i) Agreements for sale of broadcast time on such Station for monetary
consideration that (A) are not terminable by Sellers without charge or
penalty upon thirty (30) days or less prior written notice and (B) involve
broadcast time of more than Twenty-Five Thousand Dollars ($25,000);
(ii) All network affiliation agreements;
(iii) All sales agency or advertising representation contracts;
(iv) Each lease of any Sale Asset (including a description of the
property leased thereunder) other than such agreements not requiring
expenditures of more than $25,000 in any calendar year and having a term
(after taking into account any cancellation right of Sellers without charge
or penalty) of one (1) year or less) except for leases of Real Property
listed on SCHEDULE 3.9;
(v) All collective bargaining agreements;
(vi) All severance agreements, employment agreements, talent
agreements and agreements with independent contractors, other than such
agreements that (A) do not provide for any severance payments or benefits,
(B) do not require expenditures of more than $25,000 in any calendar year
and (C) have a term (after taking into account any cancellation right of
Sellers without charge or penalty) of one (1) year or less;
<PAGE>
(vii) All agreements requiring such Station to acquire goods or
services exclusively from a single supplier or provider, or prohibiting
such Station from providing certain goods or services to any Person other
than a specified Person;
(viii) All agreements that have a remaining term (after taking into
account any cancellation rights of Sellers without charge or penalty) of
more than one (1) year or involve a commitment of more than $25,000; and
(ix) Any other agreement that is material to the business, operations,
financial condition or results of operations of any Station.
True and complete copies of all the foregoing Station Agreements that are in
writing, and true and accurate summaries of all the foregoing Station Agreements
that are oral, including all amendments, modifications and supplements, have
been delivered to Buyer. The Stations Agreements that are not described in
Section 3.7(a) or in the foregoing CLAUSES (I) through (IX) of this SECTION
3.7(b) (without regard to the monetary thresholds set forth in SECTION 3.7(a) or
in such clauses of SECTION 3.7(B)) do not involve commitments by parties thereto
with an aggregate fair market value of more than One Hundred Fifty Thousand
Dollars ($150,000).
(c) SCHEDULE 3.7(c) lists all of the contracts and agreements used in or
relating to the operation of the Stations to which an Affiliate of any Seller is
a party (other than agreements for sale of broadcast time on the Stations and
KDNL-TV for monetary consideration entered into in the ordinary course of
business that involve broadcast time on the Stations of less than Twenty-Five
Thousand Dollars ($25,000)). True and complete copies of those in writing have
been delivered to Buyer, and summaries of those that are oral are set forth on
SCHEDULE 3.7(c).
(d) With respect to the Station Agreements which are, individually or in
the aggregate, material to the assets, business, operations, financial condition
or results of operations of a Station, except as set forth in the Schedules, (i)
such Station Agreements are valid, binding, in full force and effect, and
enforceable in accordance with their terms except as the enforceability of such
Contracts may be affected by bankruptcy, insolvency, or similar laws affecting
creditors' rights generally and by judicial discretion in the enforcement of
equitable remedies; (ii) neither Sellers nor, to the Knowledge of any Seller,
any other party is in material default under, and no event has occurred which
(after the giving of notice or the lapse of time or both) would constitute a
material default under, any such Station Agreements; (iii) neither Sellers nor
any Affiliate of Sellers has granted or been granted any material waiver or
forbearance with respect to any such Station Agreements; (iv) the applicable
Seller holds the right to enforce and receive the benefits under all such
Station Agreements, free and clear of Liens (other than Permitted Liens) but
subject to the terms and provisions of each such
<PAGE>
agreement; (v) none of the rights of any Seller or any Affiliate of any Seller
under any such Station Agreements is subject to termination or modification as a
result of the consummation of the transactions contemplated by this Agreement;
and (vi) except as set forth on SCHEDULE 3.7(a), 3.7(b) or 3.9, no consent or
approval by each party to any such Station Agreements is required thereunder for
the consummation of the transactions contemplated hereby.
3.8 TANGIBLE PERSONAL PROPERTY.
(a) SCHEDULE 3.8 lists, as of the date noted on such Schedule, all Tangible
Personal Property (other than Excluded Assets, office supplies and other
incidental items) material to the conduct of the business and operations of each
Station as now operated.
(b) Except as specified on SCHEDULE 3.8, the equipment constituting a part
of the Tangible Personal Property used in or necessary for the operation of each
Station as now operated by any Seller has been properly maintained in all
material respects in accordance with industry practices, is in a good state of
repair and operating condition (subject to ordinary wear and tear), and complies
in all material respects with the Act and other applicable material laws, rules,
regulations and ordinances.
3.9 REAL PROPERTY.
(a) The list of Real Property set forth on SCHEDULE 3.9 is a correct and
complete list of all of the interests in real estate which any Seller holds or
which are used to any material extent in the operation of any Station.
(b) Each Seller holds good fee simple title to each parcel of Real Property
listed in SCHEDULE 3.9 as owned by the Seller (the "Owned Real Property") free
and clear of any Liens except (i) Liens described on SCHEDULE 3.5(b) which
Sellers shall cause to be released prior to Closing, and (ii) Permitted Liens.
To each Seller's Knowledge, except as set forth on SCHEDULE 3.9, there is no
pending, threatened or contemplated action to take by eminent domain or to
condemn any of the Real Property.
(c) Each lease (including all amendments, modifications and supplements)
under which any Seller leases an interest in any of the Real Property (each, a
"Real Property Lease") is specified, and each leased Real Property, including
but not limited to studio and office space and each transmitter or antenna site
(the "Leased Real Property"), and its use by any Seller are identified, on
SCHEDULE 3.9. Except as set forth on such Schedule, such Seller holds good title
to the lessee's interest under each Real Property Lease free and clear of all
Liens except Permitted Liens. True and complete
<PAGE>
copies of all Real Property Leases, including all amendments, modifications and
supplements, have been delivered to Buyer.
(d) Except as set forth on the Schedules hereto, (i) each Real Property
Lease is legal, valid, binding and enforceable in accordance with its terms;
(ii) neither Sellers nor, to the Knowledge of any Seller, any other party is in
material default under any Real Property Lease; (iii) to the Knowledge of each
Seller, there has not occurred any event which, after the giving of notice or
the lapse of time or both, would constitute a material default under, or result
in the material breach of, any Real Property Lease, nor has any Selling Party
received written notice alleging any such event has occurred; (iv) none of the
rights of the applicable Seller under any Real Property Lease is subject to
termination or modification as a result of the consummation of the transactions
contemplated by this Agreement; (v) no consent or approval by any party to any
Real Property Lease is required for the consummation of the transactions
contemplated hereby; and (vi) no Seller has granted or been granted any material
waiver or forbearance with respect to any Real Property Lease.
(e) All improvements on the Real Property owned by any of the Sellers are
in compliance in all material respects with applicable federal, state and local
laws, building codes, ordinances and regulations, including but not limited to
zoning and land use laws, ordinances and regulations, and the use by any Seller
of each portion of the Real Property complies in all material respects with
applicable zoning and land use laws, ordinances and regulations. Each Seller's
improvements on the Real Property are in good working condition and repair
(subject to ordinary wear and tear).
3.10 INTELLECTUAL PROPERTY.
SCHEDULE 3.10 lists all trade names, trademarks, service marks, copyrights
and patents constituting the Intellectual Property, including all registrations,
applications and licenses for any of the Intellectual Property. Except as
disclosed on SCHEDULE 3.10:
(a) To the Knowledge of each Seller, the applicable Seller owns, free and
clear of Liens other than Permitted Liens, all right and interest in, and right
and authority to use, or has a valid license to use, in connection with the
conduct of the business of the applicable Station as presently conducted, all of
the Intellectual Property listed on SCHEDULE 3.10, and all of the rights and
properties constituting a part of the Intellectual Property are in full force
and effect.
(b) There are no outstanding or, to the Knowledge of any Seller, threatened
judicial or adversary proceedings with respect to any of the Intellectual
Property.
<PAGE>
(c) No Selling Party has granted to any other person or entity any license
or other right or interest in or to any of the Intellectual Property or to the
use thereof.
(d) No Seller has Knowledge of any infringement or unlawful use of any of
the Intellectual Property.
(e) To each Seller's Knowledge, no Seller has violated any provisions of
the Copyright Act of 1976, 17 U.S.C.ss.101, ET SEQ., in any material respect.
(f) Sellers have delivered to Buyer copies of all state and federal
registrations and other material documents, if any, establishing any of the
rights and properties constituting a part of the Intellectual Property.
3.11 FINANCIAL STATEMENTS.
Attached as SCHEDULE 3.11 are:
(a) The unaudited balance sheets of each Seller as of December 31, 1998 and
1999;
(b) The unaudited balance sheet of each Seller as of April 30, 2000 (the
"Interim Balance Sheet");
(c) The unaudited consolidated income statements of Sinclair Radio for the
years ended December 31, 1998 and 19 99, and for the interim period ended April
30, 2000;
(d) The unaudited income statements of Radio Licensee for the years ended
December 31, 1998 and 1999, and for the interim period ended April 30, 2000;
(e) The unaudited broadcast cash flow statements for KIHT for the years
ended December 31, 1998 and 1999, and for the interim period ended April 30,
2000;
(f) The unaudited combined broadcast cash flow statements for KPNT, WVRV
and KXOK for the years ended December 31, 1998 and 1999, and for the interim
period ended April 30, 2000; and
(g) The unaudited combined broadcast cash flow statements for WIL and WRTH
for the years ended December 31, 1998 and 1999, and for the interim period ended
April 30, 2000.
