-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DbFnS5BdoDX93eNXE4fQ9tr/+ZhdC/aWpa07wC9oKhz9bDjcFzJ5aABlVOh9ldbJ yfLdqgBLGZV6LmTLnxEXug== 0001005150-96-000150.txt : 19960621 0001005150-96-000150.hdr.sgml : 19960621 ACCESSION NUMBER: 0001005150-96-000150 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960509 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960517 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SINCLAIR BROADCAST GROUP INC CENTRAL INDEX KEY: 0000912752 STANDARD INDUSTRIAL CLASSIFICATION: 4833 IRS NUMBER: 521494660 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-26076 FILM NUMBER: 96569206 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 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 May 9, 1996 ---------------------------- (Date of earliest event reported) SINCLAIR BROADCAST GROUP, INC. (Exact name of Registrant as specified in its charter) Maryland 33-69482 52-1494660 (State of incorporation) (Commission File Number) (IRS Employer Identification Number) 2000 W. 41st Street, Baltimore, Maryland 21211-1420 --------------------------------------------------- (Address of principal executive offices)(Zip code) Registrant's telephone number, including area code: (410) 467-5005 --------------- Item 7. Financial Statements and Exhibits (a) Financial Statements of Businesses Acquired The Financial statements required by this item are submitted in a separate section of this report. SUPERIOR COMMUNICATIONS GROUP, INC. Independent Auditors Report Consolidated Balance Sheets as of December 31, 1995 and December 31, 1994 Consolidated Statements of Operations for the Years Ended December 31, 1995 and December 31, 1994 Consolidated Statements of Stockholder's Equity for the Years Ended December 31, 1995 and December 31, 1994 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995 and December 31, 1994 Notes to Consolidated Financial Statements (b) Pro Forma Financial Information The pro forma financial information required by this item is submitted in the pages to follow. (c) Exhibits Asset Purchase Agreement dated April 10, 1996 is by and between KRRT, Inc. and Sinclair Broadcast Group, Inc. Item 5. Other Matters (a) Financial Statements of Probable Business Acquisitions The Financial statements required by this item are submitted in a separate section of this report. PARAMOUNT STATIONS GROUP OF KERVILLE, INC. Report of Independent Public Accountants Consolidated Balance sheets as of August 3, 1995 and December 31, 1994 Consolidated Statements of Operations for the period from January 1, 1995 through August 3, 1995 and the Year Ended December 31, 1994 Consolidated Statements of Stockholders' Equity for the Period from January 1, 1995 through August 3, 1995 and the Year Ended December 31, 1994 Consolidated Statements of Cash Flows for the Period from January 1, 1995 through August 3, 1995 and the Year Ended December 31, 1994 Notes to Consolidated Financial Statements KRRT, Inc. Report of Independent Public Accountants Balance Sheet as of December 31, 1995 Statement of Operations for the Period from July, 25 1995 through December 31, 1995 Statements of Changes in Stockholders' Equity for the Period from July 25, 1995 through December 31, 1995 Statements of Cash Flows for the Period from July 25, 1995 through December 31, 1995 Notes to Financial Statements KANSAS CITY TV 62 LIMITED PARTNERSHIP Report of Independent Accountants Balance Sheets as of December 31, 1995 and December 31, 1994 Statements of Operations for the Years Ended December 31, 1995 and December 31, 1994 Statements of Cash Flows for the Years Ended December 31, 1995 and December 31, 1994 Statements of Changes is Partners' Capital for the Years Ended December 31, 1995 and December 31, 1994 Notes to Financial Statements CINCINNATI TV 64 LIMITED PARTNERSHIP Report of Independent Accountants Balance Sheets as of December 31, 1995 and December 31, 1994 Statements of Operations for the Years Ended December 31, 1995 and December 31, 1994 Statements of Changes in Partners' Capital for the Years Ended December 31, 1995 and December 31, 1994 Statements of Cash Flows for the Years Ended December 31, 1995 and December 31, 1994 Notes to Financial Statements RIVER CITY BROADCASTING L.P. Independent Auditors' Report Consolidated Balance Sheets as of December 31, 1994 and December 31, 1995 Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 Consolidated Statements of Partners' Capital (Deficit) for the Years Ended December 31, 1993, 1994 and 1995 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 Notes to Consolidated Financial Statements Supplementary Information-Consolidating Balance Sheet as of December 31, 1995 Supplementary Information-Consolidating Schedule of Operations for the Year Ended December 31, 1995 (b) Pro Forma Financial Information The pro forma information required by this item is submitted in the pages to follow. (c) PRO FORMA CONSOLIDATED FINANCIAL DATA The Pro Forma Consolidated Financial Data includes the unaudited pro forma consolidated balance sheet of the Company as of December 31, 1995 (the "Pro Forma Consolidated Balance Sheet") and the unaudited pro forma consolidated statement of operations for the year ended December 31, 1995 (the "Pro Forma Consolidated Statement of Operations"). The unaudited Pro Forma Consolidated Balance Sheet is adjusted to give effect to (I) the consummation of the acquisition of the assets and liabilities of Superior Communications Group, Inc. ("Superior"), and the probable acquisitions of (II) KRRT, Inc., Kansas City TV 62 Limited Partnership ("KSMO"), Cincinnati TV 64 Limited Partnership ("WSTR") and River City Broadcasting L.P. ("RCB") and (III) cash on hand and borrowings under the existing Bank Credit Agreement and New Credit Facilities in amounts sufficient to complete the transactions described in (I) and (II) above. The unaudited Pro Forma Consolidated Statement of Operations is adjusted to give effect to (I) the consummation of the acquisition of Superior, (II) the probable acquisitions of KRRT, Inc., KSMO, WSTR and RCB and (III) cash on hand and borrowings under the existing Bank Credit Agreement and New Credit Facilities in amounts sufficient to complete the transactions described in (I) and (II) above. The WSYX-TV information in the Pro Forma Consolidated Balance Sheet and Pro Forma Consolidated Statement of Operations reflects the modification of the current acquisition documents eliminating Sinclair Broadcast Group, Inc's. ("SBG") option to acquire the assets of WSYX-TV. This resulted from the Department of Justice ("DOJ") expressing preliminary concerns about SBG's operation of two television stations in Columbus, Ohio. In order to maintain the original schedule for the rest of the transaction, SBG and RCB have entered into an agreement with the DOJ that will result in a modification of the terms of the previously mentioned probable transaction. The pro forma adjustments are based upon available information and certain assumptions the Company believes are reasonable. The Pro Forma Consolidated Financial Data should be read in conjunction with the Company's Consolidated Financial Statements and related notes thereto, the Financial Statements and related notes of Superior, KRRT, Inc., KSMO, WSTR and RCB. The unaudited Pro Forma Consolidated Data do not purport to represent what the Company's results of operations or financial position would have been had any of the above events occurred on the dates specified or to project the Company's results of operations or financial position for or at any future period or date. PRO FORMA CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 (DOLLARS IN THOUSANDS) (UNAUDITED)
Superior Consolidated Flint Commmunications Pro Forma Pro Forma Historical TV, Inc.(a) Group, Inc.(b) Adjustments Consummated -------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash, including cash equivalents................ $112,450 $ - $ - $(37,550)(c) $ 74,900 Accounts receivable, net of allowance for doubtful accounts....................... 50,022 2,801 52,823 Current portion of program contract costs....... 18,036 378 2,028 20,442 Deferred barter costs........................... 1,268 1,268 Prepaid expenses and other current assets....... 1,972 106 2,078 Deferred tax asset.............................. 4,565 4,565 -------------------------------------------------------------------- Total current assets............ 188,313 378 4,935 (37,550) 156,076 PROPERTY AND EQUIPMENT, net............................. 42,797 2,276 9,993 55,066 PROGRAM CONTRACT COSTS, less current portion............ 19,277 744 3,131 23,152 LOANS TO OFFICERS AND AFFILIATES, net................... 11,900 11,900 NON-COMPETE AND CONSULTING AGREEMENTS, net.............. 30,379 30,379 DEFERRED TAX ASSET...................................... 16,462 16,462 OTHER ASSETS............................................ 27,355 (1,000)(c) 26,355 ACQUIRED INTANGIBLE BROADCASTING ASSETS, net............ 268,789 33,905 57,522 360,216 -------------------------------------------------------------------- Total assets.................... $605,272 $37,303 $75,581 $(38,550) $679,606 ===================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable................................ $ 2,187 $ - $ 366 $ - $ 2,553 Income taxes payable............................ 3,944 3,944 Accrued Liabilities............................. 20,720 362 21,082 Current portion of long-term liabilities- Notes payable and commercial bank financing.......................... 1,133 1,133 Capital leases payable.................. 524 524 Notes and capital leases payable to affiliates......................... 1,867 1,867 Program contracts payable............... 26,395 848 1,825 29,068 Deferred barter revenues........................ 1,752 1,752 -------------------------------------------------------------------- Total current liabilities....... 58,522 848 2,553 - 61,923 LONG-TERM LIABILITIES Notes payable and commercial bank financing..... 400,644 59,850 (c) 460,494 Capital leases payable.......................... 44 44 Notes and capital leases payable to affiliates.. 13,959 13,959 Program contracts payable....................... 30,942 1,055 2,783 34,780 Deferred tax liability.......................... - 3,736 3,736 Other long-term liabilites...................... 2,442 3,509 5,951 -------------------------------------------------------------------- Total liabilities............... 506,553 1,903 12,581 59,850 580,887 -------------------------------------------------------------------- MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY............ 2,345 - - - 2,345 -------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES........................... STOCKHOLDERS' EQUITY.................................... Preferred stock, $.01 par value, 5,000,000 shares authorized and -0- outstanding.......... - - Class A Common stock, $.01 par value, 35,000,000 shares authorized and -0- and 5,750,000 shares issued and outstanding, respectively............................ 58 58 Class B Common stock, $.01 par value, 35,000,000 shares authorized and 29,000,000 shares issued and outstanding.................. 290 290 Additional paid-in-capital...................... 116,089 116,089 Accumulated deficit............................. (20,063) (20,063) -------------------------------------------------------------------- Total stockholders' equity...... 96,374 - - - 96,374 -------------------------------------------------------------------- Total Liabilities and Stock- holders' Equity........... $605,272 $ 1,903 $12,581 $ 59,850 $679,606 =====================================================================
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (Dollars in thousands) (a) The Flint TV, Inc. (WSMH) column reflects the assets and liabilities acquired in connection with the purchase of WSMH. Total acquired intangibles are calculated as follows: WSMH ---- Purchase price........................................ $ 35,400 Add: Liabilities acquired - Current portion of program contract costs... 848 Long-term portion of program contract costs. 1,055 Less: Assets acquired - Current portion of program contracts........ (378) Property and equipment...................... (2,276) Non-current portion of program contracts.... (744) ---- Acquired intangibles........................ $ 33,905 ======== (b) The Superior Communications Group, Inc. (Superior) column reflects the assets and liabilities acquired in connection with the purchase of the outstanding stock of Superior. Total acquired intangibles are calculated as follows: Superior -------- Purchase price........................................ $63,000 Add: Liabilities acquired - Accounts payable............................ 366 Accrued expenses............................ 362 Current portion of program contract costs... 1,825 Long-term portion of program contract costs. 2,783 Deferred tax liability...................... 3,736 Other long-term liabilities................. 3,509 Less: Assets acquired - Accounts receivable......................... (2,801) Current portion of program contracts........ (2,028) Prepaid expenses and other current assets... (106) Property and equipment...................... (9,993) Non-current portion of program contracts.... (3,131) ------ Acquired intangibles........................ $57,522 ======== (c) In July 1995, the Company exercised its option to purchase WSMH in Flint, Michigan for an option exercise price of $1 million. In February 1996, the Company consummated the acquisition for a purchase price of $35.4 million at which time the balance due of $34.4 million was paid from the Company's existing cash balance. In March 1996, the Company entered into an agreement to acquire the outstanding stock of Superior and made a cash payment of $3.2 million to be applied against cash proceeds to the stockholders of Superior upon closing. The Company funded the remaining cash proceeds to the seller of $59.8 million by utilizing available indebtedness under Facility B of the Bank Credit Agreement. The pro forma cash adjustment is calculated as follows: Cash paid for WSMH acquisition........................ $34,400 Cash paid for Superior acquisition.................... 3,150 ----- Total cash paid....................................... $37,550 ======= PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 (DOLLARS IN THOUSANDS) (UNAUDITED)
Superior Consolidated Flint Commmunications Pro Forma Pro Forma Historical TV, Inc.(a) Group, Inc.(b) Adjustments Consummated -------------------------------------------------------------- ----------- REVENUES: Station broadcast revenues, net of agency commissions................................ $ 187,934 $ 7,217 $ 13,400 $ $ 208,551 Revenues realized from station barter arrangements............................... 18,200 18,200 ----------------------------------------------------------------------------- Total revenues.................. 206,134 7,217 13,400 - 226,751 ----------------------------------------------------------------------------- OPERATING EXPENSES: Program and production....................... 22,563 511 1,461 24,535 Selling, general and administrative.......... 41,763 2,114 4,188 48,065 Expenses realized from station barter arrangements......................... 16,120 16,120 Amortization of program contract costs and net realizable value adjustments.......................... 29,021 897 4,899 34,817 Depreciation and amortization of property and equipment........................ 5,400 20 1,660 (217)(c) 6,863 Amortization of acquired intangible broad- casting assets, non-compete and consulting agreements and other assets............................... 45,989 12 1,066 7,819 (d) 54,886 ----------------------------------------------------------------------------- Total operating expenses........ 160,856 3,554 13,274 7,602 185,286 ----------------------------------------------------------------------------- Broadcast operating income (loss)....................... 45,278 3,663 126 (7,602) 41,465 ----------------------------------------------------------------------------- OTHER INCOME (EXPENSE): Interest and amortization of debt discount expense........................... (39,253) (39,253) Interest (expense)........................... - - (1,579) (5,372)(e) (6,951) Interest income.............................. 3,942 81 (796)(f) 3,227 Other income (expense)....................... 221 41 (188) 74 ----------------------------------------------------------------------------- Income (loss) before (provision) benefit for income taxes and extraordinary items........... 10,188 3,785 (1,641) (13,770) (1,438) (PROVISION) BENEFIT FOR INCOME TAXES................. (5,200) (1,514) 461 6,610 (g) 357 ----------------------------------------------------------------------------- Net income (loss) before extraordinary items........... 4,988 2,271 (1,180) (7,160) (1,081) EXTRAORDINARY ITEM: Loss on early extinguishment of debt, net of related income tax benefit..... (4,912) (4,912) ----------------------------------------------------------------------------- NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS... $ 76 $ 2,271 $ (1,180) $ (7,160) $ (5,993) ============================================================================= EARNINGS PER COMMON SHARE Net income before extraordinary items........................ $ 0.15 $ (0.03) Extraordinary items............ $ (0.15) $ (0.15) ----------------------------------------------------------------------------- Net loss per common share........................... $ - $ (0.19) ============================================================================= WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands).. 32,198 32,198 =============================================================================
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Dollars in thousands) (a) The Flint Inc. column reflects the results of operations for WSMH for the year ended 12/31/95 as the purchase transaction was consummated in February 1996. (b) The Superior Communications Group, Inc. column reflects the results of operations for Superior for the year ended 12/31/95 as the purchase transaction was consummated in May 1996. (c) To record depreciation expense related to acquired tangible assets and eliminate depreciation expense recorded by WSMH and Superior. Tangible assets are to be depreciated over lives ranging from 5 to 29.5 years, calculated as follows: WSMH Superior Total ---- -------- ----- Depreciation expense on acquired assets..... $ 191 $ 1,272 $1,463 Less: Depreciation expense recorded by WSMH and Superior............................ (20) (1,660) (1,680) --- ------ ------ Pro forma adjustment........................ $ 171 $ (388) $ (217) ======= ======= ====== (d) To record amortization expense related to acquired intangible assets and eliminate amortization expense recorded by WSMH and Superior. Intangible assets are to be amortized over lives ranging from 1 to 40 years, calculated as follows: WSMH Superior Total ---- -------- ----- Amortization relating to acquired intangible assets................................... $1,002 $ 7,895 $8,897 Less: Intangible amortization recorded by WSMH and Superior........................ (12) (1,066) (1,078) --- ------ ------ Pro forma adjustment........................ $ 990 $ 6,829 $7,819 ====== ======= ====== (e) To record interest expense on acquisition financing relating to WSMH and Superior of $34,400 (in Credit Facility with commercial bank at 8.4% for 8 months) and $59,850 (8.4% for 12 months), respectively and eliminate interest expense recorded. WSMH Superior Total ---- -------- ----- Interest expense adjustment as noted above.. $1,924 $ 5,027 $6,951 Less: Interest expense recorded by WSMH and Superior................................ - (1,579) (1,579) ------ ------ ------ Pro forma adjustment........................ $1,924 $ 3,448 $5,372 ====== ======= ====== (f) To eliminate interest income on public debt proceeds relating to WSMH and Superior of $34,400 and $3,150 (with commercial bank at 5.7% for 4 months), respectively and eliminate interest income recorded. WSMH Superior Total ---- -------- ----- Interest income adjustment as noted above... $ (655) $ (60) $ (715) Less: Interest income recorded by WSMH and Superior................................. (81) - (81) --- --- --- Pro forma adjustment........................ $ (736 $ (60) $ (796) ======= ====== ======= (g) To record tax benefit of pro forma adjustments. PRO FORMA CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 (DOLLARS IN THOUSANDS) (UNAUDITED)