<PAGE>
To the extent each financial statement (i.e., balance sheet, income or broadcast
cash flow statement) referred to in this SECTION 3.11 relates to the period of
time during which, or a date on which, the Station or Stations covered by such
financial statement were owned by Sellers (or any Affiliate thereof), such
financial statement (i) has been prepared from and accurately reflects the books
and records of Sellers and (ii) and has been prepared, and presents fairly and
accurately the financial condition of the Station or Stations covered by such
financial statement as at its date or the results of operations of such Station
or Stations for the period then ended, in conformity with generally accepted
accounting principles applied in a manner consistent with the preparation of the
most recent audited financial statements of Parent, except for the absence of
footnotes and certain normal and recurring year-end adjustments, none of which
will be material to the results of operations or financial condition of any such
Station. Except as specifically stated in Section B of SCHEDULE 3.11, none of
such financial statements understates in any material respect the normal and
customary costs and expenses of conducting the business or operations of any of
the Stations as currently conducted, or otherwise materially inaccurately
reflects the results of operations of any of the Stations; provided, that the
foregoing representations regarding each such financial statement are given only
to each Seller's Knowledge with respect to any Station for any period of time or
date covered by such financial statement during or on which neither Sellers nor
an Affiliate thereof owned the Station.
3.12 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since the date of the Interim Balance Sheet and through the date hereof,
other than as described on SCHEDULE 3.12:
(a) There has not been any damage, destruction or other casualty loss with
respect to the Sale Assets (whether or not covered by insurance) which,
individually or in the aggregate has had or is reasonably likely to have a
Material Adverse Effect.
(b) None of Sellers or the Stations has suffered any adverse change or
development which, individually or in the aggregate, has had or is reasonably
likely to have a Material Adverse Effect.
(c) No Seller has:
(i) amended or terminated any Station Agreement except in the ordinary
course of business consistent with past practices, or any Real Property
Lease (other than amendment, noted on SCHEDULE 3.9 hereto);
(ii) mortgaged, pledged or subjected to any Lien, any of the Sale
Assets, except for Permitted Liens;
<PAGE>
(iii) acquired or disposed of any Sale Assets or entered into any
agreement or other arrangement for such acquisition or disposition, except
in the ordinary course of business consistent with past practices;
(iv) entered into any agreement, commitment or other transaction
except those that (A) were entered into in the ordinary course of business
consistent with past practice or (B) are not material to the assets,
business, operations, results of operations or financial condition of any
Station;
(v) paid any bonus to any officer, director or employee or granted to
any officer, director or employee any other increase in compensation in any
form, except in the ordinary course of business consistent with past
practices;
(vi) adopted or amended any collective bargaining, bonus,
profit-sharing, compensation, stock option, pension, retirement, deferred
compensation, severance or other plan, agreement, trust, fund or
arrangement for the benefit of employees (whether or not legally binding)
or made any material changes in its policies of employment;
(vii) entered into any agreement (other than agreements that will be
terminated prior to Closing) with any Affiliate of any Seller; or
(viii) operated its business other than in the ordinary course
consistent with past practices.
3.13 LITIGATION.
Except as described in SCHEDULE 3.13, (i) there are no actions, suits,
claims, investigations or administrative or arbitration proceedings pending or,
to the Knowledge of any Seller, threatened against any Seller before or by any
court, arbitration tribunal or governmental department or agency, domestic or
foreign, that relates to any Station or the Sale Assets; (ii) neither any Seller
nor, to the Knowledge of any Seller, any of the officers or employees of any
Seller, has been charged with, or to the Knowledge of any Seller, is under
investigation with respect to, any violation of any provision of any federal,
state, foreign or other applicable law or administrative regulation in respect
of such officer's or employee's employment at any Station or with any Seller;
and (iii) neither any Seller, any properties or assets of any Seller nor, to the
Knowledge of any Seller, any officer or employee of any Seller is a party to or
bound by any order, arbitration award, judgment or decree of any court,
arbitration tribunal or governmental department or agency, domestic or foreign,
in respect of any business practices, the acquisition of any property, or the
conduct of any business of any Seller which, individually or in the aggregate,
has had or is reasonably likely to have a Material
<PAGE>
Adverse Effect or materially impair the ability of any Seller to perform its
obligations hereunder and consummate the transactions contemplated hereby.
3.14 LABOR MATTERS.
(a) Except as listed on SCHEDULE 3.14(A):
(i) To each Seller's Knowledge, no present or former employee or
independent contractor of any Station has a pending claim or charge which
has been asserted or threatened against any Seller for (A) overtime pay;
(B) wages, salaries or profit sharing; (C) vacations, time off or pay in
lieu of vacation or time off; (D) any material violation of any statute,
ordinance, contract or regulation relating to minimum wages, maximum hours
of work or the terms or conditions of employment; (E) discrimination
against employees on any basis; (F) unlawful or wrongful employment or
termination practices; (G) unlawful retirement, termination or labor
relations practices or breach of contract; or (H) any material violation of
occupational safety or health standards.
(ii) There is not pending or, to the Knowledge of any Seller,
threatened against any Seller any labor dispute, strike or work stoppage
that affects or interferes with the operation of any Station, and no Seller
has Knowledge of any organizational effort currently being made or
threatened by or on behalf of any labor union with respect to employees of
any Station. There are no material unresolved unfair labor charges against
any Seller, and no Seller has experienced any strike, work stoppage or
other similar significant labor difficulties within the preceding twelve
(12) months.
(b) Except as set forth on SCHEDULE 3.7(b), (i) no Selling Party is a
signatory or a party to, or otherwise bound by, a collective bargaining
agreement now in effect which covers employees or former employees of any
Station, (ii) no Selling Party has agreed to recognize any union or other
collective bargaining unit with respect to any employees of any Station, and
(iii) no union or other collective bargaining unit has been certified as
representing any employees of any Station.
(c) SCHEDULE 3.14(c) sets forth a true and complete list, as of the date
set forth on such list, of all persons employed by a Seller in connection with
the operation of a Station who earn more than $15,000 per year, and states for
each such employee the date hired, the current level of compensation (including
any projected bonus) payable to such employee (limited in the case of each
employee who is compensated on a commission basis to a description of the manner
in which such commissions are determined and the specification of compensation
earned by such employee in 1999), and whether such employee is employed under a
written contract or is covered by a
<PAGE>
written severance agreement. Except pursuant to written employment agreements
and written severance agreements listed on SCHEDULE 3.7(B), the only severance
obligations of Sellers are set forth on SCHEDULE 3.14(C). A true and complete
copy of any handbook, policy manual or similar written guidelines furnished to
employees of any Station has been delivered to Buyer.
3.15 EMPLOYEE BENEFIT PLANS.
(a) All compensation or benefit plans, policies, practices, arrangements
and agreements covering any employee or former employee of any Station or the
beneficiaries or dependents of such employee or former employee (such employees,
former employees, beneficiaries and dependents herein referred to collectively
as the "Employees") which are or have been established or maintained and are
currently in effect, or to which contributions are being made by any Selling
Party or by any other trade or business, whether or not incorporated, which is
or has been treated as a single employer together with any Selling Party under
Section 414 of the Code (such other trades and businesses referred to
collectively as the "Related Persons") or to which any Selling Party or any
Related Person is obligated to contribute, including, but not limited to,
"employee benefit plans" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), employment,
retention, change of control, severance, stock option or other equity based,
bonus, incentive compensation, deferred compensation, retirement, fringe benefit
and welfare plans, policies, practices, arrangements and agreements
(collectively, the "Benefit Plans"), are disclosed in SCHEDULE 3.15. Except
pursuant to a Benefit Plan disclosed in SCHEDULE 3.15, the severance policy
described on SCHEDULE 3.14(c) or any agreements disclosed in SCHEDULE 3.7(b), no
Selling Party has fixed or contingent liability or obligation to any of the
Employees or to any person whose services are or were provided as an independent
contractor to any Seller or any Station.
(b) All Benefit Plans (other than the Assumed Plans, with respect to which
this representation is limited to each Seller's Knowledge) have been
administered and are in compliance in all material respects with the terms of
the Benefit Plans and applicable provisions, if any, of ERISA and the Code and
all other applicable law. No Selling Party or any Related Person has engaged in
a transaction with respect to any Benefit Plan that could result in a material
Tax, penalty or other liability under the Code or ERISA being imposed against
Buyer, a Station or the Sale Assets.
(c) Other than the Assumed Plans, no Benefit Plan is a multiemployer plan
within the meaning of Section 3(37) or Section 4001(a)(3) of ERISA (a
"Multiemployer Plan").
(d) No Selling Party or any Related Person has, to any Seller's Knowledge,
incurred or expects to incur any material withdrawal liability with respect to a
<PAGE>
Multiemployer Plan under Subtitle E of Title IV of ERISA regardless of whether
based on contributions by any entity which is considered a predecessor of any
Selling Party or one employer with any Selling Party under Section 4001 of
ERISA.
(e) All contributions required to have been made by any Selling Party under
the terms of any Benefit Plan or applicable law have been timely made.
(f) No Selling Party has any unfunded obligations (including projected
obligations) for retiree health and life benefits under any Benefit Plan other
than continuation coverage required by law, provided that this representation is
limited to the Knowledge of Sellers to the extent it relates to the Assumed
Plans.
(g) No Selling or any Related Person has incurred any material liability
under or pursuant to Title I or IV of ERISA or the penalty, excise tax or joint
and several liability provisions of the Code relating to employee benefit plans
and, to each Seller's Knowledge, no event or condition has occurred or exists
which would result in any such material liability to any Selling Party.
3.16 COMPLIANCE WITH LAW.
Sellers have operated and are operating each Station in all material
respects in compliance with the Act and all other material federal, state and
local laws, statutes, ordinances, regulations, licenses, permits or exemptions
therefrom and all applicable orders, writs, injunctions and decrees of any
court, commission, board, agency or other instrumentality, and except as
specified on SCHEDULE 3.16, no Seller has received any written notice of
material noncompliance pertaining to any operation of any Station that has not
been cured.
3.17 TAX RETURNS AND PAYMENTS.
(a) Except as set forth in SCHEDULE 3.17, each Selling Party has filed all
Tax Returns required to be filed by a Selling Party, including filings regarding
employees, sales, operations or assets. All Taxes due and payable pursuant
thereto have been paid, except for any such Taxes that are being contested in
good faith for which adequate reserves have been made on a Selling Party's
financial statements.
(b) Except as set forth in SCHEDULE 3.17, (i) no outstanding unsatisfied
deficiency, delinquency or default for any Tax has been claimed or assessed
against any Selling Party, (ii) no Selling Party has received written notice of
any such deficiency, delinquency or default, and (iii) to each Seller's
Knowledge, no taxing authority is now threatening to assert any such deficiency,
delinquency or default and, to each Seller's Knowledge, there is no reasonable
basis for any such assertion.
<PAGE>
(c) No Tax is required to be withheld by Buyer pursuant to Section 1445 of
the Code as a result of the transactions contemplated by this Agreement.
(d) Each Selling Party has withheld any Tax required to be withheld by such
Selling Party under applicable law and regulations, and such withholdings have
either been paid to the proper governmental agency or set aside in accounts for
such purpose, or accrued, reserved against and entered upon the books of such
Selling Party.
3.18 ENVIRONMENTAL MATTERS.
(a) Except as set forth on SCHEDULE 3.18, Sellers have obtained all
material environmental, health and safety permits necessary for the operation of
each Station, all such permits are valid and in full force and effect, and
Sellers are in compliance in all material respects with all terms and conditions
of such permits.
(b) Except as set forth on SCHEDULE 3.18, there is no proceeding pending
or, to any Seller's Knowledge, threatened which may result in the reversal,
rescission, termination, modification or suspension of any environmental or
health or safety permits necessary for the operation of the Stations, and to
each Selling Party's Knowledge, there is no basis for any such proceeding.
(c) Except as set forth on SCHEDULE 3.18, to each Seller's knowledge, each
Seller has operated and is operating in all material respects in compliance with
all material federal, state, local and other laws, statutes, ordinances and
regulations, and licenses, permits, exemptions, orders, writs, injunctions and
decrees of any court, commission, board, agency or other governmental
instrumentality, applicable to such Seller relating to environmental matters.
(d) Except as set forth on SCHEDULE 3.18, to each Seller's knowledge, there
are no conditions or circumstances associated with the Sale Assets which may
give rise to any material liability or material cost under applicable
environmental law. Except as listed on SCHEDULE 3.18, no Seller owns or uses any
electrical or other equipment containing polychlorinated biphenyls.
(e) For the purposes of this SECTION 3.18, (i) "hazardous materials" shall
mean any waste, substance, materials, smoke, gas, emissions or particulate
matter designated as hazardous or toxic under any applicable environmental law,
and (ii) "environmental law" shall mean any federal, state, local or other laws,
statutes, ordinances, regulations, licenses, permits or any order, writ,
injunction or decree of any court, commission, board, agency or other
instrumentality relating to the regulation of hazardous materials.
<PAGE>
(f) Except as set forth on SCHEDULE 3.18, with respect to the operation of
any Station, no Seller has filed or, to any Seller's knowledge, been required to
file any notice under any applicable material law, rule, regulation, order,
judgment, injunction, decree or ruling reporting a release of a hazardous
material into the environment, and no notice pursuant to Section 103(a) or (c)
of the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C.A. ss.9601, ET SEQ. ("CERCLA") or any other applicable environmental law
or regulation has been or, to any Seller's Knowledge, was required to be filed.
(g) Except as set forth on SCHEDULE 3.18, no Selling Party has received any
notice letter under CERCLA or any other written notice, and, to each Seller's
Knowledge, there is no investigation pending or threatened, to the effect that
any Seller has or may have material liability for or as a result of the release
or threatened release of a hazardous material into the environment or for the
suspected unlawful presence of hazardous material thereon nor, to any Seller's
Knowledge, does there exist any basis for such investigation.
3.19 BROKER'S OR FINDER'S FEES.
Except as set forth on SCHEDULE 3.19, no agent, broker, investment banker
or other person or firm acting on behalf of or under the authority of any
Selling Party or any Affiliate of any Selling Party is or will be entitled to
any broker's or finder's fee or any other commission or similar fee, directly or
indirectly, in connection with the transactions contemplated by this Agreement.
3.20 INSURANCE.
SCHEDULE 3.20 lists and briefly describes each insurance policy currently
maintained by any Seller with respect to the assets and business of any Station.
All of such insurance policies are in full force and effect, and no Seller is in
default with respect to its obligations under any such insurance policy and has
not been denied insurance coverage thereunder.
3.21 TRANSACTIONS WITH AFFILIATES.
Except as described on SCHEDULE 3.21, no Seller has been involved in any
business arrangement or relationship relating to any Station with any Affiliate
of any Seller, and no Affiliate of any Seller owns any property or right,
tangible or intangible, which is used in the operation of any Station or is
material to the Sale Assets or the business, operations, financial condition or
results of operations of any Station.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Selling Parties as follows:
4.1 ORGANIZATION AND GOOD STANDING.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Indiana. Buyer has all requisite
corporate power to own, operate and lease its properties and carry on its
business as it is now being conducted and as the same will be conducted
following the Closing. Prior to the Closing Date, Buyer will be qualified to do
business in each of the States in which any of the Stations are located.
4.2 AUTHORIZATION AND BINDING EFFECT OF DOCUMENTS.
Buyer has all requisite corporate power and authority to enter into this
Agreement and the other Documents, to consummate the transactions contemplated
by this Agreement and the other Documents and to own the Sale Assets. The
execution and delivery of this Agreement and each of the other Documents by
Buyer and the consummation by Buyer of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of Buyer. This Agreement has been, and each of the other Documents at or prior
to Closing will be, duly executed and delivered by Buyer. This Agreement
constitutes (and each of the other Documents, when executed and delivered, will
constitute) the valid and binding obligation of Buyer enforceable against Buyer
in accordance with its terms.
4.3 ABSENCE OF CONFLICTS.
Except as set forth on SCHEDULE 4.3 and except for any necessary clearances
or approvals under the HSR Act or the Act, the execution, delivery and
performance by Buyer of this Agreement and the other Documents, and consummation
by Buyer of the transactions contemplated hereby and thereby, do not and will
not (i) conflict with or result in any breach of any of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in a violation of,
or (iv) give any third party the right to modify, terminate or accelerate any
obligation under, the articles of incorporation or by-laws of Buyer, any
indenture, mortgage, lease, loan agreement or other agreement or instrument to
which Buyer is bound or affected, or any law, statute, rule, judgment, order or
decree to which Buyer is subject.
<PAGE>
4.4 CONSENTS.
Except as set forth on SCHEDULE 4.3 and except for any necessary clearances
or approvals under the HSR Act or the Act, the execution, delivery and
performance by Buyer of this Agreement and the other Documents, and consummation
by Buyer of the transactions contemplated hereby and thereby, do not and will
not require the authorization, consent, approval, exemption, clearance or other
action by or notice or declaration to, or filing with, any court or
administrative or other governmental body, or the consent, waiver or approval of
any other Person.
4.5 BROKER'S OR FINDER'S FEES.
No agent, broker, investment banker, or other person or firm acting on
behalf of Buyer or under its authority is or will be entitled to any broker's or
finder's fee or any other commission or similar fee, directly or indirectly,
from Buyer in connection with the transactions contemplated by this Agreement.
4.6 LITIGATION.
There are no legal, administrative, arbitration or other proceedings or
governmental investigations pending or, to the knowledge of Buyer, threatened
against Buyer that would give any third party the right to enjoin or delay the
transactions contemplated by this Agreement.