KRRT Inc. (a) ------------------------- Paramount Pro Forma Stations Group KRRT Consummated of Kerville, Inc. Inc. KSMO(b) WSTR(c) ---------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash, including cash equivalents................ $ 74,900 $ $ $ 590 $ 641 Accounts receivable, net of allowance for doubtful accounts..................... 52,823 3,953 3,091 Current portion of program contract costs ...... 20,442 1,452 3,380 4,461 Deferred barter costs........................... 1,268 Prepaid expenses and other current assets....... 2,078 21 15 Deferred tax asset.............................. 4,565 ---------------------------------------------------------------------- Total current assets.............. 156,076 - 1,452 7,944 8,208 PROPERTY AND EQUIPMENT, net........................ 55,066 3,068 3,286 8,357 PROGRAM CONTRACT COSTS, less current portion....... 23,152 869 3,754 4,339 LOANS TO OFFICERS AND AFFILIATES, net.............. 11,900 NON-COMPETE AND CONSULTING AGREEMENTS, net......... 30,379 DEFERRED TAX ASSET................................. 16,462 OTHER ASSETS....................................... 26,355 ACQUIRED INTANGIBLE BROADCASTING ASSETS, net....... 360,216 26,532 10,014 8,807 --------------------------------------------------------------------- Total assets...................... $679,606 $ $ 31,921 $ 24,998 $29,711 ===================================================================== River City Pro Forma Pro Forma Broadcasting L.P.(d) WSYX(e) Adjustments Consummated/Probable --------------------------------------------- ---------------------- ASSETS CURRENT ASSETS: Cash, including cash equivalents................ $ $ $ (72,882)(f) $ 3,249 Accounts receivable, net of allowance for doubtful accounts..................... 10,000 69,867 Current portion of program contract costs ...... 23,276 (1,432) 51,579 Deferred barter costs........................... 1,268 Prepaid expenses and other current assets....... 2,114 Deferred tax asset.............................. 4,565 ----------------------------------------- -------------------- Total current assets.............. 33,276 (1,432) (72,882) 132,642 PROPERTY AND EQUIPMENT, net........................ 134,879 (18,200) 186,456 PROGRAM CONTRACT COSTS, less current portion....... 19,650 (917) 50,847 LOANS TO OFFICERS AND AFFILIATES, net.............. 11,900 NON-COMPETE AND CONSULTING AGREEMENTS, net......... 30,379 DEFERRED TAX ASSET................................. 16,462 OTHER ASSETS....................................... 14,725 (g) 41,080 ACQUIRED INTANGIBLE BROADCASTING ASSETS, net....... 795,695 1,201,264 ----------------------------------------- -------------------- Total assets...................... $ 983,500 $(20,549) $ (58,157) $ 1,671,030 ========================================= ==================== KRRT Inc. (a) ------------------------- Paramount Pro Forma Stations Group KRRT Consummated of Kerville, Inc. Inc. KSMO(b) WSTR(c) ---------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts Payable................................ $ 2,553 $ $ $ 1,578 $ 1,127 Income Taxes Payable............................ 3,944 Accrued Liabilities............................. 21,082 Current portion of long-term liabilities- Notes payable and commercial bank financing........................... 1,133 Capital leases payable..................... 524 Notes and capital leases payable to affiliates.......................... 1,867 Program contracts payable.................. 29,068 1,452 4,020 5,221 Deferred barter revenues......................... 1,752 --------------------------------------------------------------------- Total current liabilities.......... 61,923 - 1,452 5,598 6,348 LONG-TERM LIABILITIES Notes payable and commercial bank financing..... 460,494 Capital leases payable........................... 44 Notes and capital leases payable to affiliates... 13,959 Program contracts payable........................ 34,780 869 3,107 4,262 Deferred Tax Liability........................... 3,736 Other long-term liabilites....................... 5,951 8,737 --------------------------------------------------------------------- Total liabilities.................. 580,887 - 2,321 17,442 10,610 --------------------------------------------------------------------- MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 2,345 - - - --------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES....................... STOCKHOLDERS' EQUITY................................ Preferred stock, $.01 par value, 5,000,000 shares authorized and -0- outstanding............. - Class A Common stock, $.01 par value, 35,000,000 shares authorized and -0- and 5,750,000 shares issued and outstanding, respectively 58 Class B Common stock, $.01 par value, 35,000,000 shares authorized and 29,000,000 shares issued and outstanding..................... 290 Additional paid-in-capital....................... 116,089 Accumulated deficit.............................. (20,063) ----------------------------------------------------------------------- Total stockholders' equity......... 96,374 - - - - ----------------------------------------------------------------------- Total Liabilities and Stockholders' Equity.................... $ 679,606 $ - $ 2,321 $ 17,442 $10,610 ======================================================================= River City Pro Forma Pro Forma Broadcasting L.P.(d) WSYX(e) Adjustment Consummated/Probable ------------------------------------------ ---------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts Payable................................ $ $ $ $ 5,258 Income Taxes Payable............................ 3,944 Accrued Liabilities............................. 21,082 Current portion of long-term liabilities Notes payable and commercial bank financing........................... 1,133 Capital leases payable..................... 524 Notes and capital leases payable to affiliates.......................... 1,867 Program contracts payable.................. 21,585 (1,727) 59,619 Deferred barter revenues......................... 1,752 ----------------------------------------- ---------------------- Total current liabilities.......... 21,585 (1,727) - 95,179 LONG-TERM LIABILITIES Notes payable and commercial bank financing...... 799,787 (h) 1,260,281 Capital leases payable........................... 44 Notes and capital leases payable to affiliates... 13,959 Program contracts payable........................ 27,580 (1,174) 69,424 Deferred Tax Liability........................... 3,736 Other long-term liabilites....................... 14,688 ----------------------------------------- ---------------------- Total liabilities.................. 49,165 (2,901) 799,787 1,457,311 ----------------------------------------- ---------------------- MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY........ - - - 2,345 ----------------------------------------- ---------------------- COMMITMENTS AND CONTINGENCIES....................... STOCKHOLDERS' EQUITY................................ Preferred stock, $.01 par value, 5,000,000 shares authorized and -0- outstanding............. Class A Common stock, $.01 par value, 35,000,000 shares authorized and -0- and 5,750,000 shares issued and outstanding, respectively 42 (i) 100 Class B Common stock, $.01 par value, 35,000,000 - shares authorized and 29,000,000 shares - issued and outstanding..................... 290 Additional paid-in-capital....................... 114,958 (j) 231,047 Accumulated deficit.............................. (20,063) ----------------------------------------- ----------------------- Total stockholders' equity......... - - 115,000 211,374 ----------------------------------------- ----------------------- Total Liabilities and Stockholders' Equity.................... $ 49,165 $ (2,901) $914,787 $1,671,030 =========================================== =======================
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (Dollars in thousands) (a) The KRRT Inc. (KRRT) column reflects the assets and liabilities acquired in connection with the purchase of KRRT. Total acquired intangibles are calculated as follows: Purchase price ............................................ $29,600 Add: Liabilities acquired - Current portion of program contracts....... 1,452 Long - term portion of program contracts... 869 Less: Assets acquired Current portion of program contracts ...... (1,452) Non-current portion of program contracts .. (869) Property and equipment .................... (3,068) ------ Acquired intangibles ...................... $26,532 ======= The KSMO and WSTR columns reflect the assets and liabilities acquired in connection with the purchase of KSMO and WSTR. Total acquired intangibles are calculated as follows: (b) KSMO: Purchase price ............................................ $ 7,556 Add: Liabilities acquired - Accounts Payable........................... 1,578 Current portion of program contracts....... 4,020 Long - term portion of program contracts... 3,107 Subordinated debt ......................... 8,737 Less: Assets acquired Current portion of program contracts ...... (3,380) Non-current portion of program contracts .. (3,286) Cash....................................... (590) Accounts Receivable........................ (3,953) Prepaid expenses........................... (21) Property and equipment .................... (3,754) ------ Acquired intangibles ...................... $ 10,014 ======== (c) WSTR: Purchase price ............................................ $19,101 Add: Liabilities acquired - Accounts Payable........................... 1,127 Current portion of program contracts....... 5,221 Long - term ............................... 4,262 Less: Assets acquired Current portion of program contracts ...... (4,461) Non-current portion of program contracts .. (4,339) Cash....................................... (641) Accounts Receivable........................ (3,091) Prepaid expenses........................... (15) Property and equipment .................... (8,357) ------ Acquired intangibles ...................... $ 8,807 ======== (d) The River City Broadcasting L.P. (RCB) column reflects the assets and liabilities acquired in connection with the purchase RCB. Total acquired intangibles are calculated as follows: Purchase price ............................................ $916,687 Add: Liabilities acquired - Current portion of program contracts....... 19,858 Long - term portion of program contracts... 26,406 Less: Assets acquired- Accounts receivable........................ (10,000) Current portion of program contracts ...... (21,844) Non-current portion of program contracts .. (18,733) Property and equipment .................... (116,679) -------- Acquired intangibles ...................... $795,695 ======== (e) To reflect the modification of the current acquisition documents eliminating the Company's option to acquire WSYX-TV. (f) To reflect the pay-off by the Company of KSMO and WSTR's debt of $12,882 which was purchased by Chase Bank, and to reflect the cash payment of $60.0 million made in conjunction with the purchase agreement between the Company and River City Broadcasting L.P. which will be applied against the cash proceeds upon closing. (g) To record debt acquisition costs incurred in conjunction with the Senior Secured Credit Facilities of $28.5 million, and removal of the $9.0 million purchase option to acquire KSMO & WSTR and the $4,775 note receivable from WSTR. (h) In April 1996, the Company entered into separate agreements to acquire the assets of River City Broadcasting L.P. and KRRT Inc. The cash proceeds due the seller at closing of $847,456, $29,600, and $28,500 (transaction costs due to the lender) will be made utilizing available indebtedness under the Senior Secured Credit Facilities less the amount attributable to the purchase of WSYX-TV. (i) In conjunction with the River City Broadcasting L.P. agreement, the seller will receive $115 million of Series A Exchangeable Preferred Stock. Pending shareholder approval, the Series A Exchangeable Preferred Stock will be exchangeable for 4,181,818 shares of $.01 par value Class A Common Stock. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 (DOLLARS IN THOUSANDS) (UNAUDITED)
KRRT Inc. (a) ------------------------- Paramount Pro Forma Stations Group KRRT Consummated of Kerville, Inc. Inc. KSMO(b) WSTR(c) ---------------------------------------------------------------------------- REVENUES: Station broadcast revenues, net of agency commissions............................... $ 208,551 $ 7,567 $ 1,437 $ 17,484 $ 15,529 Revenues realized from station barter arrangements.............................. 18,200 -------------------------------------------------------------------------- Total revenues................... 226,751 7,567 1,437 17,484 15,529 -------------------------------------------------------------------------- OPERATING EXPENSES: Program and production........................... 24,535 833 193 3,347 1,002 Selling, general and administrative.............. 48,065 1,958 688 4,374 4,023 Expenses realized from station barter arrangements.............................. 16,120 876 Amortization of program contract costs and net realizable value adjustments.............. 34,817 921 70 4,007 4,971 Depreciation and amortization of property and equipment............................. 6,863 194 328 632 585 Amortization of acquired intangible broad- casting assets, non-compete and consulting agreements and other assets.................................... 54,886 253 493 210 77 -------------------------------------------------------------------------- Total operating expenses......... 185,286 5,035 1,772 12,570 10,658 Broadcast operating income (loss).......................... 41,465 2,532 (335) 4,914 4,871 -------------------------------------------------------------------------- OTHER INCOME (EXPENSE): Interest and amortization of debt discount expense........................................ (39,253) Interest (expense)............................... (6,951) (880) (2,039) (2,506) Interest income.................................. 3,227 11 Other income (expense)........................... 74 63 630 -------------------------------------------------------------------------- Income (loss) before (provision) benefit for income taxes and extraordinary items.......... (1,438) 2,595 (1,204) 3,505 2,365 (PROVISION) BENEFIT FOR INCOME TAXES................ 357 (1,076) - (1,682) (1,135) -------------------------------------------------------------------------- Net income (loss) before extraordinary items.......... (1,081) 1,519 (1,204) 1,823 1,230 EXTRAORDINARY ITEM: Loss on early extinguishment of debt, net of related income tax benefit................ (4,912) -------------------------------------------------------------------------- NET INCOME (LOSS) AVAILABLE TO COMMON SHAREOLDERS... $ (5,993) $ 1,519 $(1,204) $ 1,823 $ 1,230 ========================================================================== EARNINGS PER COMMON SHARE Net income before extraordinary items........................ $ (0.03) Extraordinary items.............. $ (0.15) -------------------------------------------------------------------------- Net loss per common share........................... $ (0.19) ========================================================================== WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands).. 32,198 ========================================================================== River City Pro Forma Pro Forma Broadcasting L.P. WSYX (e) Adjustments Consummated/Probable ---------------------------------------------- ---------------- REVENUES: Station broadcast revenues, net of agency commissions.............................. 188,190 (28,767) $ (1,437) $ 408,554 Revenues realized from station barter arrangements............................. 18,200 ---------------------------------------------- ---------------- Total revenues.................. 188,190 (28,767) (1,437) 426,754 ---------------------------------------------- ---------------- - OPERATING EXPENSES: - Program and production.......................... 62,041 (8,133) (1,437) (g) 82,381 Selling, general and administrative............. 30,456 (3,153) (620) (h) 85,791 Expenses realized from station barter arrangements............................. 16,996 Amortization of program contract costs and net realizable value adjustments............. 33,452 (2,624) 75,614 Depreciation and amortization of property and equipment............................ 11,524 (2,107) 3,433 (i) 21,452 Amortization of acquired intangible broadcasting assets, non-compete and consulting agreement and other assets......................... 27,649 (9,780) 41,136 114,924 ---------------------------------------------- ---------------- Total operating expenses........ 165,122 (25,797) 42,512 397,158 ---------------------------------------------- ---------------- Broadcast operating income (loss)......................... 23,068 (2,970) (43,949) 29,596 ---------------------------------------------- ---------------- OTHER INCOME (EXPENSE): Interest and amortization of debt discount expense. (39,253) Interest expense................................ (34,523) (39,371) (k) (86,270) Interest income................................. 1,715 (3,673) (k) 1,280 Other income expense............................ (22) 57 802 ---------------------------------------------- ---------------- Income (loss) before (provision) benefit for income taxes and extraordinary items......... (9,762) (2,913) (86,993) (93,845) - (PROVISION) BENEFIT FOR INCOME TAXES............... 4,686 1,398 41,756 (i) 44,304 ---------------------------------------------- ---------------- Net income (loss) before extraordinary items......... (5,076) (1,515) (45,237) (49,541) - EXTRAORDINARY ITEM: - Loss on early extinguishment of debt, net of related income tax benefit............... (4,912) ---------------------------------------------- ---------------- - NET INCOME (LOSS) AVAILABLE TO COMMON SHAREOLDERS.. $ (5,076) $ 1,515 $(45,237) $ (54,453) ============================================== ================= EARNINGS PER COMMON SHARE Net income before extraordinary items....................... $ (1.43) Extraordinary items............. $ (0.14) ---------------------------------------------- ---------------- Net loss per common share.......................... $ (1.57) ============================================== ================= WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands). 34,687 (m) ============================================== =================
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Dollars in thousands) (a) The KRRT Inc. column reflects the results of operations for Paramount Stations Group for the seven months and three days ended 8/3/95 and KRRT for the five months ended December 31, 1995. (b) The KSMO column reflects the results of operations for the year ended 12/31/95. (c) The WSTR column reflects the results of operations for the year ended 12/31/95. (d) The River City Broadcasting L.P. (RCB) column reflects the results of operations for RCB for the year ended 12/31/95. (e) To reflect the modification of the current acquisition documents eliminating the Company's option to acquire WSYX-TV. (f) To eliminate LMA fees from RCB. (g) To eliminate LMA and license fees paid by RCB to KRRT and JJK. (h) To eliminate management fees paid during 1995 by River City and record additional corporate expenses as follows: Corporate expenses on a pro forma basis........................... $9,236 Less: Corporate expenses recorded by Company...................... (5,374) Less: Management fees paid during 1995 by RCB..................... (4,482) ------- Pro forma adjustment.............................................. $ (620) (i) To record depreciation expense related to acquired tangible assets and eliminate depreciation expense recorded by Paramount and KRRT, KSMO, WSTR, and RCB. Tangible assets are to be depreciated over lives ranging from 5 to 29.5 years, calculated as follows: Depreciation expense on acquired assets.......................... $14,589 Less: Depreciation expenses recorded by Paramount and KRRT, KSMO, WSTR and RCB ........................................ (11,156) ------- Pro forma adjustment............................................. $ 3,433 ======= (j) To record amortization expense related to acquired intangible assets and deferred financing costs, and eliminate amortization expense recorded by Paramount and KRRT, KSMO, WSTR, and RCB. Intangible assets are to amortized over lives ranging from 1 to 40 years, calculated as follows: FCC License..................................................... $ 9,434 Affiliation Agreements........................................... 19,854 Goodwill......................................................... 5,963 Goodwill (LMA).................................................. 20,577 ------- 55,828 Deferred financing costs......................................... 3,718 Less: Intangible amortization recorded by Paramount and KRRT, KSMO WSTR, and RCB............................................... (18,410) ------- Pro forma adjustment............................................. $41,136 ======== (k) To record interest expense on acquisition financing of $875,956 for 12 months on the Senior Secured Credit Facilities for RCB and on acquisition financing of $60,000, $12,882, $29,600 (in Credit Facility with commercial bank at 8.4% for 8 months), respectively, for RCB, KSMO, WSTR, and KRRT. To eliminate interest income on public debt proceeds of $60,000 and $12,882 (with commercial bank at 5.7% for 4 months), for KSMO, WSTR, and RCB, respectively, and to eliminate interest expense and interest income recorded by KSMO, WSTR, Paramount, KRRT, and RCB.