4.7 BUYER'S QUALIFICATION.
Except as disclosed in SCHEDULE 4.7, Buyer is, and at all times between the
date hereof and up until and including Closing will be, legally, financially and
otherwise qualified under the Act, HSR Act and all rules, regulations and
policies of the FCC, the Department of Justice, the Federal Trade Commission
(the "FTC") and any other governmental agency, to acquire and operate the
Stations. Except as disclosed in SCHEDULE 4.7, there are no facts or proceedings
which would reasonably be expected to disqualify Buyer under the Act or HSR Act
or otherwise from acquiring or operating the Stations or would cause the FCC not
to approve the assignment of the FCC Licenses to Buyer or the Department of
Justice and the FTC not to allow the waiting period under the HSR Act to
terminate within thirty (30) days of the filing provided for in SECTION 5.3.
Except as disclosed in SCHEDULE 4.7, Buyer has no knowledge of any fact or
circumstance relating to Buyer or any of Buyer's Affiliates that would
reasonably be expected to (a) cause the filing of any objection to the
assignment of the FCC Licenses to Buyer, (b) lead to a material delay in the
processing by the FCC of the applications for such assignment or (c) lead to a
material delay in the termination of the waiting period required by the HSR Act.
Except as disclosed in SCHEDULE 4.7, no waiver of any
<PAGE>
FCC rule or policy is necessary to be obtained for the grant of the applications
for the assignment of the FCC Licenses to Buyer, nor will processing pursuant to
any exception or rule of general applicability be requested or required in
connection with the consummation of the transactions herein.
4.8 AVAILABILITY OF FUNDS.
Buyer will have available on the Closing Date sufficient funds to enable it
to consummate the transactions contemplated hereby.
4.9 WARN ACT.
Buyer is not planning or contemplating and has not made or taken any
decisions or actions concerning the employees of the Stations after the Closing
Date that would require the service of notice under the Worker Adjustment and
Restraining Notification Act of 1988, as amended, or any similar state law.
4.10 BUYER'S DEFINED CONTRIBUTION PLAN.
SCHEDULE 4.10 completely and accurately lists all Buyer's defined
contribution plan or plans (the "Buyer's 401(k) Plan") intended to be qualified
under Section 401(a) and 401(k) of the Code in which the Transferred Employees
will be eligible to participate. Buyer has a currently applicable determination
letter from the Internal Revenue Service.
ARTICLE V
OTHER COVENANTS
5.1 CONDUCT OF EACH STATION'S BUSINESS PRIOR TO THE CLOSING DATE.
Selling Parties covenant and agree with Buyer that from the date hereof
through the Closing Date, or the termination of this Agreement if earlier,
unless Buyer otherwise consents in writing (which consent shall not be
unreasonably withheld, delayed or conditioned), Sellers shall:
(a) Operate each Station in the ordinary course of business consistent with
past practices, including (i) incurring promotional expenses substantially
consistent with the amount currently budgeted, (ii) making capital expenditures
prior to the Closing Date as are necessary to repair or replace assets that are
damaged or destroyed, (iii) using commercially reasonable efforts to preserve
the Station's present business operations, organization and goodwill and its
relationships with customers, employees, advertisers,
<PAGE>
suppliers and other contractors (including independent contractors providing
on-air or production services) and to maintain programming for the Station
consistent in all material respects with the type and quantity of the Station's
programming consistent with past practice, and (iv) continuing the Station's
usual and customary policy with respect to extending credit and collection of
accounts receivable and the maintenance of its facilities and equipment;
(b) Operate each Station and otherwise conduct its business in all material
respects in compliance with the terms or conditions of its FCC Licenses, the
Act, and all other material rules, regulations, laws and orders of all
governmental authorities having jurisdiction over any aspect of the operation of
such Station;
(c) Maintain each Seller's books and records in accordance with generally
accepted accounting principles on a basis consistent with prior periods;
(d) Promptly notify Buyer in writing of any event or condition which, with
notice or the lapse of time or both, would constitute an event of material
default under any of the Stations Agreements which are, individually or in the
aggregate, material to the Sale Assets or the business, operations, financial
condition or results of operations of any Station;
(e) Timely comply in all material respects with the Stations Agreements
which are individually or in the aggregate, material to the Sale Assets or the
business, operations, financial condition or results of operations of any
Station;
(f) Not sell, lease, grant any rights in or to or otherwise dispose of, or
agree to sell, lease or otherwise dispose of, any of the Sale Assets except for
dispositions of assets that (i) are in the ordinary course of business
consistent with past practice and (ii) if material, are replaced by similar
assets of substantially equal or greater value or utility;
(g) Not amend, enter into, renew or extend, except in the ordinary course
of business consistent with past practice, any Trade Agreement; any personal
property lease that would cause the aggregate rent required to be paid under
personal property leases (including amendments) entered into after the date of
this Agreement to exceed in the aggregate Twenty-Five Thousand Dollars
($25,000.00); any studio or office lease; antenna or transmitter space lease;
network affiliation agreement; programming agreement; or any agreement described
in SECTION 3.7(b)(VII);
(h) Not enter into, amend, renew or extend any employment or talent
contracts or other Station Agreements except on terms comparable to those of
Station Agreements now in existence and otherwise in the ordinary course of
business consistent with past practices;
(i) Maintain technical equipment currently in use in good operating
condition and repair except for ordinary wear and tear;
(j) Not increase in any manner the compensation (including severance pay or
plans) or benefits of any employees, independent contractors, consultants or
commission agents of any Seller or any Station, except in the ordinary course of
business consistent with past practice, as required by an employment or
consulting agreement or in connection with and commensurate with a change in
responsibility;
(k) Not enter into any agreement relating to any Station (other than
agreements that will be terminated prior to Closing) with any Affiliate of any
Seller;
(l) Except as required by law, not voluntarily enter into or amend any
collective bargaining agreement applicable to any employees of any Station or
otherwise voluntarily recognize any union as the bargaining representative of
any such employees; and not enter into or amend any collective bargaining
agreement applicable to any employees of any Station to provide that it shall be
binding upon any "successor" employer or such employees; and
(m) Not take or agree to take any action that would materially delay the
consummation of the Closing as contemplated by this Agreement.
5.2. NOTIFICATION OF CERTAIN MATTERS.
Selling Parties shall give prompt notice to Buyer, and Buyer shall give
prompt notice to the Selling Parties, of (a) the occurrence, or failure to
occur, of any event that would be likely to cause any of their respective
representations and warranties contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Closing Date, and (b) any failure on their respective parts to comply with or
satisfy, in any material respect, any covenant, condition or agreement to be
complied with or satisfied by either of them under this Agreement.
<PAGE>
5.3 HSR FILINGS.
Within ten (10) days after the execution of this Agreement, Selling Parties
and Buyer shall make the filings required to be made under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended ("HSR Act"), in connection with
the transactions contemplated by this Agreement (the "HSR Filings"). Sellers and
Buyer shall use their commercially reasonable efforts to diligently take, or to
fully cooperate in the taking of, all necessary and proper steps, including (in
the case of Buyer) consummating the Planned Divestiture, and provide any
additional information reasonably requested, in order to comply with the
requirements of the HSR Act.
5.4 FCC FILING.
(a) Within ten (10) business days after the execution of this Agreement,
Selling Parties and Buyer shall file all applications with the FCC necessary to
obtain the FCC Order (except for those applications that will be required in
connection with the Planned Divestiture), and shall cooperate in taking all
commercially reasonable action necessary and proper to promptly obtain the FCC
Order without a Material Adverse Condition and shall cooperate in taking all
commercially reasonable action necessary and proper to cause the FCC Order to
become a Final Action as soon as practicable, provided that (i) commercially
reasonable action shall not include payment or providing of material
consideration to settle with an objecting party, and (ii) Buyer shall not be
obligated to consummate the Planned Divestiture except in accordance with
SECTION 5.16. Buyer and Sellers shall oppose and file such papers and pleadings
with the FCC or other appropriate forum opposing and objecting to any petitions
to deny or other objections filed with respect to the application for the FCC
Consent and any requests for reconsideration or judicial review of the FCC
Consent.
(b) If the Closing shall not have occurred for any reason within the
original effective period of the FCC Consent, and neither party shall have
terminated this Agreement under ARTICLE X, the parties shall jointly request an
extension of the effective period of the FCC Consent. No extension of the
effective period of the FCC Consent shall limit the exercise by either party of
its right to terminate the Agreement under ARTICLE X.
5.5 TITLE; ADDITIONAL DOCUMENTS.
At the Closing, Sellers shall transfer and convey to Buyer good title to
all of the Sale Assets free and clear of any Liens except Permitted Liens.
Sellers shall execute or cause to be executed such documents, in addition to
those delivered at the Closing, as may be necessary to confirm in Buyer such
title to the Sale Assets and to carry out the purposes and intent of this
Agreement, which documents shall be in a form reasonably
<PAGE>
acceptable to Buyer and Sellers. Buyer shall execute or cause to be executed
such documents, in addition to those delivered at Closing, as may be necessary
to confirm Buyer's assumption of the Assumed Obligations, which documents shall
be in a form reasonably acceptable to Buyer and Sellers.