Interest Interest Expense Income ------- ------ Interest expense and interest income adjustment as noted above.. $79,319) $ (1,947) Less: Interest expense and interest income recorded by RCB, KSMO and WSTR and Paramount and KRRT............................ (39,948) (1,726) ------ ------- Pro forma adjustment............................................ $39,371 $ (3,673) ======== =======
(l) To record tax benefit of pro forma adjustments (m) Weighted average shares outstanding on a Pro Forma Consummated/Probable basis assumes that the $115 million of Series A Exchangeable Preferred Stock was exchanged for 4,181,818 shares of $.01 par value Class A Common Stock as of the IPO date (June 13, 1995). Consolidated Financial Statements and Other Financial Information Superior Communications Group, Inc. Years ended December 31, 1995 and 1994 with Report of Independent Auditors Superior Communications Group, Inc. Consolidated Financial Statements and Other Financial Information Years ended December 31, 1995 and 1994 Contents Report of Independent Auditors ..............................................1 Consolidated Financial Statements Consolidated Balance Sheets .................................................2 Consolidated Statements of Operations .......................................4 Consolidated Statements of Stockholders' Equity .............................5 Consolidated Statements of Cash Flows .......................................6 Notes to Consolidated Financial Statements ..................................7 Other Financial Information Report of Independent Auditors on Other Financial Information ..............17 Details of Consolidated Balance Sheet ......................................18 Details of Consolidated Statement of Operations.............................19 Report of Independent Auditors To the Board of Directors and Stockholders of Superior Communications Group, Inc. We have audited the accompanying consolidated balance sheets of Superior Communications Group, Inc. (the Company) as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Superior Communications Group, Inc. as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Ernst & Young LLP February 23, 1996 Superior Communications Group, Inc. Consolidated Balance Sheets
December 31 1995 1994 ---------------------------------- Assets Current assets: Cash and cash equivalents $ 272,218 $ 1,088,527 Accounts receivable, less allowance for doubtful accounts of $200,000 and $150,000 2,800,531 2,608,609 Deferred film costs 2,028,478 2,474,170 Prepaid expenses and other 106,344 165,053 ---------------------------------- Total current assets 5,207,571 6,336,359 Property and equipment: Land 538,144 535,347 Building 723,186 723,186 Equipment and fixtures 8,731,303 8,482,329 ---------------------------------- 9,992,633 9,740,862 Accumulated depreciation (2,604,504) (1,618,864) ---------------------------------- 7,388,129 8,121,998 Other assets: Deferred film costs, net 3,131,340 3,533,338 Intangible assets, net 8,778,246 10,413,781 Other assets 4,408 20,156 ---------------------------------- 11,913,994 13,967,275 ---------------------------------- Total assets $24,509,694 $28,425,632 ==================================
-2-
December 31 1995 1994 -------------------------------- Liabilities and stockholders' equity Current liabilities: Current portion of long-term debt $ 1,805,532 $ 1,617,089 Current portion of film contract commitments 1,824,891 1,559,914 Accounts payable 365,615 257,770 Accrued expenses 362,315 416,379 Due to related parties 58,760 62,482 -------------------------------- Total current liabilities 4,417,113 3,913,634 Long-term debt 12,185,454 12,469,015 Film contract commitments 2,783,220 2,298,625 Due to related parties 35,000 100,000 Deferred income taxes 3,383,907 3,899,249 Deferred income 31,341 37,341 Stockholders' equity: Preferred stock, $.001 par value, 20,000 shares authorized, 10,190.84 shares issued, 8,147.97 and 10,190.84 shares outstanding at cost in 1995 and 1994. (Liquidation preference at December 31, 1995 and 1994 of $10,043,731 and $11,323,291, respectively) 9,365,801 9,365,801 Class B common stock, $.001 par value, 100,000 shares authorized, 10,190.84 shares issued, 9,169.405 and 10,190.84 shares outstanding in 1995 and 1994. 10 10 Class A common stock, $.001 par value, 10,000 shares authorized, 1,870.7 shares issued and outstanding 2 2 Additional paid-in capital 36,210 16,053 Retained deficit (4,853,864) (3,674,098) Treasury stock (2,874,500) - -------------------------------- Total stockholders' equity 1,673,659 5,707,768 -------------------------------- Total liabilities and stockholders' equity $24,509,694 $28,425,632 ================================
See accompanying notes. -3- Superior Communications Group, Inc. Consolidated Statements of Operations
Year ended December 31 1995 1994 -------------------------------- Gross sales $15,837,243 $13,974,224 Less agency commissions 2,437,582 2,032,429 -------------------------------- Net sales 13,399,661 11,941,795 Operating expenses: Sales and promotion 2,127,911 2,015,648 Broadcast operations 1,460,716 1,065,579 General and administrative 2,059,805 2,013,921 -------------------------------- 5,648,432 5,095,148 -------------------------------- Operating income 7,751,229 6,846,647 Other expenses: Amortization--deferred film costs and barter programming 4,899,093 4,382,047 Depreciation and amortization 2,725,654 3,064,864 Interest expense, net 1,578,898 1,324,130 Other expense, net 188,111 - -------------------------------- 9,391,756 8,771,041 -------------------------------- Loss before income tax benefit (1,640,527) (1,924,394) Income tax benefit (460,761) (89,202) -------------------------------- Net loss $ (1,179,766) $ (1,835,192) ================================ Undeclared preferred stock dividend requirement, inception to date $ 1,895,761 $ 1,132,451 ================================
See accompanying notes. -4- Superior Communications Group, Inc. Consolidated Statements of Stockholders' Equity
Additional Partners' Preferred Class B Class A Paid-In Capital Stock Common Stock Common Stock Capital --------------------------------------------------------------------------- Balance at January 1, 1994 $5,950,100 $ - $ - $ - $ - Conversion of Superior Communication of Kentucky, L.P. interest into preferred and common stock of Company, January 28, 1994 (5,950,100) 5,950,091 7 2 - Equity contribution, January 28, 1994 - 3,099,997 3 - - Conversion of stockholder note into preferred and common stock of Company, January 28, 1994 - 172,713 - - - Contribution of net assets by former general partner including cash of $17,052, January 28, 1994 - 143,000 - - - Vesting of 120.7 shares of common stock from stock grant - - - - 16,053 Net loss - - - - - ----------------------------------------------------------------------------- Balance at December 31, 1994 - 9,365,801 10 2 16,053 Purchase of 2,042.87 shares of preferred stock and 1,021.435 of Class B common stock by the Company - - - - - Vesting of shares of common stock from stock grant - - - - 20,157 Net loss - - - - - ----------------------------------------------------------------------------- Balance at December 31, 1995 $ - $9,365,801 $10 $ 2 $ 36,210 =============================================================================== See accompanying notes.
Retained Treasury Total Deficit Stock Equity ---------------------------------------------- Balance at January 1, 1994 $(1,838,906) $ - $4,111,194 Conversion of Superior Communication of Kentucky, L.P. interest into preferred and common stock of Company, January 28, 1994 - - - Equity contribution, January 28, 1994 - - 3,100,000 Conversion of stockholder note into preferred and common stock of Company, January 28, 1994 - - 172,713 Contribution of net assets by former general partner including cash of $17,052, January 28, 1994 - - 143,000 Vesting of 120.7 shares of common stock from stock grant - - 16,053 Net loss (1,835,192) - (1,835,192) -------------------------------------------------- Balance at December 31, 1994 (3,674,098) - 5,707,768 Purchase of 2,042.87 shares of preferred stock and 1,021.435 of Class B common stock by the Company - (2,874,500) (2,874,500) Vesting of shares of common stock from stock grant - - 20,157 Net loss (1,179,766) - (1,179,766) -------------------------------------------------- Balance at December 31, 1995 $(4,853,864) $(2,874,500) $1,673,659 ==================================================
See accompanying notes. -5-
Superior Communications Group, Inc. Consolidated Statements of Cash Flows Year ended December 31 1995 1994 --------------------------------------- Operating activities Net loss $(1,179,766) $(1,835,192) Adjustments to reconcile net loss to net cash provided by operating activities: Barter program revenue (1,565,295) (1,310,618) Deferred income (6,000) (6,000) Stock grant expense 20,157 16,053 Provision for bad debts 50,000 99,750 Amortization--deferred film costs and barter programming 4,899,093 4,382,047 Depreciation and amortization 2,725,654 3,064,864 Loss on disposal of assets 193,415 36,769 Deferred taxes (515,342) (118,720) Changes in operating assets and liabilities: Accounts receivable (241,922) (744,505) Prepaid expenses and other 58,709 (50,585) Accounts payable 107,845 (323,086) Accrued expenses (54,064) 290,929 --------------------------------------- Net cash provided by operating activities 4,492,484 3,501,706 Investing activities Capital expenditures (558,385) (240,453) Other assets 15,748 - Intangible assets acquired - (873,369) Acquisition of Oklahoma City Broadcasting Company, less cash acquired - (10,696,379) --------------------------------------- Net cash used in investing activities (542,637) (11,810,201) Financing activities Proceeds from long-term debt 25,500 14,200,000 Payments on long-term debt (2,995,118) (6,865,178) Payments on film contract commitments (1,727,816) (1,545,099) Net activity on related party liability (68,722) 37,557 Proceeds from capital contribution - 3,117,052 --------------------------------------- Net cash (used) provided by financing activities (4,766,156) 8,944,332 --------------------------------------- Net (decrease) increase in cash and cash equivalents (816,309) 635,837 Cash and cash equivalents at beginning of year 1,088,527 452,690 --------------------------------------- Cash and cash equivalents at end of year $ 272,218 $ 1,088,527 =======================================
See accompanying notes. -6- Superior Communications Group, Inc. Notes to Consolidated Financial Statements December 31, 1995 1. Significant Accounting Policies Description of Business The consolidated financial statements of Superior Communications Group, Inc. (SCGI) include the accounts of SCGI and its wholly owned subsidiaries, Superior Communications of Kentucky, Inc. (SCKI) and Superior Communications of Oklahoma, Inc. (SCOI), which are collectively referred to as the Company. All intercompany balances have been eliminated. The Company owns and operates television broadcasting stations in Lexington, Kentucky and Oklahoma City, Oklahoma. Organization The Company, previously known as Superior Communications of Kentucky, L.P. (the Partnership), was incorporated in its current form on January 28, 1994 concurrent with the acquisition of SCOI (Note 2). Effective on January 28, 1994, the former partners of the Partnership exchanged all of their partnership interests for shares of preferred and common stock of the newly formed parent company, SCGI, under a Security Purchase and Exchange Agreement (Exchange Agreement) and the Partnership was then dissolved. Additionally, the former corporate general partner of the Partnership was also dissolved and the shareholders of the general partner exchanged certain operating assets with the Company for preferred and common stock. Furthermore, under the Exchange Agreement, SCGI then contributed the operating assets of the former partnership to the newly formed SCKI in exchange for all of the outstanding common stock of SCKI. Operations and Credit Risk The Company's accounts receivable are from the sale of advertising, primarily to businesses which are local to the broadcast area or to national advertising agencies. The Company performs credit evaluations of its customers' financial condition and generally does not require collateral. Receivables are due within 30 days. Credit losses have been within management's expectations. The carrying amount reported in the balance sheet for accounts receivable approximates its fair value. Cash and Cash Equivalents The Company considers all demand deposits and short-term investments purchased with a maturity of 90 days or less to be cash equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. -7- Superior Communications Group, Inc. Notes to Consolidated Financial Statements (continued) 1. Significant Accounting Policies (continued) Deferred Film Costs and Film Contract Commitments The Company has contracts with various film distributors from which films are licensed for television transmission over various contract periods (generally one to five years) and for a specified number of broadcasts. Net deferred film costs represent the lower of unamortized cost or estimated net realizable value of the film contracts available for use. Deferred film costs are amortized on the straight-line method over the contract periods. Film contract commitments represent the total obligations due under these contracts, which are generally payable in equal installments over periods that are 12 to 18 months shorter than the lives of the contracts, and do not bear interest. The portion of the deferred film cost to be amortized within one year and after one year is reported in the balance sheet as current and other assets, respectively, and the payments under the film contract commitments due within one year and after one year are similarly classified as current and long-term liabilities, respectively. Property and Equipment Property and equipment are stated at cost. Depreciation for financial reporting purposes is based on the straight-line method over estimated useful lives ranging from 5 to 12 years for equipment and 15 years for buildings. Costs of repairs and maintenance are charged to expense as incurred. Intangible Assets Intangible assets as reflected in Note 3 are being amortized on a straight-line basis over their useful lives ranging from one to fifteen years. Barter Transactions Revenue from barter transactions (advertising provided in exchange for programming or goods and services) is recognized as income when advertisements are broadcast, and goods or services received are capitalized or charged to operations when received or used. Included in the statements of operations is broadcasting net revenue from barter transactions of $1,940,989 and $1,593,330 during 1995 and 1994, respectively, and station operating costs and expenses from barter transactions of $1,871,077 and $1,632,184, respectively. As of December 31, 1995 and 1994, the Company has recorded accrued liabilities for deferred barter revenue of $86,586 and $149,434, respectively. -8- Superior Communications Group, Inc. Notes to Consolidated Financial Statements (continued) 1. Significant Accounting Policies (continued) Deferred Income Deferred income relates to prepaid rental income for use of SCKI's tower facility. The amount is being recognized on a straight-line basis through 2001 (term of agreement). Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Income Taxes Deferred income taxes recorded on the Company's consolidated balance sheets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Reclassifications Certain amounts in the 1994 financial statements have been reclassified or restated to conform to the current year presentation. 2. Acquisition of Station On January 28, 1994, SBI, a newly formed corporation and wholly owned subsidiary of the Company, purchased all of the outstanding stock of Oklahoma City Broadcasting Company (OCBC) for $10,973,241. The acquisition was accounted for as a purchase transaction with the purchase price being allocated to the assets and liabilities acquired based upon their fair market values at the date of acquisition. In connection with the transaction, SBI also entered into a noncompete agreement with the seller of OCBC valued at $1,500,000, for which a note payable was issued to the seller (Note 4). The cost of the noncompete agreement is being amortized over the five-year term of the agreement. The acquisition was financed from the issuance of stock for $3,100,000 and from bank debt in the amount of $7,873,241. Concurrent with the acquisition, SBI and OCBC merged, forming SCOI. -9- Superior Communications Group, Inc. Notes to Consolidated Financial Statements (continued) 3. Intangible Assets The components of intangible assets consist of the following as of December 31, 1995 and 1994: 1995 1994 --------------------------------- Advertising contracts acquired $ - $ 441,075 Loan origination costs and other 617,410 624,064 Organization and syndication costs 1,634,828 1,634,828 Covenant not-to-compete 2,500,000 2,500,000 FCC license and FOX affiliation agreement 4,269,819 4,391,223 Goodwill 3,546,186 3,546,186 --------------------------------- 12,568,243 13,137,376 Less accumulated amortization (3,789,997) (2,723,595) --------------------------------- Intangible assets, net $ 8,778,246 $10,413,781 ================================== 4. Long-Term Debt Long-term debt at December 31, 1995 consists of bank and seller debt as follows: Bank Debt On January 28, 1994, the Company entered into a senior secured term loan agreement and revolving credit agreement (collectively the Credit Agreement) with a bank in the amount of $12,700,000 and $2,000,000, respectively. The term loan is due in quarterly installments through January 2000, and the revolving credit agreement is due January 2000. The outstanding balance on the revolving credit agreement was $1,500,000 at December 31, 1994, and no amounts were outstanding at December 31, 1995. The Credit Agreement provides for interest at the bank's Base Rate (8.5% at December 31, 1995) plus 1.75%, and is secured by the stock of SCGI and its subsidiaries. Covenants contained in the Credit Agreement limit capital expenditures, define required levels of earnings and cash flows and limit additional indebtedness and film contract commitments. The proceeds of these loans were utilized by the Company to finance the acquisition of SCOI, and to repay amounts owed to a former bank under a term note payable of $5,260,589. -10- Superior Communications Group, Inc. Notes to Consolidated Financial Statements (continued) 4. Long-Term Debt (continued) Bank Debt (continued) On February 13, 1995, the Company repurchased 1,021.435 shares of Class B common stock and 2,042.87 shares of preferred stock of the Company for $2,874,500. The repurchase was financed through an additional term loan with a bank for $2,900,000. The term loan is due in quarterly installments of $290,000 beginning October 1997 through January 2000, plus interest at the bank's Base Rate plus 1.75%. A mandatory prepayment per the terms of the loan agreement was required in 1995 and was applied to this loan. The outstanding balance on this term loan was $2,610,000 at December 31, 1995. Seller Debt In connection with the acquisition of OCBC, the Company also incurred indebtedness to the former owner of OCBC for $1,500,000. The note is secured by a lien on SCOI's assets and is subordinated to that of the bank debt. The seller debt bears interest at a rate of 7.5% and is payable in annual installments of $300,000, plus interest, beginning January 28, 1995. The outstanding balance on this note was $1,200,000 at December 31, 1995. The following is a schedule of aggregate maturities of long-term debt as of December 31, 1995: 1996 $ 1,805,532 1997 2,820,973 1998 3,990,045 1999 4,322,500 2000 1,051,936 -------------- $13,990,986 ============== Fair Value The carrying amounts of the Company's borrowings under its bank and seller debt arrangements approximate their fair value. The fair values of the Company's debt are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. -11- Superior Communications Group, Inc. Notes to Consolidated Financial Statements (continued) 5. Film Contract Commitments The Company has acquired certain film rights under long-term film contract commitments. These commitments are generally payable in equal installments over periods that are twelve to eighteen months shorter than the lives of the related film rights and do not bear interest. Annual payments required under these commitments are as follows: 1996 $1,824,891 1997 1,514,859 1998 978,063 1999 287,637 2000 2,661 --------------- $4,608,111 =============== The values of the film rights acquired under these contracts are included as net deferred film costs in the accompanying consolidated balance sheet and have the following balances at December 31, 1995: Deferred film costs $11,202,089 Less accumulated amortization (6,042,271) ---------------- 5,159,818 Less current portion (2,028,478) ---------------- Deferred film costs, net $ 3,131,340 ================ As discussed in Note 1, the Company enters into contracts with various film distributors which allow limited showings of films and syndicated programs. At December 31, 1995, the Company has entered into contracts totaling approximately $1,063,943 for which the license period and program availability for telecasting begins after December 31, 1995. These contracts are not recorded in the accompanying consolidated balance sheet. 6. Due to Related Parties Amounts due to related parties consist of fees charged by shareholders of the Company in connection with the acquisition of the Partnership (Note 1) in November 1992 and includes accrued interest at 7.75%. -12- Superior Communications Group, Inc. Notes to Consolidated Financial Statements (continued) 7. Income Taxes Significant components of the Company's deferred tax assets and liabilities as of December 31 are as follows: 1995 1994 ----------------------------------- Deferred tax assets: Allowance for doubtful accounts $ 76,456 $ 56,178 Net operating loss carryforwards 351,981 181,081 Other - 23,200 ----------------------------------- Total deferred tax assets 428,437 260,459 Deferred tax liabilities: Properties and broadcast rights 2,500,911 2,234,846 Intangible assets 1,311,433 1,924,862 ----------------------------------- Total deferred tax liabilities 3,812,344 4,159,708 ----------------------------------- Net deferred tax liabilities $3,383,907 $3,899,249 ===================================== Significant components of the provision for income tax expense (benefit) for the year ended December 31 are as follows: 1995 1994 ---------------------------------- Current: State $ 54,581 $ 29,518 Deferred: Federal (461,231) (127,337) State (54,111) 8,617 ---------------------------------- Total deferred (515,342) (118,720) ---------------------------------- $(460,761) $ (89,202) =================================== The Company's effective income tax rates differ from federal statutory income tax rates due primarily to the amortization of goodwill and state income taxes. Additionally, in 1994 the Company recorded deferred income tax expense of $507,673 upon the contribution of the partnership interests and general partner operating assets (Note 1). At December 31, 1995, the Company has federal and state net operating loss carryforwards of $666,000 and $2,090,000, respectively, which begin to expire in 2009. -13- Superior Communications Group, Inc. Notes to Consolidated Financial Statements (continued) 8. Stockholders' Equity As discussed in Note 1, the Company reorganized effective January 28, 1994 under the terms of the Exchange Agreement. Pursuant to the terms of the agreement the former owners of the Partnership were given 7,090.84 shares of preferred stock, 7,090.84 shares of Class B common stock and 1,750 shares of Class A common stock of the Company. Also on January 28, 1994, certain stockholders contributed an additional $3,100,000 in exchange for 3,100 shares each of preferred stock and Class B common stock of the Company. On February 13, 1995, the Company repurchased 1,021.435 shares of Class B common stock and 2,042.87 shares of preferred stock of the Company for $2,874,500. The preferred stock, which has a stated liquidation preference of $1,000 a share, has no voting rights. Dividends accumulate at 12% based upon the stock's stated liquidation value and are payable at the discretion of the Board of Directors and subject to restriction within the Credit Agreement. Unless all accumulated dividends on the preferred stock have been paid, no dividend may be paid, and no other distributions may be made upon the common stock of the Company. Upon liquidation of the Company, any proceeds to be distributed are first utilized to pay the preferred stockholders at an amount equal to $1,000 per share (liquidation preference) plus any accrued but unpaid dividends, inception to date ($1,895,761 at December 31, 1995). If amounts remain available for distribution in excess of the preferred liquidation, those amounts are to be allocated 80% to the Class B common stockholders and 20% to the Class A common stockholders. The Class A common stock is subject to restriction on sale, transfer and also contain forfeiture provisions. 