5.6 OTHER CONSENTS.
Selling Parties shall use their commercially reasonable efforts to obtain
the consents or waivers to the transactions contemplated by this Agreement
required under the Station Agreements without any condition or modification
adverse to Buyer or any Station, and Buyer shall cooperate as reasonably
requested by Selling Parties in assisting Selling Parties to obtain such
consents. Neither Selling Parties nor Buyer shall be required to pay or grant
any material consideration in order for Selling Parties to obtain any such
consent or waiver except that Selling Parties shall be required to obtain
releases of Liens (other than Permitted Liens) which encumber any of the Sale
Assets with Selling Parties being permitted to use the proceeds delivered by
Buyer at Closing in order to obtain such releases.
5.7 INSPECTION AND ACCESS.
Sellers will, prior to the Closing Date, make available the assets, books,
accounting records, correspondence and files of Sellers (to the extent related
to the operation of the Stations) for examination by Buyer, its officers,
attorneys, accountants and agents, with the right to make copies of all or
portions of such books, records and files. Such access will be available during
normal business hours upon reasonable notice and in such manner as will not
unreasonably interfere with the conduct of the business of the Stations. Sellers
will furnish to Buyer monthly unaudited financial statements corresponding to
and prepared in a manner consistent with the unaudited statements identified in
SECTION 3.11, and such additional financial, operating and other information
regarding Sellers or the Stations as Buyer may reasonably request. If Closing
occurs, the books, records and files that are not part of but relate to the Sale
Assets shall be preserved and maintained by Sellers for four (4) years after the
Closing, and the books, records and files that are part of the Sale Assets shall
be maintained and preserved by Buyer for a period of four (4) years after the
Closing. Each such party shall give the other party and its authorized
representatives, during normal business hours, such access to, and the
opportunity at the other party's expense to copy, such books and records
retained by it as reasonably requested by the other party.
5.8 CONFIDENTIALITY.
Subject to SECTION 5.15, all information delivered or made available to
Buyer or Buyer's representatives or otherwise disclosed in writing by the
Selling Parties (or their
<PAGE>
representatives) before or after the date hereof, in connection with the
transactions contemplated by this Agreement, shall be kept confidential by Buyer
and its representatives and shall not be used other than as contemplated by this
Agreement, except to the extent (i) such information was otherwise publicly
available when received, (ii) is or hereafter becomes lawfully obtainable from
third parties not related to Buyer or its Affiliates, (iii) such information is
required to be disclosed by law, judicial or other governmental rule or order,
or the rules of any stock exchange, (iv) such duty as to confidentiality is
waived in writing by Sellers or (v) such information is provided by Buyer to a
buyer of one or more of the Stations resold by Buyer as part of the Planned
Divestiture, provided that such buyer is bound by a confidentiality agreement
(of which buyer affirmatively acknowledges Sellers are third party
beneficiaries) as restrictive as the foregoing provisions of this SECTION 5.8
and the Confidentiality Agreement referred to in the immediately following
sentence. Buyer shall continue to be bound by the terms and conditions of the
Confidentiality Agreement dated June 25, 1999 between the parties hereto,
subject, however, to clause (v) of the foregoing sentence.
5.9 PUBLICITY.
The parties agree that no public release or announcement concerning the
transactions contemplated hereby shall be issued by any party without the prior
written consent of the other party (which will not be unreasonably withheld),
except as required by law or applicable regulations, in which case the party
issuing the press release or announcement shall provide the other party with a
copy thereof sufficiently in advance of such issuance to permit the other party
to comment thereon. The parties further agree that they shall not, and shall
direct their employees located in, or having responsibilities with respect to
the St. Louis Market not to, publicly discuss the transaction contemplated
hereby or the Planned Divestiture with any advertisers on, or vendors to, the
Stations.
5.10 MATERIAL ADVERSE EFFECT.
Buyer and Selling Parties will promptly notify the other party of any event
of which Buyer or Selling Parties, as the case may be, obtains knowledge which
has had or could reasonably be expected to have Material Adverse Effect.
5.11 COMMERCIALLY REASONABLE EFFORTS.
Subject to the terms and conditions of this Agreement, each party will use
its commercially reasonable efforts to take all action and to do all things
necessary, proper or advisable to satisfy any condition hereunder in its power
to satisfy and to consummate and make effective as soon as practicable the
transactions contemplated by this Agreement.
<PAGE>
5.12 FCC REPORTS AND APPLICATIONS.
Sellers shall file, on a current and timely basis and in all material
respects in a truthful and complete fashion until the Closing Date, all reports
and documents required to be filed with the FCC with respect to the Stations. In
addition, Sellers shall timely file all applications necessary for renewal of
any of the FCC Licenses, shall prosecute each such application with diligence,
shall in each case seek renewal for a full term, and shall diligently oppose any
objection to, appeal from or petition to reconsider the grant of any such
renewal application.
5.13 TAX RETURNS AND PAYMENTS.
Selling Parties will timely file with the appropriate governmental agencies
all Tax Returns required to be filed by Selling Parties with respect to the
Stations prior to Closing and timely pay all Taxes reflected on such Tax Returns
as owing by the Selling Parties.
5.14 NO SOLICITATION.
From the date hereof until the earlier of Closing or termination of this
Agreement, none of the Selling Parties or any Affiliate of any Selling Party
shall directly or indirectly (i) knowingly discuss, solicit or encourage any
proposal or offer from any Person relating specifically to the acquisition or
purchase of any interest in any Seller or any material assets of any Station or
any merger, consolidation or other business combination with any Seller (each an
"Acquisition Proposal"), or (ii) otherwise knowingly assist or negotiate with
any Person with respect to an Acquisition Proposal; provided, nothing contained
herein shall apply to limit discussions, negotiations, etc. relating to a sale
of any stock of Parent or of all or substantially all of Parent's broadcast
properties (other than the Stations) and/or non-broadcast properties. Selling
Parties shall promptly notify Buyer in writing if an Acquisition Proposal is
made after the date of this Agreement.
5.15 AUDITED FINANCIAL STATEMENTS.
Selling Parties recognize that Buyer is a publicly reporting company and
agrees that Buyer shall be entitled at Buyer's expense to cause audited and
unaudited financial statements of the Stations to be prepared for such periods
and filed with the Securities and Exchange Commission, and included in a
prospectus distributed to prospective investors, as required by laws and
regulations applicable to Buyer as a publicly reporting company or registrant.
Selling Parties agree to cooperate with Buyer and the auditing accountants as
reasonably requested by Buyer in connection with the
<PAGE>
preparation and filing of such financial statements, including providing a
customary management representation letter in the form prescribed by generally
accepted auditing standards and using their commercially reasonable efforts to
obtain the consent of Sellers' independent accounting firm to permit Buyer and
Buyer's auditors to have access to such firm's workpapers. Under no circumstance
shall the preparation of any financial statements pursuant to such audit: (a)
require any Seller to change or modify any accounting policy, (b) cause any
unreasonable disruption in the business or operations of any Station, or (c)
cause any delay that is more than de minimis in any internal reporting
requirements of any Seller.
5.16 PLANNED DIVESTITURE.
Buyer shall use its commercially reasonable efforts to consummate the
Planned Divestiture as promptly as practicable on terms and conditions
acceptable to Buyer within its reasonable judgment and with a third-party buyer
that (i) is not an Affiliate of Buyer, (ii) is not a trust in which Buyer has a
direct or indirect beneficial interest, and (iii) will not cause Buyer, after
consummation of the Planned Divestiture, to have an attributable interest under
the Act in any of the Excess Stations.
5.17 DISCLOSURE SCHEDULES.
Sellers and Buyer acknowledge and agree that Sellers shall not be liable
for the failure of the Schedules to be accurate as a result of the operation of
the Stations prior to a Closing in accordance with SECTION 5.1 of this
Agreement. The inclusion of any fact or item on a Schedule referenced by a
particular section in this Agreement shall, should the existence of the fact or
item or its contents be relevant to any other section, be deemed to be disclosed
with respect to such other section whether or not an explicit cross-reference
appears in the Schedules if such relevance is readily apparent from examination
of such Schedules.
5.18 BULK SALES LAW.
Buyer hereby waives compliance by Sellers, in connection with the
transactions contemplated hereby, with the provisions of any applicable bulk
transfer laws.
<PAGE>
5.19 COOPERATION ON TAX MATTERS.
Buyer agrees to cooperate as reasonably requested by Sellers in effecting a
tax-deferred like-kind exchange under Section 1031 of the Code in which Buyer
will acquire the Sale Assets from Sellers and Sellers will assign all or part of
their rights (but not their obligations) under this Agreement to a "qualified
intermediary" (as defined in Treas. Reg. 1.1031(k)-(g)(4)); provided that (i)
such exchange will not cause the Closing Date to be delayed beyond the first
date on which Buyer would otherwise be entitled to close its purchase of the
Sale Assets under this Agreement, (ii) Buyer is reimbursed by Sellers for all of
its costs and expenses incurred in cooperating with Sellers to effect such
exchange, (iii) Buyer is not required to incur or assume any liability or
obligation in addition to the liabilities and obligations Buyer is required to
incur or assume under the terms of this Agreement determined as if this SECTION
5.19 were not included in this Agreement (other than costs and expenses
reimbursed by Sellers), (iv) Sellers' ability to effect the exchange shall not
constitute a condition precedent to the Selling Party's obligation to close the
sale of the Sale Assets to Buyer in accordance with the terms and conditions of
this Agreement (excluding this SECTION 5.19), and (v) the Selling Parties shall
indemnify Buyer from and against any and all Losses arising from, relating to or
in connection with such exchange (other than Losses resulting from (A) Buyer's
breach of this SECTION 5.19 or (B) any liability or obligation Buyer is required
to incur or assume under the terms of this Agreement determined as if this
SECTION 5.19 were not included in this Agreement), and indemnification of such
Losses shall not be subject to or count against the Threshold or the Cap.
5.20 LEASE OF STUDIO AND OFFICE SPACE.
On the Closing Date, Buyer as lessee shall, and the Selling Parties shall
cause the owner of the real property located at 1215 Cole Street, St. Louis,
Missouri, as lessor to, enter into a lease for use of studio and office space
for the operation of KPNT, WVRV and KXOK in the form and substance of EXHIBIT A,
under which Buyer will be entitled to sublet in whole or in part to a subsequent
buyer of any of such Stations.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATION
OF BUYER TO CLOSE
Buyer's obligation to close the acquisition of the Sale Assets pursuant to
the terms of this Agreement is subject to the satisfaction, on or prior to the
Closing Date, of each of the following conditions, unless waived by Buyer in
writing:
<PAGE>
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES; CLOSING CERTIFICATE.
(a) The representations and warranties of the Selling Parties contained in
this Agreement or in any other Document shall be true and correct in all
material respects on the date of this Agreement, and on and as of the Closing
Date (except for representations and warranties that speak as of a specific date
or time which need only be true and complete as of such date or time) with the
same effect as though made on and as of the Closing Date except for changes
permitted under this Agreement and except where the failure to be true and
complete (determined without regard to any materiality or Knowledge
qualifications therein) does not have a Material Adverse Effect.
(b) Selling Parties shall have delivered to Buyer on the Closing Date an
officer's and manager's certificate that the conditions specified in SECTIONS
6.1(A), 6.2, 6.7, and 7.6 are satisfied as of the Closing Date.
6.2 PERFORMANCE OF AGREEMENT.
Each Selling Party shall have performed in all material respects all of its
material covenants, agreements and obligations required by this Agreement to be
performed or complied with by it prior to or at Closing.
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6.3 FCC ORDER.
(a) The FCC Order shall have been granted without any Material Adverse
Condition notwithstanding that it may not have become a Final Action; provided
that if a petition to deny or other third-party objection is filed with the FCC
prior to the date on which the FCC Order is issued and becomes effective, and
such petition or objection is not withdrawn as of such date and in the
reasonable judgment of Buyer's counsel such objection would reasonably be
expected to result in a reversal or rescission of the FCC Consent, then Buyer's
obligation to effect the Closing shall be subject to the further condition that
the FCC Order shall have become a Final Action.
(b) Conditions which the FCC Order or any order, ruling or decree of any
judicial or administrative body specifies and requires to be satisfied prior to
transfer of the FCC Licenses to Buyer shall have been satisfied.
(c) All of the FCC Licenses material to the operation of each Station as
now conducted shall be in full force and effect.
6.4 HSR ACT.
The waiting period (including any extensions) under the HSR Act applicable
to the transactions contemplated by this Agreement shall have expired or been
terminated.
6.5 OPINIONS OF SELLING PARTIES' COUNSEL.
Buyer shall have received (a) the written opinion or opinions of Selling
Parties' counsel, dated as of the Closing Date, that (i) each Selling Party is a
corporation or limited liability company, as applicable, duly formed and in good
standing under the laws of the state of its formation and is in good standing
and duly qualified to do business under the laws of each applicable
jurisdiction, (ii) the execution, delivery and performance of the Agreement and
each of the other Documents have been duly authorized by all requisite action
(including any necessary shareholder or member approval) on the part of each
Selling Party, and (iii) the Agreement and other Documents have been duly and
validly executed and delivered by each Selling Party and constitute valid and
legally binding obligations enforceable against each Selling Party in accordance
with their terms, subject to bankruptcy, insolvency and other laws affecting the
enforcement of creditors' rights generally and general principles of equity; and
(b) the written opinion of Sellers' FCC counsel, dated as of the Closing Date,
that (i) Radio Licensee holds the FCC Licenses listed in a schedule to such
legal opinion, and the FCC Licenses (A) are in full force and effect and
constitute all of the licenses, permits and authorizations required by the FCC
for the operation of the Stations; and (B) constitute all of the licenses and
authorizations issued by the FCC to the Radio
<PAGE>
Licensee for, or in connection with, the operation of the Stations, (ii) all
authorizations, approvals and consents of the FCC required under the Act to
permit the assignment of the FCC Licenses by the Radio Licensee to Buyer have
been obtained, are in effect, and have not been reversed, stayed, enjoined, set
aside, annulled or suspended, and (iii) except as set forth in SCHEDULE 3.6,
there is no FCC or judicial order, judgment, decree, notice of apparent
liability or order of forfeiture outstanding, and to counsel's knowledge, no
action, suit, notice of apparent liability, order of forfeiture, investigation
or other proceeding pending, by or before the FCC or any court of competent
jurisdiction against any Seller that might result in a revocation, cancellation,
suspension, non-renewal, short-term renewal or materially adverse modification
of the FCC Licenses, except FCC proceedings generally affecting the television
or radio industry. Each opinion may be subject to customary qualifications and
limitations.
6.6 REQUIRED CONSENTS.
Selling Parties shall have obtained prior to Closing the written consents
or waivers to the transactions contemplated by this Agreement, in form
reasonably satisfactory to Buyer's counsel and without any adverse modification
or condition that is material to Buyer or any of the Stations, which are
required under each Station Agreement indicated with an asterisk on SCHEDULE
3.9.
6.7 DELIVERY OF CLOSING DOCUMENTS.
Selling Parties shall have delivered or caused to be delivered to Buyer on
the Closing Date each of the Documents to be delivered pursuant to SECTION 8.2.
6.8 NO ADVERSE PROCEEDINGS.
No judgment or order shall have been rendered and remain in effect, and no
action or proceeding by any governmental entity shall be pending, against Buyer,
that would make unlawful the purchase and sale of the Sale Assets as
contemplated by this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO THE
OBLIGATION OF SELLING PARTIES TO CLOSE
The obligations of Selling Parties to close the sale of the Sale Assets
pursuant to the terms of this Agreement is subject to the satisfaction, on or
prior to the Closing Date, of each of the following conditions, unless waived by
Selling Parties in writing:
<PAGE>
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES.
(a) The representations and warranties of Buyer contained in this Agreement
shall be true and correct in all material respects on the date hereof, and on
and as of the Closing Date with the same effect as though made on and as of the
Closing Date except for changes that are not materially adverse to Sellers.
(b) Buyer shall have delivered to Sellers on the Closing Date a certificate
that the conditions specified in SECTIONS 7.1(A), 7.2 and 6.8 are satisfied as
of the Closing Date.
7.2 PERFORMANCE OF AGREEMENT.
Buyer shall have performed in all material respects all of its covenants,
agreements and obligations required by this Agreement and each of the other
Documents to be performed or complied with by it prior to or at Closing.
7.3 FCC ORDER.
(a) The FCC Order shall have been granted.
(b) Conditions which the FCC Order or any order, ruling or decree of any
judicial or administrative body specifies and requires to be satisfied prior to
transfer of the FCC Licenses to Buyer shall have been satisfied.
7.4 HSR ACT.
The waiting period (including any extensions) under the HSR Act applicable
to the transactions contemplated by this Agreement shall have expired or been
terminated.
7.5 OPINION OF BUYER'S COUNSEL.
Sellers shall have received the written opinion of Buyer's counsel, dated
as of the Closing Date, that (i) Buyer is a corporation duly formed and in good
standing under the laws of the state in which Buyer is incorporated, (ii) the
execution, delivery and performance of the Agreement and other Documents have
been duly authorized by all requisite corporate action (including any necessary
shareholder approval) on the part of Buyer and (iii) the Agreement and each of
the other Documents have been duly and validly executed and delivered by Buyer
and constitute valid and legally binding obligations enforceable against Buyer
in accordance with their terms, subject to bankruptcy, insolvency and other law
effecting the enforcement of creditors' rights
<PAGE>
generally and general principles of equity. The opinion of Buyer's counsel may
be subject to customary qualifications and limitations.
7.6 NO ADVERSE PROCEEDINGS.
No judgment or order shall have been rendered and remain in effect, and no
action or proceeding by any governmental entity shall be pending, against any
Seller that would restrain or make unlawful the purchase and sale of the Sale
Assets as contemplated by this Agreement.
7.7 DELIVERY OF CLOSING DOCUMENTS.
Buyer shall have delivered or cause to be delivered to Sellers on the
Closing Date each of the Documents to be delivered pursuant to SECTION 8.3.
ARTICLE VIII
CLOSING
8.1 TIME AND PLACE.
Closing of the purchase and sale of the Sale Assets pursuant to this
Agreement (the "Closing") shall take place at the offices of Thomas & Libowitz,
USF&G Tower, Suite 1100, 100 Light Street, Baltimore, Maryland 21202, at 10:00
o'clock A.M. on the fifth business day following satisfaction or waiver of the
conditions precedent hereunder to Closing (the "Closing Date").