9. Stock Grants The Company has granted 120.7 shares of Class A common stock to an officer of the Company. The Class A common stock has significant restrictions including forfeiture obligations if the officer were no longer an employee of the Company. Pursuant to the terms of the stock grant agreement, all shares will vest upon the completion of the sale of the Company's shares of outstanding stock as discussed in Note 11. Accordingly, the Company recorded a charge to operations of $20,157 in 1995 ($16,053 in 1994) to reflect the vesting of the remaining stock granted. -14- Superior Communications Group, Inc. Notes to Consolidated Financial Statements (continued) 10. Operating Leases and Other Commitments The Company has entered into various noncancelable lease arrangements for office space rental, ratings and research services, broadcast accounting software and other licensing agreements. Total expense charged to operations under these agreements was approximately $283,000 in 1995. The minimum future payments under these agreements are as follows: 1996 $ 252,088 1997 267,059 1998 281,039 1999 150,247 2000 139,323 -------------- $1,089,756 ============== 11. Subsequent Event On March 4, 1996, the shareholders of the Company entered into an agreement with an unrelated entity to sell all of the Company's outstanding shares of preferred and common stock. Pursuant to the terms of the stock purchase agreement, the buyer will cause the Company to pay in full all of the outstanding debt of the Company plus accrued interest and prepayment penalties. The balance of the proceeds will be distributed to the selling shareholders. 12. Supplemental Cash Flow Disclosures The Company entered into the following noncash transactions: o As discussed in Note 4, on February 13, 1995, the Company paid $2,874,500 for stock placed in treasury, which was financed through the issuance of long-term debt. o Deferred film costs in the amount of $2,548,375 and $1,820,606 were recorded through the assumption of film contract commitments in the same amounts during 1995 and 1994, respectively. o The Company recorded a $1,500,000 noncompete agreement from the seller of KOCB in exchange for the issuance of a note payable to the seller in the same amount during 1994. o The Company received $125,948 of net assets in exchange for stock in connection with the January 28, 1994 restructuring. -15- Superior Communications Group, Inc. Notes to Consolidated Financial Statements (continued) 12. Supplemental Cash Flow Disclosures (continued) Additionally, cash paid for interest and income taxes was as follows: 1995 1994 --------------------------------- Interest $1,523,785 $1,262,553 ================================= Income taxes $ 16,448 $ 50,000 ================================= -16- PARAMOUNT STATIONS GROUP OF KERVILLE, INC. FINANCIAL STATEMENTS AS OF AUGUST 3, 1995 AND FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 3, 1995 AND AS OF DECEMBER 31, 1994 TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Sinclair Broadcast Group, Inc. and Subsidiaries: We have audited the accompanying balance sheets of Paramount Stations Group of Kerville, Inc. (a Virginia corporation) as of August 3, 1995 and December 31, 1994, and the related statements of operations, stockholders' equity and cash flows for the period from January 1, 1995 through August 3, 1995, and the year ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Paramount Stations Group of Kerville, Inc. as of August 3, 1995 and December 31, 1994, and the results of its operations and its cash flows for the period from January 1, 1995 through August 3, 1995, and the year ended December 31, 1994, in conformity with generally accepted accounting principles. Arthur Andersen LLP Baltimore, Maryland, April 26, 1996 PARAMOUNT STATIONS GROUP OF KERVILLE, INC. ------------------------------------------ BALANCE SHEETS -------------- AS OF AUGUST 3, 1995 AND DECEMBER 31, 1994 ------------------------------------------
August 3, December 31, 1995 1994 ------------- -------------- ASSETS ------ CURRENT ASSETS: Cash $ 1,122 $ 400 Accounts receivable, net of allowance for doubtful accounts of $190,610 and $148,755, respectively 2,543,148 2,961,824 Current portion of program contract costs 1,144,236 1,130,513 Deferred barter costs - 41,274 Other current assets 340,302 123,132 -------------- -------------- Total current assets 4,028,808 4,257,143 -------------- -------------- Property and equipment, net 825,967 986,880 Program contract costs, noncurrent portion 504,701 1,430,927 Due from affiliate 4,795,220 2,567,935 Goodwill, net 15,305,080 15,558,387 Other assets - 5,092 -------------- -------------- Total Assets $ 25,459,776 $ 24,806,364 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 1,869 $ 189,547 Accrued liabilities 48,308 385,512 Current portion of program contracts payable 1,202,739 1,961,803 Deferred barter revenues - 13,674 -------------- -------------- Total current liabilities 1,252,916 2,550,536 LONG-TERM LIABILITIES: Program contracts payable, noncurrent portion 932,591 1,576,134 -------------- -------------- Total Liabilities 2,185,507 4,126,670 -------------- -------------- STOCKHOLDERS' EQUITY: Common stock, Class A, $1 par value; 1,000 shares authorized, 800 shares issued and outstanding 800 800 Common stock, Class B, $1 par value; 8,800 shares authorized; 7,040 issued and outstanding 7,040 7,040 Additional paid-in capital 16,954,952 15,879,113 Retained earnings 6,311,477 4,792,741 -------------- -------------- Total Stockholders' Equity 23,274,269 20,679,694 -------------- -------------- Total Liabilities and Stockholders' Equity $ 25,459,776 $ 24,806,364 ============ ============
The accompanying notes are an integral part of these balance sheets. PARAMOUNT STATIONS GROUP OF KERVILLE, INC. ------------------------------------------ STATEMENTS OF OPERATIONS ------------------------ FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 3, 1995 ---------------------------------------------------------- AND THE YEAR ENDED DECEMBER 31, 1994 ------------------------------------
August 3, December 31, 1995 1994 -------------- -------------- REVENUES: Advertising revenues, net of agency commissions of $1,159,012 and $1,950,484, respectively $ 6,665,863 $ 11,499,302 Revenues realized from station barter arrangements 900,743 1,300,904 -------------- -------------- Total revenue 7,566,606 12,800,206 -------------- -------------- OPERATING EXPENSES: Programming 288,704 427,316 Selling 1,459,894 2,700,025 Administration 497,671 1,003,846 Promotion 247,686 468,837 Engineering 296,677 571,813 Amortization of program contract rights 921,053 1,912,677 Depreciation of property and equipment 194,337 379,232 Amortization of intangible assets 253,307 426,495 Barter expense 875,950 1,255,799 -------------- -------------- Total operating expenses 5,035,279 9,146,040 -------------- -------------- Broadcast operating income 2,531,327 3,654,166 OTHER INCOME 63,248 2,884 -------------- -------------- Income before taxes 2,594,575 3,657,050 INCOME TAX PROVISION 1,075,839 1,541,215 -------------- -------------- Net income $ 1,518,736 $ 2,115,835 ============ ============
The accompanying notes are an integral part of these statements.
PARAMOUNT STATIONS GROUP OF KERVILLE, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 3, 1995 AND THE YEAR ENDED DECEMBER 31, 1994 Common Stock Common Stock Class A Class B Additional Total ------------------- ----------------- Paid-In Retained Stockholders' Shares Value Shares Value Capital Earnings Equity ------- ---------- ------- ------- -------------- ------------- ------------- BALANCE, December 31, 1993 800 $ 800 7,040 $ 7,040 $ 14,337,898 $ 2,676,906 $ 17,022,644 Forgiveness of income taxes by Parent - - - - 1,541,215 - 1,541,215 Net income - - - - - 2,115,835 2,115,835 ------ --------- ------ ------- ----------- ------------ ------------- BALANCE, December 31, 1994 800 800 7,040 7,040 15,879,113 4,792,741 20,679,694 Forgiveness of income taxes by Parent - - - - 1,075,839 - 1,075,839 Net income - - - - - 1,518,736 1,518,736 ------ --------- ------ ------- ------------ ------------ ------------- BALANCE, August 3, 1995 800 $ 800 7,040 $ 7,040 $ 16,954,952 $ 6,311,477 $ 23,274,269 ====== ========= ====== ======= ============ ============ =============
The accompanying notes are an integral part of these statements. PARAMOUNT STATIONS GROUP OF KERVILLE, INC. ------------------------------------------ STATEMENTS OF CASH FLOWS ------------------------ FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 3, 1995 ---------------------------------------------------------- AND THE YEAR ENDED DECEMBER 31, 1994 ------------------------------------
August 3, December 31, 1995 1994 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,518,736 $ 2,115,835 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of program contract rights 921,053 1,912,677 Depreciation of property and equipment 194,337 379,232 Amortization of goodwill 253,307 426,495 Forgiveness of income tax expense by Parent 1,075,839 1,541,215 Changes in assets and liabilities: Increase in due from affiliate (2,227,285) (2,567,935) Decrease (increase) in accounts receivable 418,676 (567,548) Decrease in deferred charges 41,274 32,141 (Increase) decrease in other current assets (217,170) 62,407 Decrease in other assets 5,092 - (Decrease) increase in accounts payable (187,678) 119,639 Decrease in due to related parties - (1,553,444) (Decrease) increase in accrued liabilities (337,204) 177,183 Decrease in deferred barter revenue (13,674) (50,660) Film rights payments (1,411,157) (1,975,061) -------------- -------------- Net cash provided by operating activities 34,146 52,176 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (33,424) (52,176) -------------- -------------- Net increase in cash 722 - CASH, beginning of year 400 400 -------------- -------------- CASH, end of year $ 1,122 $ 400 ============ ============ SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Film contracts acquired $ 8,550 $ 981,351 ============ ============ Film contract liability additions $ 8,550 $ 981,351 ============ ============
The accompanying notes are an integral part of these statements. PARAMOUNT STATIONS GROUP OF KERVILLE, INC. ------------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- AUGUST 3, 1995 AND DECEMBER 31, 1994 ------------------------------------ 1. ORGANIZATION: ------------ Paramount Stations Group of Kerville, Inc. (the Company) is a wholly-owned subsidiary of Paramount Stations Group Holding Company, Inc. (the Parent). The Company was organized under the laws of Virginia on August 21, 1984. The Company is a television broadcaster serving the San Antonio, Texas area through station KRRT on Channel 35. The Company was affiliated with UPN and FOX during 1995 and 1994, respectively. During 1994, the Company entered into an agreement to sell substantially all of its assets to KRRT, Inc. This sale was consummated on August 4, 1995. Accordingly, the accompanying financial statements for 1995 are presented as of August 3, 1995 (Note 9). 2. SUMMARY OF ACCOUNTING POLICIES: ------------------------------ Cash - - ---- All cash from customers is deposited directly into a lock box held by the Company's Parent (Note 4). Revenue Recognition - - ------------------- Revenue from the sale of air time to advertisers is recognized when the advertisement is broadcast. Program Contract Costs - - ---------------------- The Company has entered into agreements with program distributors granting it the right to broadcast programs over contract periods which generally run from three to seven years. Program contract costs are stated at the lower of amortized cost or estimated net realizable value. Broadcast contract costs and the related liabilities are recorded at the contract value when the license period begins and the program is available for use. Program contract costs are amortized using the greater of the straight-line by months over the contract term or straight-line over the number of showings on an aggregate basis. Program contract costs expected to be used in the succeeding year and program contract rights due within one year are classified as current assets and current liabilities, respectively. Property and Equipment - - ---------------------- Property and equipment are recorded at cost and depreciated over the estimated useful lives of the assets on a straight-line basis. Major renewals and betterments are capitalized and ordinary repairs and maintenance are charged to expense in the period incurred. -2- Goodwill - - -------- In a series of transactions completed in 1991, the Company's Parent purchased all of the outstanding stock of TVX, Inc., who owned and operated several television stations, including the Company. Goodwill was allocated to each of the stations based on specific identification and allocation of unidentified goodwill based on cash flow multiples used to calculate the purchase price of each station. Management monitors the financial performance of the station and continually evaluates the realizability of goodwill and the existence of any impairment to its recoverability. Goodwill in the amount of $17,370,000 was allocated to the Company and is being amortized over 40 years using the straight-line method. At August 3, 1995 and December 31, 1994, accumulated amortization of goodwill aggregated $2,064,920 and $1,811,613, respectively. Barter Transactions - - ------------------- Certain program contract rights provide for the exchange of advertising air time in lieu of cash payments for the programming. As the program is aired, equal amounts of revenue and program amortization expense are recorded, at estimated fair market value, in results of operations. In addition, the Company provides advertising air time to certain customers in exchange for merchandise or services. The estimated fair value of the merchandise or services to be received is recorded as an asset, and the corresponding obligation to broadcast advertising is recorded as deferred revenue. Services and other assets are charged to expense as they are used or consumed. Deferred revenue is recognized in operations as the related advertising is broadcast. 3. INCOME TAXES: ------------- In February 1992, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The Company adopted the new accounting and disclosure rules effective December 31, 1994. The provision for income taxes consists of the following: August 3, December 31, 1995 1994 -------------- -------------- Federal $ 920,164 $ 1,318,150 State 155,675 223,065 -------------- -------------- $ 1,075,839 $ 1,541,215 ============= ============= -3- The following is a reconciliation of the statutory federal income taxes to the recorded provision: August 3, December 31, 1995 1994 ------------ ------------- Statutory federal income taxes $ 882,156 $ 1,243,397 Adjustments: State tax, net of federal effect 102,745 147,223 Goodwill amortization 86,125 145,008 Others 4,813 5,587 ------------- ------------- Provision for income taxes $ 1,075,839 $ 1,541,215 ============ ============ The Company's Parent files a consolidated federal tax return, and separate state tax returns for each of its subsidiaries. It is the Parent's policy not to allocate income tax expense to its subsidiaries. The accompanying financial statements have been prepared in accordance with the separate return method of FASB 109, whereby the allocation of tax expense is based on what the subsidiary's current and deferred tax expense would have been had the subsidiary filed a federal income tax return outside its consolidated group. The difference between the computed tax expense and the amounts paid to the Parent for taxes is recorded as additional paid-in-capital. Under this method, the Company has no deferred tax assets or liabilities because those amounts are considered paid to or received from the Parent. The Company had no alternative minimum tax credit carryforwards as of August 3, 1995. The temporary differences between book basis and tax basis generated by the Company and recorded on the Parent's financial statements are as follows:
August 3, December 31, 1995 1994 -------------- -------------- Program contract net realizable value adjustments $ 159,819 $ 12,428 Depreciation and amortization (33,318) 5,550 Bad debt reserves 16,362 24,047 -------------- -------------- $ 142,863 $ 42,025 ============= =============
4. RELATED PARTY TRANSACTIONS: -------------------------- The Parent pays the income taxes of the Company. It is the Parent's policy not to charge this expense to its subsidiaries. Therefore, the provision for income tax expense is recorded as additional paid-in capital in the accompanying balance sheets. The Parent also provides and receives short-term cash advances to and from the Company through a central cash management system. No interest is charged or received for these advances. -4- 5. PROPERTY AND EQUIPMENT: ---------------------- Property and equipment consists of the following:
Estimated Useful Life August 3, December 31, (Years) 1995 1994 ------------- ---------------- ---------- Studio equipment 5 $ 2,931,607 $ 2,898,183 Leasehold improvements 4-11 358,472 358,472 Furniture and fixtures 5 59,671 59,671 Autos and trucks 5 32,700 32,700 -------------- -------------- 3,382,450 3,349,026 Less- Accumulated depreciation 2,556,483 2,362,146 -------------- -------------- $ 825,967 $ 986,880
6. PROGRAM CONTRACTS: ----------------- The Company purchases the right to broadcast programs through fixed term license agreements. Broadcast rights consist of the following as of August 3, 1995 and December 31, 1994: August 3, December 31, 1995 1994 -------------- -------------- Aggregate cost $ 16,469,625 $ 16,461,076 Less- Accumulated amortization 14,820,688 13,899,636 -------------- -------------- 1,648,937 2,561,440 Less- Current portion 1,144,236 1,130,513 -------------- -------------- $ 504,701 $ 1,430,927 ============= ============= Contractual obligations incurred in connection with the acquisition of broadcast rights are $2,135,330 as of August 3, 1995. Future payments, by year, for program contract rights payable as of August 3, 1995, are as follows: 1995 $ 580,830 1996 941,200 1997 459,900 1998 97,300 1999 30,500 Thereafter 25,600 ------------- $ 2,135,330 ============= The fair value of program contracts payable is the present value of the future obligations based on the current rates available to the Company for debt of similar maturity. The carrying amount and the fair value of program contracts payable at August 3, 1995, were $2,135,300 and $1,521,665, respectively. -5- 7. RETIREMENT SAVINGS PLAN: ----------------------- The Company participates in the Parent company's retirement savings plan under Section 401(k) of the Internal Revenue Code. This plan covers substantially all employees of the Company who meet minimum age or service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Contributions from the Company are made on a monthly basis in an amount equal to 50% of the participating employee contributions, to the extent such contributions do not exceed 6% of the employees' eligible compensation during the month. 8. COMMITMENTS AND CONTINGENCIES: ----------------------------- Broadcast rights acquired under license agreements are recorded as an asset and a corresponding liability at the inception of the license period. In addition to these rights payable at August 3, 1995, the Company had $1,060,900 of commitments to acquire broadcast rights for which the license period has not commenced and, accordingly, for which no liability has been recorded. Future payments arising from such commitments outstanding at August 3, 1995, are as follows: 1995 $ 29,400 1996 140,600 1997 214,200 1998 319,500 1999 273,200 Thereafter 84,000 ------------- $ 1,060,900 ============= The Company has entered into operating leases for building space and equipment. Rental expense was $76,700 and $129,268 for the period from January 1, 1995 through August 3, 1995 and year ended December 31, 1994, respectively. As of August 3, 1995, future minimum lease payments under these operating leases were as follows: 1995 $ 43,569 1996 79,996 1997 9,000 1998 9,000 1999 9,000 Thereafter 491,250 ------------- $ 641,815 ============= The Company has also entered into several contracts for data processing equipment and service. Rental expense was $36,425 and $61,341 for the period from January 1, 1995 through August 3, 1995 and the year ended December 31, 1994, respectively. As of August 3, 1995, future minimum payments under these contracts are as follows: 1995 $ 25,565 1996 61,248 1997 59,858 ------------- $ 146,671 ============= -6- 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 Companies' financial position, results of operations or cash flows. 9. SALES AGREEMENT: ---------------- During 1994, the Company entered into an agreement with KRRT, Inc., to sell virtually all tangible and intangible assets of the Company for $30,000,000. This sale was completed on August 4, 1995. -7- KRRT, INC. FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND FOR THE PERIOD FROM JULY 25, 1995 THROUGH DECEMBER 31, 1995 TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Sinclair Broadcast Group, Inc. and Subsidiaries: We have audited the accompanying balance sheet of KRRT, Inc. (a Texas corporation) as of December 31, 1995, and the related statements of operations, stockholders' equity and cash flows for the period from July 25, 1995 through December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 KRRT, Inc. as of December 31, 1995, and the results of its operations and its cash flows for the period from July 25, 1995 through December 31, 1995, in conformity with generally accepted accounting principles. Arthur Andersen LLP Baltimore, Maryland, May 7, 1995 KRRT, INC. ---------- BALANCE SHEET ------------- AS OF DECEMBER 31, 1995 ----------------------- ASSETS ------ CURRENT ASSETS: Cash $ 8,459 Short-term investments 500,000 Current portion of program contracts 1,451,959 Other receivable 61,666 ------------ Total current assets 2,022,084 Property and equipment, net 5,367,799 Noncurrent portion of program contracts 869,006 FCC license, net of accumulated amortization of $397,075 23,427,401 Goodwill, net of accumulated amortization of $6,095 579,067 Other assets, net 648,359 ------------ Total assets $ 32,913,716 ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Bank overdraft $ 7,108 Accrued liabilities 2,833 LMA advance 132,990 Current portion of program contracts payable 1,451,959 Current portion of long-term debt 2,000,000 Accrued interest expense 152,578 ------------ Total current liabilities 3,747,468 LONG-TERM LIABILITIES: Noncurrent portion of program contracts 869,006 Note payable 500,000 Long-term debt, net of current portion 19,000,000 ------------ Total liabilities 24,116,474 ------------ STOCKHOLDERS' EQUITY: Common stock, no par value; 1,000 shares authorized, issued and outstanding - Additional paid-in capital 10,001,000 Accumulated deficit (1,203,758) ------------ Total stockholders' equity 8,797,242 ------------ Total liabilities and stockholders' equity $ 32,913,716 ============ The accompanying notes are an integral part of this balance sheet. KRRT, INC. ---------- STATEMENT OF OPERATIONS ----------------------- FOR THE PERIOD FROM JULY 25, 1995 THROUGH DECEMBER 31, 1995 ----------------------------------------------------------- REVENUES $ 1,437,039 -------------- OPERATING EXPENSES: Management fees 277,775 Rating services 193,100 Legal and professional fees 159,126 Depreciation expense 328,125 Amortization expense 492,811 Film amortization expenses 69,674 Miscellaneous expenses 251,748 -------------- Total operating expenses 1,772,359 -------------- Operating loss (335,320) OTHER INCOME (EXPENSE): Interest income 11,556 Interest expense (879,994) -------------- Net loss before benefit for income taxes (1,203,758) BENEFIT FOR INCOME TAXES - -------------- Net loss $ (1,203,758) ============== The accompanying notes are an integral part of this statement.