8.2 DOCUMENTS TO BE DELIVERED TO BUYER BY SELLING PARTIES.
At the Closing, Selling Parties shall deliver to, or cause to be delivered
to, Buyer the following, in each case in form and substance reasonably
satisfactory to Buyer:
(a) The opinions of Selling Parties' counsel and FCC counsel, dated the
Closing Date, to the effect set forth in SECTION 6.5;
(b) To the extent available from applicable jurisdictions, governmental
certificates, dated as of a date as near as reasonably practicable to the
Closing Date, showing that each Selling Party is duly organized and in good
standing in its state of formation and, as to each Seller, is qualified to do
business and in good standing in each jurisdiction listed for such Seller in
SCHEDULE 3.1;
(c) A certificate of a Secretary, Assistant Secretary, or Member of each
Selling Party attesting as to the incumbency of each officer or manager of such
Selling
<PAGE>
Party who executes this Agreement and any of the other Documents and to similar
customary matters; (d) A bill of sale and other instruments of transfer and
conveyance transferring the Sale Assets to Buyer, in form acceptable to Buyer in
its reasonable judgment;
(e) The certificate described in SECTION 6.1(B);
(f) A written instruction of Selling Parties to Escrow Agent instructing
the Escrow Agent to distribute the Earnest Money as prescribed in SECTION 2.4;
(g) The consents or waivers prescribed in SECTION 6.6;
(h) A certificate for each of the Selling Parties dated as of the
Closing Date and executed by the Selling Party's Secretary certifying that the
resolutions, as attached to such certificate, were duly adopted by the Selling
Party's Board of Directors, members or managers as required to duly authorize
and approve the execution of this Agreement and the consummation of the
transaction contemplated hereby and that such resolutions remain in full force
and effect;
(i) Affidavits executed by Sellers regarding mechanic's liens sufficient to
allow deletion of such liens as a standard exception in final title insurance
policies to be issued pursuant to any title insurance commitments which Buyer
shall have obtained to insure fee simple title to any of the Owned Real Property
or leasehold title to any of the Leased Real Property;
(j) The lease in the form and substance of EXHIBIT A; and
(k) Such additional information and materials as Buyer shall have
reasonably requested in writing to evidence the satisfaction of the conditions
to its obligation to close hereunder, including without limitation, any
documents expressly required by this Agreement to be delivered by Selling
Parties at Closing.
8.3 DELIVERIES TO SELLERS BY BUYER.
At the Closing, Buyer shall deliver or cause to be delivered to Sellers the
following, in each case in form and substance reasonably satisfactory to
Sellers:
(a) The Purchase Price in accordance with SECTION 2.5, as adjusted under
SECTION 2.7(D);
<PAGE>
(b) The opinion of Buyer's counsel, dated the Closing Date, as prescribed
in SECTION 7.5;
(c) The certificate described in SECTION 7.1(B);
(d) A certificate of the Secretary or Assistant Secretary of Buyer
attesting as to the incumbency of each officer of Buyer who executes this
Agreement and any of the other Documents and to similar customary matters;
(e) A written instruction of Buyer to Escrow Agent instructing the Escrow
Agent to distribute the Earnest Money as prescribed in SECTION 2.4;
(f) A certificate, dated as of the Closing Date, executed by Buyer's
Secretary certifying that the resolutions, as attached to such certificate, were
duly adopted by Buyer's Board of Directors, authorizing and approving the
execution of this Agreement and the consummation of the transaction contemplated
hereby and that such resolutions remain in full force and effect;
(g) An assumption agreement, in form acceptable to the Selling Parties
within their reasonable judgment, pursuant to which Buyer shall assume and agree
to perform the Assumed Obligations;
(h) To the extent available from the applicable jurisdictions, certificates
as to the formation and/or good standing of Buyer issued by the appropriate
governmental authorities in the state of organization and each jurisdiction in
which Buyer is required to be qualified to do business as the owner of the
Stations, each such certificate (if available) to be dated a date not more than
a reasonable number of days prior to the Closing Date;
(i) The lease in the form and substance of EXHIBIT A; and
(j) Such additional information and materials as Sellers shall have
reasonably requested to evidence the satisfaction of the conditions to their
obligation to close hereunder.
<PAGE>
ARTICLE IX
INDEMNIFICATION
9.1 SURVIVAL.
All representations, warranties, covenants and agreements in this Agreement
or any other Document shall survive the Closing regardless of any investigation,
inquiry or knowledge on the part of any party, and the Closing shall not be
deemed a waiver by any party of the representations, warranties, covenants or
agreements of any other party in this Agreement or any other Documents;
provided, however, that the period of survival shall, (i) with respect to the
representations and warranties in SECTION 3.18 (Environmental Matters), end
eighteen (18) months after the Closing Date, and (ii) in the case of any other
representation or warranty, end twelve (12) months after the Closing Date (in
each case, the "Survival Period"). No claim for breach of any representation or
warranty may be brought under this Agreement or any other Document unless
written notice describing in reasonable detail the nature and basis of such
claim is given on or prior to the last day of the applicable Survival Period. In
the event such notice of a claim is so given, the right to indemnification with
respect to such claim shall survive the applicable Survival Period until the
claim is finally resolved and any obligations with respect to the claim are
fully satisfied.
9.2 INDEMNIFICATION BY SELLING PARTIES.
(a) Subject to SECTION 9.2(B), Selling Parties shall, jointly and
severally, indemnify, defend, and hold harmless Buyer and its officers,
directors, employees, Affiliates, successors and assigns from and against, and
pay or reimburse each of them for and with respect to, any Loss (each, a
"Buyer's Loss") relating to, arising out of or resulting from:
(i) Any breach by any Selling Party of any of its representations,
warranties, covenants or agreements in this Agreement or any other
Document; or
(ii) Any obligation, indebtedness or Liability of any Selling Party
(other than the Assumed Obligations) regardless of whether disclosed to
Buyer and regardless of whether constituting a breach by a Selling Party of
any representation, warranty, covenant or agreement hereunder or under any
other Document; or
(iii) Noncompliance by any Seller with the provisions of the Bulk
Sales Act, if applicable, in connection with the transactions contemplated
by this Agreement.
<PAGE>
(b) If Closing occurs, notwithstanding anything to the contrary contained
herein, Selling Parties shall not be obligated to indemnify Buyer except to the
extent that (i) the aggregate amount of Buyer's Losses exceeds Five Hundred
Thousand Dollars ($500,000) (the "Threshold") (and then only to the extent the
aggregate amount of Buyer's Losses exceed Two Hundred Fifty Thousand Dollars
($250,000)) and (ii) the aggregate amount of Buyer's Losses is less than
Twenty-Two Million Dollars ($22,000,000) (the "Cap"), provided that any payment
owed by Selling Parties to Buyer for any of Buyer's Losses pursuant to or under
SECTION 2.7, SECTION 5.19 or SECTION 9.2(A)(II) or (III) shall not be counted in
determining whether the Threshold limitation is satisfied or the Cap is reached,
and Buyer shall have the right to recover any such Buyer's Losses without regard
to the Threshold limitation or the Cap.
9.3 INDEMNIFICATION BY BUYER.
Subject to SECTION 10.2, Buyer shall indemnify and hold harmless
Selling Parties and their officers, directors, members, employees, agents,
representatives, Affiliates, successors and assigns from and against, pay or
reimburse each of them for and with respect to any Loss relating to, arising out
of or resulting from:
(i) Any breach by Buyer of any of its representations, warranties,
covenants or agreements in this Agreement or any other Document; or
(ii) The Assumed Obligations; or
(iii) Buyer's operation of the Stations on or after the Closing Date
(except for any Loss relating to, arising out of or resulting from any
Excluded Asset) or Buyer's ownership of the Sale Assets.
9.4 ADMINISTRATION OF INDEMNIFICATION.
For purposes of administering the indemnification provisions set forth in
SECTIONS 9.2 and 9.3, the following procedure shall apply:
(a) Whenever a claim shall arise for indemnification under this Article,
the party entitled to indemnification (the "Indemnified Party") shall reasonably
promptly give written notice to the party from whom indemnification is sought
(the "Indemnifying Party") setting forth in reasonable detail, to the extent
then available, the facts concerning the nature of such claim and the basis upon
which the Indemnified Party believes that it is entitled to indemnification
hereunder.
<PAGE>
(b) In the event of any claim for indemnification resulting from or in
connection with any claim by a third party, the Indemnifying Party shall be
entitled, at its sole expense, either (i) to participate in defending against
such claim or (ii) to assume the entire defense with counsel which is selected
by it and which is reasonably satisfactory to the Indemnified Party provided
that (A) the Indemnifying Party agrees in writing that it does not and will not
contest its responsibility for indemnifying the Indemnified Party in respect of
such claim or proceeding and (B) no settlement shall be made and no judgment
consented to without the prior written consent of the Indemnified Party which
shall not be unreasonably withheld (except that no such consent shall be
required if the claimant is entitled under the settlement to only monetary
damages actually paid by the Indemnifying Party). If, however, (i) the claim,
action, suit or proceeding would, if successful, result in the imposition of
damages for which the Indemnifying Party would not be solely responsible, or
(ii) representation of both parties by the same counsel would otherwise be
inappropriate due to actual or potential differing interests between them, then
the Indemnifying Party shall not be entitled to assume the entire defense and
each party shall be entitled to retain counsel (at each such party's own
expense) who shall cooperate with one another in defending against such claim.