KRRT, INC. ---------- STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY -------------------------------------------- FOR THE PERIOD FROM JULY 25, 1995 THROUGH DECEMBER 31, 1995 ----------------------------------------------------------- Common Stock Additional Total ------------------------------------- Paid-In Accumulated Stockholders' Shares Value Capital Deficit Equity ------ ----- ------- ------- ------ BALANCE, July 25, 1995 - $ - $ - $ - $ - Capital contributions 1,000 - 10,001,000 - 10,001,000 Net loss - - - (1,203,758) (1,203,758) -------------- -------------- -------------- -------------- -------------- BALANCE, December 31, 1995 1,000 $ - $ 10,001,000 $ (1,203,758) $ 8,797,242 ============== ============ ============ ============ ============
The accompanying notes are an integral part of this statement. KRRT, INC. ---------- STATEMENT OF CASH FLOWS ----------------------- FOR THE PERIOD FROM JULY 25, 1995 THROUGH DECEMBER 31, 1995 ----------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,203,758) Adjustments to reconcile net income to net cash used in operating activities: Depreciation expense 328,125 Amortization expense 492,811 Film amortization expense 69,674 Changes in assets and liabilities: Increase in short-term investments (500,000) Increase in other receivables (61,666) Increase in bank overdraft 7,108 Increase in accrued liabilities 2,833 Increase in LMA advance 132,990 Increase in accrued interest expense 152,578 Program payments (69,674) ------------ Net cash used in operating activities (648,979) ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Assets acquired, net of debt financing of $21,000,000 (9,843,562) ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from note payable 500,000 Contributed capital 10,001,000 ------------ Net cash flows provided by financing activities 10,501,000 ------------ Net increase in cash 8,459 CASH, beginning of period - ------------ CASH, end of period $ 8,459 ============ SUPPLEMENTAL CASHFLOW DISCLOSURE: Cash paid for interest $ 727,416 ============ The accompanying notes are an integral part of this statement. KRRT, INC. ---------- NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 1995 ----------------- 1. ORGANIZATION KRRT, Inc., a Texas corporation (the Company) was organized and incorporated on July 25, 1995 and on August 4, 1995, purchased the license and non-license assets of Paramount Stations Group of Kerville, Inc., the owner and operator of television KRRT-TV, San Antonio, Texas. The Company is a wholly-owned subsidiary of JJK Broadcasting, Inc. (the "Parent"). The Company simultaneously entered into a local marketing agreement (LMA) with River City Broadcasting LP (River City) (Note 2). The Company is a television broadcaster serving the San Antonio area through station KRRT on Channel 35, a UPN affiliate. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition - - ------------------- The Company's primary source of revenue is monthly fees received in accordance with the LMA with River City. Under the terms of this agreement, the Company receives monthly fees and is reimbursed for all operating expenses, scheduled principal and interest payments on the long-term debt discussed in Note 8 and scheduled program rights payments in exchange for the right to provide programming and general advertising receivables. Revenue is recorded as payments are scheduled to be received. Short-Term Investments - - ---------------------- Short-term investments represent repurchase agreements which mature within three months. This investment is stated at cost plus accrued income which approximates market value. Property and Equipment - - ---------------------- Property and equipment are stated at cost. The Company depreciates and amortizes property and equipment over the estimated useful lives of the assets, generally using the straight-line method over six to forty years. Intangible Assets - - ----------------- Intangible assets include value attributable to licenses issued by the Federal Communications Commission (FCC) and goodwill representing the excess of the cost over the fair market value of the assets purchased and the liabilities assumed. These assets are amortized using the straight-line method over twenty-five years and forty years, respectively. The Company monitors the financial performance and continually evaluates the realizability of goodwill and the existence of any impairment to its recoverability based on the projected future cash flows. -2- Program Contract Rights - - ----------------------- The station has entered into agreements with program distributors granting it the right to broadcast programs over contract periods which generally run from one to seven years. An asset and liability are booked equal to the liability assumed on the purchase date. The asset is recorded at its net realizable value based on expected future revenues. Accordingly, given that the Company's future revenues are based on program payments (Note 2), amortization is recorded in amounts equal to program payments as they are scheduled to be made. Use of Estimates - - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue, expenses, gains and losses during the reporting periods. Actual results could differ from these estimates. 3. PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31, 1995: Studio equipment $ 2,416,651 Transmitting equipment 1,423,283 Office equipment 139,337 Furniture and fixtures 162,894 Vehicles 31,482 Buildings 111,574 Leasehold improvements 64,534 Towers 1,204,827 Tools and test equipment 69,828 Spare parts 71,514 -------------- 5,695,924 Less: Accumulated depreciation and amortization (328,125) --------------- Property and equipment, net $ 5,367,799 =============== 4. ACQUISITION In August 1995, the Company acquired substantially all of the assets of Paramount Stations Group of Kerville, Inc. for $30 million. This acquisition was accounted for as a purchase under Accounting Principles Board Opinion 16, whereby the purchase price was allocated to property, FCC license and goodwill for $5.7 million, $23.8 million and $.5 million, respectively, based upon an independent appraisal. -3- 5. OTHER ASSETS Other assets consist of the following at December 31, 1995: Amortization Period ------ Loan origination fee 5 years $ 420,000 Organization costs 5 years 318,000 -------------- 738,000 Less: accumulated amortization (89,641) -------------- Other assets, net $ 648,359 ============== 6. COMMITMENTS AND CONTINGENCIES The Company has entered into operating leases for building space and equipment. Rental expense was $76,913 for the period from July 25, 1995 through December 31, 1995. As of December 31, 1995, future minimum lease payments under these operating leases were as follows: 1996 $ 133,864 1997 61,478 1998 45,000 1999 45,000 2000 45,000 Thereafter 482,250 -------------- $ 812,592 ============== The Company has also entered into several contracts for data processing equipment and service. Rental expense was $240,030 for the period from July 25, 1995 through December 31, 1995. As of December 31, 1995, future minimum payments under these contracts are as follows: 1996 $ 592,443 1997 581,929 -------------- $ 1,174,372 ============= 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 net cash flows. 7. INCOME TAXES In February 1992, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." -4- The following is a reconciliation of the statutory federal income taxes to the recorded provision: December 31, 1995 ------------- Statutory federal income taxes $ (409,278) Adjustments: State income taxes, net of federal effect (40,706) Valuation allowance 449,984 ------------- (Benefit) for income taxes $ - ============= Temporary differences between the financial reporting carrying amounts and tax basis of assets and liabilities give rise to deferred taxes. The principal sources of temporary differences and their effects on the provision for deferred income taxes are as follows: December 31, 1995 ------------- Depreciation and amortization $ 126,154 Valuation allowance (126,154) -------------- Deferred income tax provision $ - ============= Total deferred tax assets and deferred tax liabilities as of December 31, 1995, and the sources of the difference between financial accounting and tax bases of the Company's assets and liabilities which give rise to the deferred tax assets and deferred tax liabilities and the tax effects of each are as follows: December 31, 1995 ------------- Deferred tax assets: Depreciation and amortization $ 126,154 Valuation allowance (126,154) -------------- $ - ============= During the year ended December 31, 1995, the Company recorded a full valuation allowance on the deferred tax assets to reduce the total to an amount that management believes will ultimately be realized. Realization of deferred tax assets is dependent upon sufficient future total income during the period that temporary differences and carryforwards are expected to be available to reduce taxable income. 8. LONG-TERM DEBT In connection with the acquisition of the Station, KRRT, Inc. entered into a Bank Credit Agreement with a principal of $21,000,000 and interest at LIBOR plus 2.5%. Payments are scheduled to begin -5- on January 31, 1996. The debt is secured by all the assets of KRRT, Inc., including their rights under the LMA agreement and the assets of their Parent. Annual maturities of long-term debt as of December 31, 1995, are as follows: 1996 $ 2,000,000 1997 4,000,000 1998 5,000,000 1999 5,800,000 2000 4,200,000 ------------- $ 21,000,000 ============= The carrying amount the Company's long-term debt approximates Fair value. The Fair value was determined by reference to quoted values obtained from the lender. 9. RELATED PARTY TRANSACTIONS The Company's Parent receives a management fee equal to the portion of the LMA fees designated as management fees for management services provided. During the period from July 25, 1995 through December 31, 1995, the Company paid $277,775 to their Parent. During 1995, the Parent contributed $10,001,000 to the Company to partially finance the acquisition of the Station from Paramount Stations Group of Kerville, Inc. (Note 4). In connection with the financing of the acquisition, the Parent contributed $500,000 to satisfy a covenant with the Bank of Montreal. This $500,000 is recorded as a long-term note payable. 10. PROGRAM CONTRACTS The Company purchases the right to broadcast programs through fixed term license agreements. Broadcast rights consist of the following as of December 31, 1995: December 31, 1995 ------------- Aggregate cost $ 2,390,639 Less- Accumulated amortization 69,674 ------------- 2,320,965 Less- Current portion 1,451,959 ------------- $ 869,006 ============= -6- Contractual obligations incurred in connection with the acquisition of broadcast rights are $2,320,965 as of December 31, 1995, respectively. Future payments, by year, for program contract rights payable as of December 31, 1995, are as follows: 1996 $ 1,521,663 1997 525,399 1998 162,764 1999 77,007 Thereafter 34,132 ------------- $ 2,320,965 ============= The Fair value of film contracts payable is the present value of the future obligations based on the current rates available to the Company for debt of similar maturity. The carrying amount and fair value of program rights, payable at December 31, 1995, were 2,320,965 and 1,653,975 respectively. 11. SUBSEQUENT EVENT In April 1996, Sinclair Broadcast Group, Inc. (SBG) entered into an asset purchase agreement with the Company whereby the Company has agreed to sell the non-license assets for approximately $29.6 million. The Company estimates the transaction will be consummated in May 1996. -7- Kansas City TV 62 Limited Partnership Financial Statements December 31, 1995 Report of Independent Accountants March 22, 1996 To the Partners of Kansas City TV 62 Limited Partnership In our opinion, the accompanying balance sheet and the related statements of operations, of changes in partners' capital and of cash flows present fairly, in all material respects, the financial position of Kansas City TV 62 Limited Partnership at December 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Kansas City TV 62 Limited Partnership Balance Sheet - - --------------------------------------------------------------------------------
December 31, 1995 1994 (in thousands) Assets Current assets: Cash and cash equivalents $ 590 $ 978 Accounts receivable, less allowance for doubtful accounts of $236 and $122 in 1995 and in 1994 3,953 3,052 Broadcast rights 3,380 2,864 Prepaid expenses 21 16 ----- ----- Total current assets 7,944 6,910 Property and equipment - net 734 1,305 Broadcast rights 3,286 3,305 Goodwill and other intangible assets 3,817 4,027 ----- ----- $ 15,781 $ 15,547 ====== ====== Liabilities and Partners' Capital Current liabilities: Current portion of long-term debt $ 6,998 $ 338 Subordinated note payable to Seller 7,816 - Accounts payable and accrued expenses 1,578 1,714 Interest payable 733 1,943 Due to related parties - 40 Broadcast rights payable 4,020 3,837 ----- ----- Total current liabilities 21,145 7,872 Broadcast rights payable 3,107 3,569 Long-term debt - 9,273 Subordinated note payable to Seller 921 7,730 Partners' capital (9,392) (12,897) Commitments and contingencies (Note 8) ------ ------ $ 15,781 $ 15,547 ======== ========
The accompanying notes are an integral part of these financial statements. Kansas City TV 62 Limited Partnership Statement of Operations - - ------------------------------------------------------------------------------- Year ended December 31, 1995 1994 (in thousands) Revenues - net of agency and national representative commissions $ 17,484 $ 14,052 Costs and expenses: Programming, production and engineering 3,347 4,533 Amortization of broadcast rights 4,007 4,581 Sales, promotion and marketing 2,476 2,716 General and administrative 1,898 1,834 Depreciation and amortization 842 805 Interest expense, net 2,039 1,983 Other income (630) - ------------ ------------ Net income (loss) $ 3,505 $ (2,400) =========== =========== The accompanying notes are an integral part of these financial statements. Kansas City TV 62 Limited Partnership Statement of Cash Flows Increase (Decrease) in Cash and Cash Equivalents - - --------------------------------------------------------------------------------
Year ended December 31, 1995 1994 (in thousands) Cash flows from operating activities: Net income (loss) $ 3,505 $ (2,400) Adjustments to reconcile net income (loss) to net cash provided (used) for operating activities: Depreciation 632 595 Amortization of goodwill and other intangible assets 210 210 Amortization of broadcast rights, net of barter 1,206 2,122 Accretion of subordinated debt principal 210 197 Gain on forgiveness of debt (398) - Increase in accounts receivable (901) (655) Increase in prepaid expenses (5) (6) Decrease in accounts payable and accrued expenses 262 (396) (Decrease) increase in interest payable (413) 1,806 Decrease in due to related parties (40) (236) Decrease in broadcast rights payable, net of barter (1,982) (1,745) ------------ ------------ Net cash provided (used) for operating activities 2,286 (508) ------------ ------------ Cash flows from investing activities: Additions to property and equipment (61) (35) ------------ ------------ Cash flows from financing activities: Repayment of long-term debt (2,613) - Partner's contribution of capital - 1,400 ------------ ----------- Net cash (used) provided by financing activities (2,613) 1,400 ------------ ---------- Net (decrease) increase in cash (388) 857 Cash and cash equivalents at beginning of year 978 121 ------------ ---------- Cash and cash equivalents at end of year $ 590 $ 978 ============ =========== Supplemental schedule of noncash activities: Film contracts acquired $ 4,055 $ 2,834 =========== =========== Film contract liability additions $ 4,055 $ 2,834 =========== =========== Capitalized subordinated debt interest $ 797 $ 884 =========== ===========
The accompanying notes are an integral part of these financial statements. Kansas City TV 62 Limited Partnership Statement of Changes in Partners' Capital For the Years Ended December 31, 1995 and 1994 - - -------------------------------------------------------------------------------
General Limited Partner Partner Total (in thousands) Balance at December 31, 1993 $ (11,897) - $ (11,897) Capital contribution 1,400 - 1,400 Net loss for the year ended December 31, 1994 (2,400) - (2,400) ---------- --------- ---------- Balance at December 31, 1994 $ (12,897) $ - $ (12,897) Net income for the year ended December 31, 1995 3,505 - 3,505 ------------- --------- --------- Balance at December 31, 1995 $ (9,392) $ - $ (9,392) ========= ========= ==========
The accompanying notes are an integral part of these financial statements. Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) - - ------------------------------------------------------------------------------- 1. Organization Kansas City TV 62 Limited Partnership (the "Partnership") is a joint venture of ABRY Communications III, L.P., the general partner, and Copley Place Capital Group, the limited partner. The Partnership was organized under the laws of the State of Delaware on April 18, 1990. On September 21, 1990 the Partnership acquired the business and certain assets of Kansas City Television, Inc. (the "Seller"). The Partnership is a television broadcaster serving the Kansas City area through station KSMO on UHF Channel 62. 2. Summary of Significant Accounting Policies Allocation of Partnership Results to Partners' Capital Accounts Net losses of the Partnership are allocated among the capital accounts of the partners based on their relative partnership interests until the limited partner's capital has been exhausted. Thereafter, net losses are allocated solely to the general partner. Net income is allocated in proportion to previously allocated net losses in reverse chronological order. Thereafter, net income is allocated to partners based on their relative partnership interests, as defined in the agreement. Broadcast Rights Broadcast rights are stated at the lower of unamortized cost or estimated net realizable value. Broadcast rights and the related liabilities are recorded at the contract value when the license period begins and the right is available for use. Broadcast rights are amortized using the straight-line method over the number of showings or license period. The net realizable value of broadcast rights for which the Partnership is contractually committed is reviewed annually and revisions to amortization rates or write-downs to net realizable value may occur. The current portion of broadcast rights represents those rights available for broadcast which will be amortized in the succeeding year. Property and Equipment Property and equipment are recorded at cost and depreciated over the estimated useful lives of the assets on a straight-line basis. Major renewals and betterments are capitalized and ordinary repairs and maintenance are charged to expense in the period incurred. Goodwill and Other Intangible Assets Goodwill aggregating $4,144 is amortized over 40 years using the straight-line method. Legal and accounting fees associated with the acquisition of loans, aggregating $555 and organization of the Partnership, aggregating $59 are capitalized and amortized over the term of the related debt and five years, respectively. Other intangible assets, aggregating $119 are amortized over their estimated useful life. At December 31, 1995 and 1994, accumulated amortization aggregated $1,060 and $850, respectively. Barter Transactions Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) - - ------------------------------------------------------------------------------- Revenue from barter transactions is recognized when advertisements are broadcast and services or merchandise received are charged to expense when received or used. Revenues arising from barter and trade transactions aggregated $2,907 and $2,654 in 1995 and 1994, respectively. Income Taxes The financial statements of the Partnership do not include any provision for federal or state income taxes. All Partnership income, losses, tax credits and deductions are allocated among the partners. Each partner is responsible to report its distributed share of Partnership results in its federal and state income tax returns. Cash and Cash Equivalents The Partnership considers all highly liquid investment instruments purchased with a maturity of three months or less to be cash equivalents. The Partnership invests its cash in money market funds and in short-term government securities that are subject to minimal market and credit risk. At December 31, 1995, the Partnership's cash equivalents include $544 of money market funds. Effective January 1, 1994, the Partnership adopted Statement of Financial Accounting Standards No. 115 (FAS 115), "Accounting for Certain Investments in Debt and Equity Securities". Under this standard, the Partnership is required to classify its investments in debt and equity securities into one or more of the following categories: held-to-maturity, trading or available for sale. Adoption of this standard had no impact on the Partnership's financial position or results of operations at the date of adoption. Concentration of Credit Risk Financial instruments which potentially expose the Partnership to a concentration of credit risk include cash, cash equivalents and accounts receivable. A significant amount of the Partnership's cash and cash equivalents are held by one financial institution at December 31, 1995. The Partnership does not believe that such deposits are subject to any unusual credit risk beyond the normal credit risk associated with operating its business. The Partnership maintains reserves for potential credit losses and such losses, in the aggregate, have not historically exceeded management's expectations. Risks and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. Related Party Transactions 2 Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) - - ------------------------------------------------------------------------------- Prior to 1995, ABRY Communications III, L.P., provided certain administrative and support services to the Partnership for which it was paid a management fee. Management fees charged to operations aggregated $276 in 1994. No management fees were charged during 1995. 3 Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) - - -------------------------------------------------------------------------------- 4. Property and Equipment Property and equipment consists of the following:
Estimated useful life December 31, (years) 1995 1994 Studio equipment 2-7 $ 1,855 $ 1,824 Transmission equipment 7-8 1,206 1,184 Vehicles, office equipment and furniture 5-7 396 388 Leasehold improvements 8 297 297 ------------ ------------ 3,754 3,693 Less - accumulated depreciation and amortization 3,020 2,388 ------------ ------------ $ 734 $ 1,305 ============ ============ 5. Broadcast Rights The Partnership purchases the right to broadcast programs through fixed term license agreements. Broadcast rights consist of the following: December 31, 1995 1994 Aggregate cost $ 16,564 $14,350 Less - accumulated amortization 9,898 8,181 ------------ ----------- 6,666 6,169 Less - current portion 3,380 2,864 ------------ ----------- $ 3,286 $ 3,305 ============ ===========
4 Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) - - -------------------------------------------------------------------------------- Contractual obligations incurred in connection with the acquisition of broadcast rights are $7,127 including $3,742 of barter obligations. Future payments in connection with these contractual obligations are as follows at December 31, 1995: 1996 $ 4,058 1997 1,776 1998 1,064 1999 169 2000 23 Thereafter 37 ------------ $ 7,127 ========== The Partnership has estimated the fair value of these contractual obligations at approximately $6,800 and $6,776 at December 31, 1995 and 1994, respectively, based on future cash flows discounted at the Partnership's current borrowing rate. 6. Debt Debt consists of the following: December 31, 1995 1994 Term loan $ 1,455 $ 2,133 Revolving credit facility 5,543 7,478 ---------- -------- 6,998 9,611 Less - current portion 6,998 338 --------- -------- $ - $ 9,273 ========= ======== The term loan and revolving credit facility (the "revolver") bear interest, payable monthly, at the base rate, computed by taking the higher of the Federal Funds rate plus 1% or prime, plus a computed margin rate which ranges from 1.75% to 2.25%. The Partnership is charged a fee for the average daily unused portion of the revolver commitment at a rate of 1/2% per annum, payable quarterly. The borrowings are secured by substantially all of the Partnership's assets. The credit agreement was amended on April 21, 1995. Under the terms of the amended credit agreement, the principle amount of the term loan is payable in quarterly installments of varying amounts commencing October 1, 1995. The revolver was increased to $8,500 and will be reduced on a quarterly basis commencing April 1, 1997, until no credit facility is available at October 1, 1998. 5 Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) - - -------------------------------------------------------------------------------- In addition to the scheduled principal and interest payments, the lender may be entitled to contingent interest payable upon early repayment of the term loan, a change in control of the Partnership or upon the occurrence of certain other events as defined in the agreement. The amount of contingent interest which will be due is determined by a formula which considers appreciation in the value of the Partnership. Based upon management's estimate of appreciation in the value of the Partnership, no accrual for contingent interest has been recorded at December 31, 1995 and 1994. The subordinated note payable to Seller is subordinated to the Partnership's term loan and revolver borrowings. The principal amount of the subordinated note payable to Seller is payable in a lump sum on September 21, 1998. Interest on the outstanding principal accrues at the rate of 10% and is payable annually. For financial reporting purposes, however, interest on the note accrues at an implicit rate of 14% per annum, and the note's original stated principal of $8 million has been discounted to reflect this yield. In January 1996, a third-party exercised its option to purchase the station (Note 9). Accordingly, all long-term debt is classified as current at December 31, 1995. In March 1996, certain subordinated note holders agreed to extend the term of their notes through October 1999 and forgave interest for the five-year period then ended. Accordingly, all subordinated debt, excluding the extended portion, is classified as current at December 31, 1995. In 1994, certain subordinated note holders forgave $680 of the subordinated note, $157 of capitalized interest and $62 of accrued interest. In consideration of the debt forgiveness, the Partnership and a related party signed a network affiliation agreement with one note holder and licensed certain programs from the other note holder. Under the terms of the affiliation agreement, the Partnership and the related party must broadcast network programming over the three-year term of the network affiliation agreement. Under the terms of the license agreement, the related party must broadcast certain programs over the one-year term of the license agreement. Accordingly, the $899 gain on the forgiveness of debt and related interest thereon was deferred and is being amortized over the term of the affiliation and program license agreements. The Partnership amortized $398 of the gain to income in 1995. The gain on forgiveness of debt is included in other income in the statement of operations. The deferred gain is included in accounts payable and accrued expenses at December 31, 1995 and 1994. Interest payments of $2,301 were made during the year ended December 31, 1995. No interest payments were made during the year ended December 31, 1994. 6 Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) - - -------------------------------------------------------------------------------- 7. Retirement Savings Plan The Partnership has adopted a retirement savings plan under Section 401(K) of the Internal Revenue Code. This plan covers substantially all employees of the Partnership and affiliated partnerships, who meet minimum age and service requirements, and allows participants to defer a portion of their annual compensation on a pre-tax basis. Partnership contributions to the plan may be made at the discretion of the Board of Directors. No Partnership contributions were authorized for the years ended December 31, 1995 and 1994. 8. Commitments and Contingencies Employment Agreements As a result of the Partnership's execution of the Option Agreement (Note 9) in 1994, the Partnership and the general partner, ABRY Communications III, L.P., amended employment agreements which entitled certain key employees to appreciation rights payable upon either a change in control of the Partnership or the payment of certain partner cash distributions. Previously, the employees vested in these rights at the rate of 20% per year from the date the rights were granted, except that they vested fully if they were employees of the Partnership at the time the rights became payable. Amounts due to the employees in connection with those rights were determined by a formula which considers appreciation in the value of the Partnership. Under the amendments, in the event that certain key employees meet certain employment criteria, such employees will receive a payment in lieu of the appreciation rights discussed above. An accrual for compensation related to these rights for $162 was included in accrued expenses at December 31, 1994. These obligations were satisfied during 1995 and, accordingly, no accrual has been made related to these agreements at December 31, 1995. Broadcast License Agreements Broadcast rights acquired under license agreements are recorded as an asset and a corresponding liability at the inception of the license period. In addition to these broadcast rights payable at December 31, 1995, the Partnership has $1,417 of commitments to acquire broadcast rights for which the license period has not commenced and, accordingly, for which no liability has been recorded. Future minimum payments arising from such commitments outstanding at December 31, 1995, of which $729 represents barter commitments, are as follows: 1996 $ 133 1997 356 1998 347 1999 187 2000 79 Thereafter 315 ---------- $ 1,417 7 Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) - - -------------------------------------------------------------------------------- Sports Rights Agreement The Partnership broadcasts certain baseball games for the Kansas City Royals Baseball Corporation (the "Royals"). Under the terms of the broadcast agreement as amended during 1995, the Partnership is obligated to pay broadcast fees and to provide advertising and promotions to the Royals through October 1, 1998. In addition, the Partnership is obligated to pay the Royals 75% of operating profits less than $500 and 50% of operating profits exceeding $500, related to such broadcasts. Future minimum annual broadcast fee payments under the agreement, as amended, are as follows: 1996 $ 1,080 1997 1,080 1998 1,080 ----------- $ 3,240 Broadcast fees are payable quarterly on July 1, October 1, January 1 and April 1 of each year. In the event the Partnership terminates the agreement before October 1, 1996 or 1997, the Partnership will be required to pay the Royals a cancellation fee of $500 or $250, respectively. The payment of all amounts due to the Royals under the agreement have been guaranteed by the Partnership's general partner and BVC Communications, III, Inc., the general partner of ABRY Communications III, L.P. Charges to operations for such broadcast fees aggregated $1,350 and $2,728 in 1995 and 1994, respectively. Operating Leases The Partnership leases its antenna site, studio and other operating equipment under noncancellable operating lease arrangements expiring through 2010. Charges to operations for such leases aggregated $154 and $146 in 1995 and 1994, respectively. Future minimum lease payments under these leases are as follows at December 31, 1995: 1996 $ 166 1997 160 1998 161 1999 124 2000 123 Thereafter 237 Total minimum lease payments $ 971 =========== During 1995, the antenna site was damaged and the Partnership received an insurance settlement of $248 for the related business interruption. The insurance settlement net of amounts relating to the repair of the antenna, are included in other income in the statement of operations. 8 Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) ----------------------------------------------------------------------- 9. Option Agreement On May 24, 1994, the Partnership entered into an agreement whereby the Partnership granted a third-party an option to acquire the assets of the station for an amount equal to the lesser of outstanding debt as of the exercise date, including accrued interest thereon, or $9,000. The acquiring entity will assume all other liabilities of the station. In conjunction with the option agreement, the Partnership entered into an agreement with the third-party whereby the Partnership would pay the third-party a consulting fee of $250 per year as long as the option is outstanding. Charges to operations related to this agreement were $250 in 1995 and $147 in 1994. The third-party exercised this option in January 1996. Accordingly, all debt of the station is classified as current at December 31, 1995, excluding debt for which an extension was granted, in accordance with the Partnership's loan agreements (Note 6). The transaction is subject to regulatory approval. 10 Cincinnati TV 64 Limited Partnership Financial Statements December 31, 1995 Report of Independent Accountants March 22, 1996 To the Partners of Cincinnati TV 64 Limited Partnership In our opinion, the accompanying balance sheet and the related statements of operations, of changes in partners' capital and of cash flows present fairly, in all material respects, the financial position of Cincinnati TV 64 Limited Partnership at December 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Cincinnati TV 64 Limited Partnership Balance Sheet - - --------------------------------------------------------------------------------
December 31, 1995 1994 (in thousands) Assets Current assets: Cash and cash equivalents $ 641 $ 482 Accounts receivable, less allowance for doubtful accounts of $86 and $64 in 1995 in 1994, respectively 3,091 2,773 Broadcast rights 4,461 3,461 Prepaid expenses 15 21 ----------- ---------- Total current assets 8,208 6,737 Property and equipment - net 5,238 5,670 Broadcast rights 4,339 3,061 Goodwill and other intangible assets 1,746 1,823 ----------- ---------- $ 19,531 $ 17,291 =========== ========== Liabilities and Partners' Capital Current liabilities: Current portion of long-term debt $ 11,883 $ 700 Subordinated note payable to Seller 7,446 - Accounts payable and accrued expenses 1,127 1,082 Interest payable 718 650 Broadcast rights payable 5,221 3,957 ----------- ---------- Total current liabilities 26,395 6,389 Broadcast rights payable 4,262 3,221 Long-term debt - 14,083 Subordinated note payable to Seller - 7,089 Partners' capital (11,126) (13,491) Commitments and contingencies (Note 8) ----------- ---------- $ 19,531 $ 17,291 =========== ==========
The accompanying notes are an integral part of these financial statements. Cincinnati TV 64 Limited Partnership Statement of Operations - - -------------------------------------------------------------------------------- Year ended December 31, 1995 1994 (in thousands) Revenues - net of agency and national representative commissions $ 15,529 $ 13,727 Costs and expenses: Programming, production and engineering 1,002 954 Amortization of broadcast rights 4,971 5,416 Sales, promotion and marketing 2,394 2,813 General and administrative 1,629 2,059 Depreciation and amortization 662 841 Interest expense, net 2,506 2,375 ----------- ----------- Net income (loss) $ 2,365 $ (731) =========== =========== The accompanying notes are an integral part of these financial statements. Cincinnati TV 64 Limited Partnership Statement of Changes in Partners' Capital For the Years Ended December 31, 1995 and 1994 - - -------------------------------------------------------------------------------
General Limited Partner Partner Total (in thousands) Balance at December 31, 1993 $ (12,760) $ - $ (12,760) Net loss for the year ended December 31, 1994 (731) - (731) ---------- ------- --------- Balance at December 31, 1994 (13,491) - (13,491) Net income for the year ended December 31, 1995 2,365 - 2,365 ---------- ------- --------- Balance at December 31, 1995 $ (11,126) $ - $ (11,126) ========== ======= =========
The accompanying notes are an integral part of these financial statements. Cincinnati TV 64 Limited Partnership Statement of Cash Flows Increase (Decrease) in Cash and Cash Equivalents - - -------------------------------------------------------------------------------
Year ended December 31, 1995 1994 (in thousands) Cash flows from operating activities: Net income (loss) $ 2,365 $ (731) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 585 759 Amortization of goodwill and other intangible assets 77 82 Amortization of broadcast rights, net of barter 1,621 2,294 Loss on disposal of property and equipment 37 - Accretion of subordinated debt principal 357 312 Deferred interest expense on subordinated note payable - 87 Increase in accounts receivable (318) (516) (Increase) decrease in prepaid expenses 6 (6) Increase (decrease) in accounts payable and accrued expenses 45 (80) Increase in interest payable 68 650 Decrease in due to related parties - (72) Decrease in broadcast rights payable, net of barter (1,594) (1,676) ---------- ---------- Net cash provided by operating activities 3,249 1,103 ---------- ---------- Cash flows from investing activities: Additions to property and equipment (190) (18) ---------- ---------- Cash flows from financing activities: Net repayments under revolving credit facility (2,200) (750) Repayments of long-term debt (700) - ---------- ---------- Net cash used for financing activities (2,900) (750) ---------- ---------- Net increase in cash and cash equivalents 159 335 Cash and cash equivalents at beginning of year 482 147 ---------- ---------- Cash and cash equivalents at end of year $ 641 $ 482 ========== ========== Supplemental schedule of noncash activities: Film contracts acquired/obligations assumed $ 2,961 $ 2,026 ========== ==========
The accompanying notes are an integral part of these financial statements. Cincinnati TV 64 Limited Partnership Notes to Financial Statements (in thousands) - - -------------------------------------------------------------------------------- 1. Organization Cincinnati TV 64 Limited Partnership (the "Partnership") is a joint venture of ABRY Communications II, L.P., the general partner (Note 3), and Copley Place Capital Group, the limited partner. The Partnership was organized under the laws of the State of Delaware on August 1, 1989. The Partnership is a television broadcaster serving the Cincinnati, Ohio area through station WSTR on UHF Channel 64. 2. Summary of Significant Accounting Policies Allocation of Partnership Results to Partners' Capital Accounts Net losses of the Partnership are allocated among the capital accounts of the partners based on their relative partnership interests until the limited partner's capital has been exhausted. Thereafter, net losses are allocated solely to the general partner. Net income is allocated in proportion to previously allocated net losses in reverse chronological order. Thereafter, net income is allocated to partners based on their relative partnership interests, as defined in the agreement. Broadcast Rights Broadcast rights are stated at the lower of unamortized cost or estimated net realizable value. Broadcast rights and the related liabilities are recorded at the contract value when the license period begins and the right is available for use. Broadcast rights are amortized using the straight-line method over the number of showings or license period. The net realizable value of broadcast rights for which the Partnership is contractually committed is reviewed annually and revisions to amortization rates or write-downs to net realizable value may occur. The current portion of broadcast rights represents those rights available for broadcast which management estimates will be amortized in the succeeding year. Property and Equipment Property and equipment are recorded at cost and depreciated over the estimated useful lives of the assets on a straight-line basis. Major renewals and betterments are capitalized and ordinary repairs and maintenance are charged to expense in the period incurred. Goodwill and Other Intangible Assets Goodwill aggregating $1,991 is amortized over 40 years using the straight-line method. Legal and accounting fees associated with the acquisition of loans aggregating $240 are capitalized and amortized over the term of the related debt. Organization costs aggregating $28 were fully amortized at December 31, 1995. Accumulated amortization aggregated $485 and $436 at December 31, 1995 and 1994, respectively. Barter Transactions Revenue from barter transactions is recognized when advertisements are broadcast and services or merchandise received are charged to expense when received or used. Revenues arising from barter and trade transactions aggregated $3,578 and $3,410 in 1995 and 1994, respectively. 1 Cincinnati TV 64 Limited Partnership Notes to Financial Statements (in thousands) - - ------------------------------------------------------------------------------- Income Taxes The financial statements of the Partnership do not include any provision for federal or state income taxes. All Partnership income, losses, tax credits and deductions are allocated among the partners. Each partner is responsible to report its distributed share of Partnership results in its federal and state income tax returns. Cash and Cash Equivalents The Partnership considers all highly liquid investment instruments purchased with a maturity of three months or less to be cash equivalents. The Partnership invests its excess cash in short-term government securities that are subject to minimal market and credit risk. At December 31, 1995 and 1994, the Partnership's cash equivalents include $500 and $400, respectively, of short-term government securities. These securities, which are classified as available-for-sale, are recorded at market value, which approximates cost. Effective January 1, 1994, the Partnership adopted Statement of Financial Accounting Standards No. 115, (FAS 115), "Accounting for Certain Investments in Debt and Equity Securities". Under this standard, the Partnership is required to classify its investments in debt and equity securities into one or more of the following categories: held-to-maturity, trading or available for sale. Adoption of this standard had no impact on the Partnership's financial position or results of operations at the date of adoption. Concentration of Credit Risk Financial instruments which potentially expose the Partnership to a concentration of credit risk include cash, cash equivalents and accounts receivable. A significant amount of the Partnership's cash and cash equivalents are held by one financial institution at December 31, 1995. The Partnership does not believe that such deposits are subject to any unusual credit risk beyond the normal credit risk associated with operating its business. The Partnership maintains reserves for potential credit losses and such losses, in the aggregate, have not historically exceeded management's expectations. Risks and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. Related Party Transactions Prior to 1995, ABRY Communications II, L.P. provided certain administrative and support services to the Partnership for which it was paid a management fee. Management fees charged to operations aggregated $319 in 1994. No management fees were charged to the Partnership during 1995. 2 Cincinnati TV 64 Limited Partnership Notes to Financial Statements (in thousands) - - ------------------------------------------------------------------------------- As of January 1995, the station became a network affiliate and licensed certain programs in conjunction with the forgiveness of the subordinated debt of a related party by the network and licensor. The term of the affiliation agreement and the program licenses is three years and one year, respectively. These financial statements do not include any amounts relating to such transaction. 4. Property and Equipment Property and equipment consists of the following:
Estimated useful life December 31, (years) 1995 1994 Land and improvements - $ 261 $ 261 Buildings 30 1,719 1,719 Transmission tower 30 3,226 3,226 Transmission equipment 7-8 1,832 1,919 Studio equipment 5-7 1,079 1,005 Vehicles, office equipment and furniture 5-7 240 211 --------- --------- 8,357 8,341 Less - accumulated depreciation and amortization 3,119 2,671 --------- --------- $ 5,238 $ 5,670 ========= =========
5. Broadcast Rights The Partnership purchases the right to broadcast programs through fixed term license agreements. Broadcast rights consist of the following:
December 31, 1995 1994 Aggregate cost $ 15,370 $ 14,288 Less - accumulated amortization 6,570 7,766 --------- --------- 8,800 6,522 Less - current portion 4,461 3,461 --------- --------- $ 4,339 $ 3,061 ========= ==========
3 Cincinnati TV 64 Limited Partnership Notes to Financial Statements (in thousands) - - ------------------------------------------------------------------------------- Contractual obligations incurred in connection with the acquisition of broadcast rights are $9,483 including $3,918 of barter obligations. Future payments in connection with these contractual obligations are as follows at December 31, 1995: 1996 $ 5,221 1997 2,502 1998 1,340 1999 381 Thereafter 39 -------- $ 9,483 ======== The Partnership has estimated the fair value of these contractual obligations at approximately $8,591 and $6,478 at December 31, 1995 and 1994, respectively, based on future cash flows discounted at the Partnership's current borrowing rate. 6. Debt Long-term debt consists of the following: December 31, 1995 1994 Term loan $ 6,650 $ 6,850 Revolving credit facility 4,772 6,972 Supplemental loan 461 961 -------- -------- 11,883 14,783 Less - current portion 11,883 700 -------- -------- $ - $ 14,083 ======== ======== The principal amount of the term loan is payable in 36 monthly installments of $17 which commenced January 1, 1995 and a final installment in an amount equal to the then outstanding principal balance is due January 1, 1998. The Partnership may borrow up to $8,350 under a revolving credit facility (the "revolver") through December 31, 1995; thereafter, the credit facility and related borrowings are reduced on a monthly basis until no credit facility is available at January 1, 1998. The term loan, revolver and supplemental loan bear interest, payable monthly, at the base rate, computed by taking the higher of the Federal Funds rate plus 1% or Prime (as defined in the agreement), plus 2.5%. 4 Cincinnati TV 64 Limited Partnership Notes to Financial Statements (in thousands) - - ------------------------------------------------------------------------------- The Partnership is charged a fee for the available revolving credit commitment at a rate of 1/2% per annum, payable quarterly. The borrowings are secured by substantially all of the Partnership's assets and require the Partnership to comply with certain specified financial ratios and provisions. At December 31, 1995, all long term debt is classified as a current liability as a result of a third-party's decision to exercise the option agreement (Note 9). At December 31, 1995 and 1994, the current portion of long-term debt includes principal of $750 and $500, respectively, due by April 1, 1996 and 1995 in accordance with the acceleration provisions of the loan agreement. The accelerated principal payments were made by the Partnership in April 1996 and January 1995, respectively. In addition to the scheduled principal and interest payments, the lender may be entitled to contingent interest, payable upon early repayment of the loans, a change in control of the Partnership or upon the occurrence of certain other events as defined in the agreement. The amount of contingent interest which will be due is determined by a formula which considers appreciation in the value of the Partnership. Based upon management's estimate of appreciation in the value of the Partnership, no accrual for contingent interest has been recorded at December 31, 1995 and 1994. The principal amount of the subordinated note payable to Seller is due on January 1, 1998. Interest on the outstanding principal accrues at the rate of 8.5% per annum. Interest accrued and unpaid through December 31, 1993 is due and payable on January 1, 1998. Interest accrued after December 31, 1993 is payable annually. For financial reporting purposes, however, interest on the note accrues at an implicit rate of 14.5% per annum and the note's original stated principal of $6 million has been discounted to reflect this yield. Accordingly, interest accrued through December 31, 1995 and 1994 of $2,877 and $2,790, respectively, has been added to the discounted principal amount of the note. In January 1996, a third-party exercised its option to acquire the assets of the station (Note 9). Accordingly, the note has been classified as a current liability at December 31, 1995. Interest paid during the years ended December 31, 1995 and 1994 was $1,603 and $1,348, respectively. 7. Retirement Savings Plan The Partnership has adopted a retirement savings plan under Section 401(K) of the Internal Revenue Code. This plan covers substantially all employees of the Partnership and affiliated partnerships who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Partnership contributions to the plan may be made at the discretion of the Board of Directors. No Partnership contributions were authorized for the years ended December 31, 1995 and 1994. 5 Cincinnati TV 64 Limited Partnership Notes to Financial Statements (in thousands) - - -------------------------------------------------------------------------------- 8. Commitments and Contingencies Employment Agreement As a result of the Partnership's execution of the Option Agreement (Note 9) in 1994, the Partnership and the general partner, ABRY Communications II, L.P., amended an employment agreement which entitled certain key employees to appreciation rights payable upon either a change in control of the Partnership or the payment of certain partner cash distributions. Previously, the employees vested in these rights at the rate of 20% per year from the date the rights were granted, except that they vested fully at the time the rights became payable. Amounts due to the employees in connection with those rights were determined by a formula which considers appreciation in the value of the Partnership. Under the amendment, such employees received payments in lieu of the appreciation rights discussed above. Compensation expense of $862 was recognized for compensation related to these rights during the year ended December 31, 1994. An accrual for $700 for compensation related to these rights which were paid in January 1995, was included in accrued expenses at December 31, 1994. Broadcast License Agreements Broadcast rights acquired under license agreements are recorded as an asset and a corresponding liability at the inception of the license period. In addition to these broadcast rights payable at December 31, 1995, the Partnership has $7,769 of commitments to acquire broadcast rights for which the license period has not commenced and, accordingly, for which no liability has been recorded. Future minimum payments arising from such commitments outstanding at December 31, 1995, of which $4,232 represents barter commitments, are as follows: 1996 $ 903 1997 2,221 1998 1,918 1999 1,517 2000 1,210 --------- $ 7,769 ========= Programming Under the terms of an agreement executed in September 1995 with a third-party, the Partnership is committed to make available certain time periods for broadcasting Cincinnati Reds baseball games during each of the 1996-1998 major league baseball seasons, in exchange for a fixed fee per game and other defined compensation. The agreement expires in December 1998 or the earliest date after April 1, 1996 on which the third-party no longer has the rights to telecast such baseball games. In 1995, the Partnership generated revenue of $25 related to this agreement. 6 Cincinnati TV 64 Limited Partnership Notes to Financial Statements (in thousands) - - ------------------------------------------------------------------------------- Operating Leases The Partnership assumed a noncancellable operating lease under which property at its transmission antenna site is leased through 1998. Charges to operations for this lease aggregated $68 in 1995 and $71 in 1994. As of December 31, 1995, annual minimum lease payments under the property lease are $61 through 1997. 9. Option Agreement On May 24, 1994, the Partnership entered into an agreement whereby the Partnership granted a third-party an option to acquire the assets of the station for an amount equal to the lesser of the outstanding debt as of the exercise date, including accrued interest thereon, or $11,000. The acquiring entity will assume all other liabilities of the station. In conjunction with the option agreement, the Partnership entered into an agreement with the third-party whereby the Partnership would pay the third-party a consulting fee of $250 per year as long as the option is outstanding. Charges to operations related to this agreement were $250 in 1995 and $127 in 1994. The third-party exercised this option in January 1996. The transaction is subject to regulatory approval. As a result of the exercise of this option, all debt of the station is classified as current at December 31, 1995, in accordance with the Partnership's loan agreements (Note 6). 7 RIVER CITY BROADCASTING (RIVER CITY BROADCASTING, L.P. AND ITS MAJORITY-OWNED BUSINESSES) Consolidated Financial Statements and Schedules December 31, 1994 and 1995 (With Independent Auditors' Report Thereon) Independent Auditors' Report ---------------------------- The Partners River City Broadcasting, L.P.: We have audited the accompanying consolidated balance sheets of River City Broadcasting, L.P. and its majority-owned businesses as of December 31, 1994 and 1995, and the related consolidated statements of operations, partners' capital (deficit), and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of River City Broadcasting, L.P. and its majority-owned businesses as of December 31, 1994 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The consolidating information included in Schedules 1 and 2 is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position, results of operations, and cash flows of the individual broadcast properties. The consolidating information has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole. KPMG Peat Marwick LLP February 23, 1996 RIVER CITY BROADCASTING Consolidated Balance Sheets December 31, 1994 and 1995
Assets 1994 1995 ------ ---- ---- Current assets: Cash and cash equivalents $ 2,444,738 $ 3,009,949 Receivables, less allowance for doubtful accounts of approximately $751,000 in 1994 and $1,011,000 in 1995 38,380,927 55,700,972 Current portion of program rights 18,721,662 23,275,767 Prepaid and other current assets 3,364,193 4,456,352 ---------- ---------- Total current assets 62,911,520 86,443,040 Property and equipment, net 83,518,363 96,269,944 Program rights, less current portion 19,255,197 19,650,217 Intangible assets, net 239,689,766 350,878,357 Other noncurrent assets 11,301,757 20,588,525 ----------- ----------- Total assets $ 416,676,603 $ 573,830,083 =========== =========== Liabilities and Partners' Capital --------------------------------- Current liabilities: Current installments of long-term debt $ - $ 38,587,000 Current installments of program rights payable 26,178,686 30,071,545 Accrued expenses 7,376,801 12,462,416 Accounts payable 862,162 6,924,246 Distributions payable 2,274,613 - ---------- ----------- Total current liabilities 36,692,262 88,045,207 Long-term debt, less current installments 309,550,000 404,413,000 Program rights payable, less current installments 17,136,852 27,579,601 Deferred compensation 5,260,477 5,516,833 ---------- ---------- Total liabilities 368,639,591 525,554,641 Commitments and contingencies Partners' capital; 19,386 general partner units and 126,047 and 148,651 limited partner units outstanding at December 31, 1994 and 1995, respectively 48,037,012 48,275,442 ----------- ---------- Total liabilities an partners' capital $ 416,676,603 $ 573,830,083 =========== ===========
See accompanying notes to consolidated financial statements. RIVER CITY BROADCASTING Consolidated Statements of Operations Years ended December 31, 1993, 1994, and 1995
1993 1994 1995 ---- ---- ---- Net operating revenues: Local time sales $ 34,377,284 $ 52,867,854 $ 107,591,097 National time sales 28,718,245 42,950,399 69,945,187 Other revenues 3,119,122 4,567,058 10,653,860 ---------- ---------- ----------- Total operating revenues 66,214,651 100,385,311 188,190,144 ---------- ----------- ----------- Operating costs: Station operating expenses 15,857,926 26,516,623 62,040,690 Selling expenses 10,889,632 11,977,659 25,973,660 Program amortization expense 18,799,127 16,479,271 33,452,252 Corporate expenses 1,872,983 2,498,181 4,482,364 Depreciation 6,287,274 8,259,487 11,523,526 Amortization of intangible assets 6,094,026 11,228,316 27,649,173 ---------- ----------- ----------- Total operating costs 59,800,968 76,959,537 165,121,665 ---------- ----------- ----------- Operating income 6,413,683 23,425,774 23,068,479 ---------- ----------- ----------- Other income (expense): Interest expense (5,341,346) (11,033,149) (33,087,633) Amortization of deferred financing costs and debt discount (1,573,262) (1,066,296) (1,434,904) Interest income 177,656 333,673 1,715,104 Other (45,227) 21,720 (22,616) -------- ------- -------- (6,782,179) (11,744,052) (32,830,049) ---------- ----------- ----------- Income (loss) before extraordinary item (368,496) 11,681,722 (9,761,570) Extraordinary item - early extin- guishment of debt (6,841,084) (3,348,506) - ---------- ----------- ----------- Net earnings (loss) $ (7,209,580) $ 8,333,216 $ (9,761,570) ========== ========== ===========
See accompanying notes to consolidated financial statements. RIVER CITY BROADCASTING Consolidated Statements of Partners' Capital (Deficit) Years ended December 31, 1993, 1994, and 1995
General Limited partner partners Total ------- -------- ------ Balance at December 31, 1992 $ (6,936,635) $ - $ (6,936,635) Partners' capital contributions - 76,500,000 76,500,000 Conversion of equity debentures - 8,191,527 8,191,527 Redemption of partners' capital (12,986,107) (15,580,796) (28,566,903) Net loss (973,697) (6,235,883) (7,209,580) --------- ---------- ---------- Balance at December 31, 1993 (20,896,439) 62,874,848 41,978,409 Distributions - (2,274,613) (2,274,613) Net earnings 8,333,216 - 8,333,216 ---------- ---------- ---------- Balance at December 31, 1994 (12,563,223) 60,600,235 48,037,012 Issuance of limited partner interest - 10,000,000 10,000,000 Net loss - (9,761,570) (9,761,570) ---------- ---------- ---------- Balance at December 31, 1995 $(12,563,223) $ 60,838,665 $ 48,275,442 ========== ========== ==========
See accompanying notes to consolidated financial statements. RIVER CITY BROADCASTING Consolidated Statements of Cash Flows Years ended December 31, 1993, 1994, and 1995
1993 1994 1995 ---- ---- ---- Cash flows from operating activities: Net earnings (loss) $ (7,209,580) $ 8,333,216 $ (9,761,570) Extraordinary item (note 12) 6,841,084 2,164,006 - Interest expense on conversion of debenture to equity 101,327 - - Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Program amortization expense 18,799,127 16,479,271 33,452,252 Depreciation 6,287,274 8,259,487 11,523,526 Loss on disposition of property and equipment 47,416 - 193,249 Amortization of deferred financing costs and debt discount 1,573,262 1,066,296 1,434,904 Amortization of intangible assets 6,094,026 11,228,316 27,649,173 Retirement of program rights payable (15,773,065) (13,892,127) (24,065,769) Change in assets and liabilities, net of effects from purchase of broad- cast properties: Increase in receivables, net (1,816,872) (7,940,420) (17,320,045) Increase in prepaid and other current assets (133,109) (472,744) (763,768) Increase in other noncurrent assets (247,492) (921,957) (9,286,768) Increase (decrease) in accounts payable and accrued expenses (1,087,119) (644,978) 11,147,699 Increase in deferred compensation 1,161,000 3,236,477 256,356 ---------- ---------- -------- Net cash provided by operating activities 14,637,279 26,894,843 24,459,239 ---------- ----------- ----------- Cash flows from investing activities, net of effects from purchase of broad- cast properties: Costs to acquire broadcast properties - (175,397,321) (137,884,857) Additions to property and equipment 1,080,171) (5,304,587) (11,286,967) Additions to intangible assets (1,329,361) (2,210,655) (2,682,454) Funding of local marketing agreement - (11,000,000) - -------- ------------ ------------ Net cash used in investing activities 2,409,532) (193,912,563) (151,854,278) ----------- ----------- ----------- Cash flows from financing activities: Retirement of long-term debt (58,554,497) (138,360,116) (1,550,000) Proceeds from term loan - 120,000,000 110,000,000 Net borrowings under revolving loan commitment - 188,000,000 25,000,000 Redemption of partnership interest (28,566,903) - - Proceeds from partners' capital contributions 76,500,000 - - Distributions paid - - (2,274,613) Additions to deferred financing fees (165,174) (4,450,344) (3,215,137) --------- ----------- ----------- Net cash provided by (used in) financing activities (10,786,574) 165,189,540 127,960,250 ---------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 1,441,173 (1,828,180) 565,211 Cash and cash equivalents, beginning of year 2,831,745 4,272,918 2,444,738 ---------- ---------- ---------- Cash and cash equivalents, end of year $ 4,272,918 $ 2,444,738 $ 3,009,949 ========== ========== ==========