(c) If the Indemnifying Party does not choose to defend against a claim by
a third party, the Indemnified Party may defend in such manner as it reasonably
determines is appropriate or settle the claim (after giving notice thereof to
the Indemnifying Party) on such terms as the Indemnified Party may deem
appropriate, and the Indemnified Party shall be entitled to periodic
reimbursement of defense expenses incurred and prompt indemnification from the
Indemnifying Party in accordance with this Article.
(d) Failure or delay by an Indemnified Party to give a reasonably prompt
notice of any claim (if given prior to expiration of any applicable Survival
Period) shall not release, waive or otherwise affect an Indemnifying Party's
obligations with respect to the claim, except to the extent that actual loss or
prejudice occurs as a result of such failure or delay. Buyer shall not be deemed
to have notice of any claim solely by reason of any knowledge acquired on or
prior to the Closing Date by an employee of any Station.
9.5 MITIGATION AND LIMITATION OF DAMAGES.
Each party hereto agrees to use reasonable efforts to mitigate any losses
which form the basis for any claim for indemnification hereunder.
Notwithstanding anything contained in this Agreement to the contrary, no party
shall be entitled to punitive damages regardless of the theory of recovery.
<PAGE>
ARTICLE X
TERMINATION
10.1 RIGHT OF TERMINATION.
This Agreement may be terminated prior to Closing:
(a) By written agreement of Selling Parties and Buyer; or
(b) By written notice from a party that is not then in material breach of
this Agreement if:
(i) The other party has continued in material breach of this
Agreement for thirty (30) days after written notice of such breach
from the terminating party is received by the other party; or
(ii) On the date that would otherwise be the Closing Date if any
of the conditions precedent to the obligations of Buyer (in the case
of termination by Buyer) set forth in SECTIONS 6.1(a), 6.1(b), 6.2,
6.5, 6.6 and 6.7 of this Agreement, or any of the conditions precedent
to the obligations of Sellers (in the case of termination by the
Selling Parties) set forth in SECTIONS 7.1(a), 7.1(b), 7.2, 7.5 and
7.7 of this Agreement, have not been satisfied or waived in writing by
the party with respect to which satisfaction is a condition precedent
to its obligation to close (whether or not occurring as the result of
a party's material breach of any provision of this Agreement); or
(iii) Closing does not occur within twelve (12) months after the
date hereof.
10.2 OBLIGATIONS UPON TERMINATION.
(a) SECTIONS 5.8, 5.9, 13.2 and 13.4 through 13.15 and ARTICLES IX and X
shall survive the termination of this Agreement and remain in full force and
effect. Each party to this Agreement shall remain liable after termination for
breach of this Agreement prior to termination; provided that if Closing does not
occur, the aggregate liability of Buyer for breach under this Agreement shall be
limited as provided in SECTION 10.2(c).
(b) If this Agreement is terminated prior to Closing for any reason other
than as specified in SECTION 10.2(c), Buyer shall be entitled to the return of
the Earnest Money, in which case Buyer and Selling Parties shall cooperate in
taking such action as required under the Escrow Agreement to effect the Escrow
Agent's distribution of the Earnest Money to Buyer.
<PAGE>
(c) If this Agreement is terminated prior to Closing (i) by the Selling
Parties pursuant to SECTIONS 10.1(b)(I) or 10.1(b)(II) or (ii) by either party
hereto pursuant to SECTION 10.1(b)(III) if on the date of such termination
pursuant to SECTION 10.1(b)(III) any of the conditions precedent specified in
SECTIONS 6.3, 6.4, 7.3 and/or 7.4 shall not have occurred as a result of facts
relating to Buyer or any Affiliate of Buyer (including, without limitation, as a
result of the failure by Buyer to consummate the Planned Divestiture regardless
of whether Buyer has used its commercially reasonable efforts to do so and has
otherwise complied with its obligations hereunder), Selling Parties' sole remedy
at law or in equity under this Agreement shall be (i) the termination by Selling
Parties of this Agreement, and (ii) the recovery from Buyer of (A) an amount
equal to the Earnest Money (the "Selling Parties' Payment Amount") and (B)
Selling Parties' reasonable attorneys' fees and other costs of collection
incurred by Selling Parties in enforcing their right to recover Selling Parties'
Payment Amount (such fees and other costs herein referred to as "Selling
Parties' Enforcement Costs"). In the event of such termination, Selling Parties
shall be entitled to receive the Earnest Money in payment of Selling Parties'
Payment Amount, and Buyer and Selling Parties shall cooperate in taking such
action as required under the Escrow Agreement to effect the Escrow Agent's
distribution of the Earnest Money to Selling Parties. Selling Parties shall also
be entitled to pursue any other remedy available to Selling Parties at law or in
equity to recover the entire Selling Parties' Payment Amount and Selling
Parties' Enforcement Costs, provided that the total monetary damages (including
any amount received from the Escrow Agent under the Escrow Agreement) to which
Selling Parties shall be entitled shall not exceed the sum of Selling Parties'
Payment Amount plus Selling Parties' Enforcement Costs. BUYER ACKNOWLEDGES AND
AGREES THAT SELLING PARTIES' RECEIPT OF SELLING PARTIES' PAYMENT AMOUNT SHALL
CONSTITUTE EITHER PAYMENT OF LIQUIDATED DAMAGES HEREUNDER OR CONSIDERATION IN
EXCHANGE FOR SELLING PARTIES' AGREEING TO ENTER INTO A TRANSACTION WITH A PARTY
SUBJECT TO CERTAIN REGULATORY RESTRICTIONS ON CONSUMMATING THE TRANSACTIONS
CONTEMPLATED HEREBY, AND NOT A PENALTY, AND THAT SELLING PARTIES' PAYMENT AMOUNT
IS REASONABLE IN LIGHT OF (AND IS INTENDED TO COMPENSATE THE SELLING PARTIES
FOR) THE SUBSTANTIAL BUT INDETERMINATE HARM ANTICIPATED TO BE CAUSED BY BUYER'S
MATERIAL BREACH OR DEFAULT UNDER THIS AGREEMENT OR THE FAILURE OF THE CLOSING TO
OCCUR UNDER THE CIRCUMSTANCES DESCRIBED IN FOREGOING CLAUSE (ii) OF THIS SECTION
10.2(c) (REGARDLESS OF WHETHER BUYER IS IN BREACH HEREUNDER), THE DIFFICULTY OF
PROOF OF LOSS AND DAMAGES, THE INCONVENIENCE AND NON-FEASIBILITY OF OTHERWISE
OBTAINING AN ADEQUATE REMEDY, AND THE VALUE OF THE TRANSACTIONS TO BE
CONSUMMATED HEREUNDER.
<PAGE>
10.3 TERMINATION NOTICE.
If the terminating party is entitled to terminate this Agreement pursuant
to the Subsection of SECTION 10.1 specified in the termination notice, then
termination will be deemed effected pursuant to the specified Subsection
notwithstanding that termination could be effected pursuant to more than one
such Subsection.
10.4 SELLING PARTIES AS A SINGLE PARTY.
For purposes of this ARTICLE X, (i) no Selling Party shall in any event
constitute an "other party" in relation to any other Selling Party, (ii) all
Selling Parties shall together constitute but a single party, and (iii) any
breach of this Agreement by one Selling Party shall be deemed to constitute a
breach of this Agreement by all Selling Parties.
ARTICLE XI
CONTROL OF STATIONS
Between the date of this Agreement and the Closing Date, Buyer shall not
control, manage or supervise the operation of any Station or the conduct of its
business, all of which shall remain the sole responsibility and under the
control of the applicable Seller, subject to such Seller's compliance with this
Agreement.
ARTICLE XII
EMPLOYMENT MATTERS
12.1 TRANSFER OF EMPLOYEES .
(a) Sellers and Buyer shall cooperate in arranging a joint presentation by
the Chairman of Buyer and a designated representative of Sellers to Sellers'
employees promptly after the date of this Agreement. The form and substance of
the presentation shall be subject to the approval of both Sellers and Buyer,
which shall not be unreasonably withheld. Upon completion of the Closing, Buyer
shall offer employment to each of the employees of the Stations (including those
on leave of absence, whether short-term, long-term, family, maternity,
disability, paid, unpaid or other, and those hired after the date hereof in the
ordinary course of business) at a comparable salary, position and place of
employment as held by each such employee immediately prior to the Closing Date
(such employees who are given and accept such offers of employment are referred
to herein as the "Transferred Employees"). Sellers agree to cooperate fully with
Buyer in connection with Buyer's offering to hire any such employees, and
Sellers shall not take any action, directly or indirectly, to prevent any such
employee from becoming employed by Buyer from and after the Closing; provided,
however, that (i)
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prior to the earlier of the Closing Date or termination of this Agreement, Buyer
shall not employ or solicit the employment (unless conditioned upon the
occurrence of Closing) of any person employed by Sellers at a Station, (ii) all
such offers of employment shall be expressly conditioned upon the occurrence of
Closing, (iii) if this Agreement is terminated, Buyer shall not, for a period of
one year after