See accompanying notes to consolidated financial statements. RIVER CITY BROADCASTING Notes to Consolidated Financial Statements December 31, 1994 and 1995 (1) Business Description -------------------- River City Broadcasting, L.P. (River City Broadcasting or the Partnership) is a limited partnership formed to purchase and operate broadcast properties and related activities. River City Broadcasting has acquired nine broadcast television stations and 24 radio stations. The Partnership also operates one television station and three radio stations under local marketing agreements (LMAs). River City Broadcasting is managed by its general partner subject to terms and conditions specified in the Second Amended and Restated Agreement of Limited Partnership (Limited Partnership Agreement). On September 3, 1993, River City Broadcasting entered into a Reorganization Agreement, whereby additional equity funding was injected into the Partnership, and certain partners' interests were redeemed (the Recapitalization). (2) Summary of Significant Accounting Policies ------------------------------------------ Principles of Consolidation ---------------------------- The accompanying consolidated financial statements include the accounts of River City Broadcasting and its majority-owned businesses. Management's Use of Estimates ----------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Program Rights -------------- Program rights and related liabilities are recorded at cost when the film is available for broadcasting. Agreements define the lives of the rights and frequently the number of showings. The cost of program rights is charged against earnings using straight-line and accelerated methods. Program rights, representing the cost of those rights available for broadcasting and expected to be broadcast in the succeeding fiscal year, are shown as a current asset. Program rights payable are classified as current based on those payments of the various contracts contractually due within the succeeding fiscal year. Program rights are stated at the lower of cost or estimated net realizable value. (Continued) 2 RIVER CITY BROADCASTING Notes to Consolidated Financial Statements Property and Equipment ---------------------- Property and equipment is recorded at cost. Maintenance and repairs are charged against earnings, while improvements which extend useful lives are capitalized. Depreciation expense is computed using primarily the straight-line method over the estimated useful lives of the related assets. Intangible Assets ----------------- Intangible assets consist principally of network affiliation agreements, broadcasting licenses, covenants not to compete, deferred financing costs, and going-concern values. Amortization expense is computed on a straight-line basis over the estimated lives of the assets, which generally range from 5-20 years. The Partnership assesses the recoverability of these intangible assets by determining whether the amortization of the remaining balances over their remaining lives can be recovered through projected undiscounted future results. The amount of impairment, if any, is measured based on projected discounted future results using a discount rate reflecting the Company's average cost of funds. The methodology that management used to project results of operations forward was based on the historical trend line of actual results. Interest Rate Risk Management ----------------------------- The Partnership uses a combination of financial instruments as part of its program to manage interest rate risk on its floating rate debt. Such investments are considered hedges and, accordingly, changes in their market value, representing the cost to close the Partnership's position in these financial instruments, are not reflected in the consolidated financial statements (see note 7). Deferred Compensation --------------------- River City Broadcasting has entered into deferred compensation agreements with members of management at certain of the broadcast properties. Deferred compensation expense is recorded over the period of employee service based on terms as contained in the respective agreements. In addition to the deferred compensation agreements described above, the Partnership has granted Phantom Warrant Units to certain key members of management. These Phantom Warrant Units were granted pursuant to a Phantom Unit Plan (the Plan). Under Plan provisions, the Phantom Warrant Unit holders will receive performance compensation based on the appreciation in value of the Partnership. This compensation is recognized as incurred based on a six-year vesting period. Warrant Units ------------- Concurrently with the Recapitalization, warrant units were issued to two key members of management, who are also the sole shareholders of the general partner of River City Broadcasting. These warrant units provide for, among other things as described in the Limited Partnership Agreement, participation in Partnership profits and losses and equity appreciation on a basis substantially similar to a 10% partnership interest. (Continued) 3 RIVER CITY BROADCASTING Notes to Consolidated Financial Statements Income Taxes and Distributions for Taxes ---------------------------------------- No income tax provision has been included in the consolidated financial statements since profit and loss in the Partnership and the related tax attributes are deemed to be distributed to, and to be reportable by, the partners of the Partnership on their respective income tax returns. Accordingly, based on the tax attributes to be passed through to the partners, the Partnership records a distribution payable calculated pursuant to the Limited Partnership Agreement for amounts expected to be distributed to the partners for their estimated tax liability. Limited Partnership Agreement ----------------------------- The allocation of Partnership profits and losses, cash distributions, voting rights, certain equity preference and appreciation rights, and other matters are defined in the Limited Partnership Agreement. These items, except voting rights, are principally determined based on the tax basis of the respective partners. Revenues -------- Broadcasting revenues are derived principally from the sale of program time and spot announcements to local, regional, and national advertisers. Advertising revenue is recognized in the period during which the program time and spot announcements are broadcast. Barter Transaction ------------------ Barter transactions are recorded at the estimated fair values of the products and services received. Barter revenues are recognized when commercials are broadcast. The assets or services received in exchange for broadcast time are recorded when received or used. Consolidated Statements of Cash Flows ------------------------------------- For purposes of the consolidated statements of cash flows, the Partnership considers all cash investments with an original maturity of three months or less to be cash equivalents. Reclassification ---------------- Certain 1993 and 1994 balances have been reclassified to conform with the 1995 presentation. (3) Acquisition of Broadcast Properties ----------------------------------- In September 1994, the Partnership acquired certain assets and assumed certain liabilities of Continental Broadcasting Ltd. (Continental) for total cash consideration of approximately $175,397,000. In connection with the acquisition, River City Broadcasting assumed $120,000,000 of senior subordinated notes and related accrued interest. Broadcast properties acquired include WSYX-TV (Columbus, Ohio), KOVR-TV (Sacramento, California), and WLOS-TV/WFBC-TV (formerly WAXA-TV) (Asheville, North Carolina, and Anderson, South Carolina). (Continued) 4 RIVER CITY BROADCASTING Notes to Consolidated Financial Statements This acquisition is a purchase transaction and, accordingly, the assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date, as determined by independent appraisal. The allocation of the purchase price is summarized as follows: Intangible assets $ 221,995,342 Property and equipment 62,285,634 Accounts receivable 13,313,252 Program rights 10,471,346 Prepaid and other current assets 164,898 Program rights payable (7,752,322) Accounts payable and accrued expenses (2,672,495) ---------- Total purchase price 297,805,655 Assumption of debt, plus related accrued interest (122,408,334) ------------- $ 175,397,321 ============= In July 1995, the Partnership acquired certain assets of Keymarket Communication and affiliated companies (Keymarket), as defined in the underlying Asset Purchase Agreement, for total cash consideration of approximately $131,000,000 and $10,000,000 of limited partner units. Broadcast properties acquired consist of 19 radio stations within the Los Angeles, California, Nashville, Tennessee, New Orleans, Louisiana, Memphis, Tennessee, Buffalo, New York and Wilkes-Barre/Scranton, Pennsylvania markets. Additionally, the Partnership acquired the rights to operate three radio stations under LMAs. In October 1995, the Partnership acquired a 60% interest in Twin Peaks Radio (Twin Peaks) through its acquisition of Sandia Peak Broadcasters, Inc. As discussed in note 17, the Partnership acquired the remaining 40% interest in Twin Peaks in January 1996. Twin Peaks is a partnership which owns and operates three radio stations in the Albuquerque, New Mexico area. Total cash consideration paid in 1995 amounted to approximately $3,200,000. In November 1995, the Partnership acquired certain assets of WVRV-FM in St. Louis, Missouri, for cash consideration of approximately $3,600,000. River City Broadcasting previously operated this station under an LMA. The 1995 acquisitions are purchase transactions and, accordingly, the assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date, as determined by independent appraisal. The allocation of the purchase price is summarized as follows: Intangible assets $ 134,375,077 Property and equipment 13,181,389 Prepaid and other current assets 328,391 --------- Total purchase price 147,884,857 Issuance of limited partner units (10,000,000) ----------- $ 137,884,857 ============== (Continued) 5 RIVER CITY BROADCASTING Notes to Consolidated Financial Statements The following unaudited supplemental pro forma information presents revenues, income (loss) before extraordinary item, and net earnings (loss) as though River City Broadcasting had consummated the 1995 acquisitions on January 1, 1994 (1994) and January 1, 1995 (1995):
1994 1995 ---- ---- Revenues $ 148,492,000 $ 213,749,000 =========== =========== Loss before extraordinary item $ (22,907,000) $ (17,232,000) =========== =========== Net loss $ (26,255,000) $ (17,232,000) =========== ===========
(4) Intangible Assets ----------------- A summary of intangible assets follows: Asset lives in 1994 1995 years ---- ---- ----- Network affiliation agreements, net of amortization of approximately $3,077,000 and $9,724,000 in 1994 and 1995, respectively $ 143,950,815 $ 137,813,988 20 Broadcasting licenses, net of amortiza- tion of approximately $1,506,000 and $4,605,000 in 1994 and 1995, respec- tively 47,529,039 114,567,600 20 Deferred financing costs, net of amor- tization of approximately $382,000 and $1,817,000 in 1994 and 1995, respectively 4,068,376 7,052,734 8 Covenants not to compete, net of amor- tization of approximately $5,900,000 and $11,410,000 in 1994 and 1995, respectively 18,100,004 12,669,639 5 Going-concern value, net of amortiza- tion of approximately $636,000 and $1,168,000 in 1994 and 1995, respec- tively 5,554,642 8,502,935 20 Other intangible assets, net of amorti- zation of approximately $16,754,000 and $27,118,000 in 1994 and 1995, respectively 20,072,564 70,271,461 2-20 ----------- ----------- ==== $ 239,275,440 $ 350,878,357 =========== ===========
(Continued)
(5) Property and Equipment ---------------------- A summary of property and equipment follows: Lives 1994 1995 in years ---- ---- -------- Land $ 7,129,861 $ 11,622,969 - Buildings and improvements 21,284,574 25,150,610 31.5 Equipment, furniture, and fixtures 79,261,457 96,668,728 5-15 ==== Construction in progress 3,550,525 1,436,638 ---------- ---------- 111,226,417 134,878,945 Less accumulated depreciation 27,708,054 38,609,001 ----------- ----------- $ 83,518,363 $ 96,269,944 =========== =========== (6) Long-Term Debt A summary of long-term debt follows: 1994 1995 ---- ---- Revolving Credit and Term Loan Agreements -----------------------------------------$ 308,000,000 $ 443,000,000 Senior subordinated notes 1,550,000 - ---------- ------------- 309,550,000 443,000,000 Less current installments - 38,587,000 ----------- ----------- $ 309,550,000 $ 404,413,000 =========== ===========
Upon the acquisition of the Continental broadcast properties in 1994, the Partnership assumed $120,000,000 of 10-5/8% senior subordinated notes. Interest is payable semiannually on January 1 and July 1 of each year. Pursuant to terms of the underlying indenture, subsequent to their assumption, River City Broadcasting offered to redeem the underlying notes from the holders at 101% of the principal amount thereof. In connection with this offer, $118,450,000 of the outstanding notes were redeemed in 1994. A put premium of $1,184,500 was charged to expense in 1994. The balance of the senior subordinated notes was redeemed in 1995. Concurrent with the acquisition of the Continental broadcast properties in 1994, the Partnership entered into a Senior Credit Facility providing a $120,000,000 term loan commitment and a revolving loan commitment of $230,000,000. In December 1994, the Partnership exercised the $120,000,000 term loan commitment in connection with the redemption of the senior subordinated notes described above. In April 1995 the Partnership amended the Senior Credit Facility (Amended Senior Credit Facility). The Amended Senior Credit Facility provided for an additional term loan commitment of $110,000,000. In July 1995, the Partnership exercised the $110,000,000 term loan commitment in connection with the Keymarket acquisition. (Continued) 7 RIVER CITY BROADCASTING Notes to Consolidated Financial Statements At December 31, 1995 the Partnership had outstanding borrowings of $213,000,000 under the revolving loan commitment. The revolving loan commitment of $230,000,000 is reduced as follows: $9,200,000 each quarter beginning December 31, 1995 through December 31, 1999; $10,750,000 each quarter through December 31, 2000; and $15,300,000 each quarter through June 30, 2001. The term loan is payable in increasing quarterly installments through December 2002. Accelerated principal payments are required upon the Partnership meeting certain financial objectives or upon the occurrence of certain other events as defined in the Amended Senior Credit Facility. Borrowings are secured by substantially all of the Partnership's assets and by a lien on all limited partner interests. The Amended Senior Credit Facility includes certain covenants which, among other things, require the Partnership to meet certain financial performance goals and maintain certain financial ratios, limit capital expenditures, and limit the incurrence of additional indebtedness. Under terms of the Amended Senior Credit Facility, the Partnership has the option to elect from various interest rate options. The Amended Senior Credit Facility also includes a provision whereby the interest rate is adjusted each quarter based on River City Broadcasting's financial performance. Substantially all amounts borrowed under the Amended Senior Credit Facility accrue interest based on the LIBOR rate. At December 31, 1995, the Company's effective borrowing rate under this agreement, including the effect of interest rate risk management activities, was 8.7%. The Amended Senior Credit Facility requires the Partnership to pay unused commitment fees (term and revolver) at 3/8 of 1%, payable quarterly. Theaggregate maturities of long-term debt reflect scheduled principal payments due under the term loan commitment and the required principal reductions on the revolving loan commitment and are as follows: Year ending December 31: 1996 $ 38,587,000 1997 46,387,000 1998 51,175,000 1999 55,963,000 2000 73,663,000 Thereafter 177,225,000 ----------- $ 443,000,000 =========== (7) Interest Rate Risk Management ----------------------------- The Partnership uses a combination of financial instruments, including interest rate swaps, interest rate caps, interest rate collars, and forward rate agreements, as part of its program to manage the floating interest rate risk of its debt portfolio and related overall cost of borrowing. These financial instruments, which are for nontrading purposes, allow the Partnership to maintain a target range of fixed rate debt. The Amended Senior Credit Facility requires the Partnership to hedge 50% of its floating rate risk through December 1997. Interest rate swaps involve the exchange of floating rate for fixed rate interest payments to effectively convert floating rate debt to fixed rate debt. The interest rate swap agreement is for a term of approximately three years and matures December 1997. (Continued) 8 RIVER CITY BROADCASTING Notes to Consolidated Financial Statements The Partnership purchased interest rate caps to convert floating rate debt to a fixed rate if such rates rise above 9.5%. The cost of the interest rate caps totaled approximately $613,000 and is being amortized over the term of the agreements, generally three years. The unamortized balance is approximately $408,000 at December 31, 1995. Interest rate cap agreements mature in December 1997 and January 1998. Interest rate collars involve the conversion of floating rate debt to a fixed rate if such rates exceed 9.5% or fall below a specified floor rate (generally 4.0%-4.2%). Such agreements mature in December 1997. Forward rate agreements are short-term contracts (generally 3-6 months) which allow the Partnership to lock in its effective LIBOR rates over short-term periods. Such agreements mature January 1996 through April 1996. The following financial instruments were held at December 31, 1995: Notional Fair amounts value -------- ----- Interest rate swap $ 50,000,000 $(2,103,000) Interest rate caps 105,000,000 12,000 Interest rate collars 70,000,000 (91,000) Forward rate agreements 411,000,000 (304,000) =========== ========= Estimated fair values shown above only represent the value of the hedge or swap component of these transactions, and thus are not indicative of the Partnership's overall hedged position. As fully hedged transactions, the estimated fair values of the interest rate financial instruments do not affect income and are not recorded in the consolidated financial statements, but rather only represent the amount which would be required to close the Partnership's position in the financial instruments at December 31, 1995. (8) Disclosures About Fair Value of Financial Instruments ----------------------------------------------------- Cash and Cash Equivalents, Receivables, and Payables - The carrying amount approximates fair value because of the short-term maturity of these instruments. Long-Term Investment - The Partnership holds a 16% interest in a partnership for which there are no quoted market prices. A reasonable estimate of fair value could not be made. The investment is carried at its cost of $1,654,000 in the consolidated balance sheet. Long-Term Debt - The fair value of the Partnership's debt is estimated based on the current rates offered to the Partnership for debt of the same remaining maturities. The carrying amount approximates fair value because of the variable interest rate attached to the debt. (Continued) 9 RIVER CITY BROADCASTIN Notes to Consolidated Financial Statements Program Rights Payable - The fair value of film contracts payable is the present value of the future obligations based on the current rates available to the Partnership for debt of similar maturity. The carrying amount and fair value of program rights payable at December 31, 1995 were $56,223,000 and $48,494,000, respectively. (9) Local Marketing Agreement In August 1995 the Partnership entered into a five-year LMA with KRRT, Inc. (Licensee). In a related transaction, the Partnership loaned $10,000,000 to the Licensee. The related note bears interest at 8%. Pursuant to the LMA, KRRT-TV of Kerrville, Texas (the brokered station) will air programming provided by River City Broadcasting in exchange for specified compensation. Such compensation is principally based on certain station operating costs of the brokered station, including debt service. River City Broadcasting will retain all advertising revenues derived from programming for which it has provided. The LMA is cancellable by the Licensee or River City Broadcasting. (10) Equity Debentures In connection with the purchase of KDSM-TV and the first amendment of the Limited Partnership Agreement, River City Broadcasting issued two debentures totaling $2,500,000. These debentures were issued in consideration of, among other things, consent granted by a certain partner allowing River City Broadcasting to complete certain transactions as contained in the respective debenture agreements. Amounts due under the debenture agreements were to be satisfied through equity distributions made in accordance with terms of the Limited Partnership Agreement. Accordingly, for financial reporting purposes, the debentures were treated as equity preference items and the related principal and accrued interest were not reflected (as liabilities or as equity) in the consolidated financial statements of River City Broadcasting. Concurrent with the Recapitalization, these debentures were satisfied through an equity distribution to the partner. (11) Supplemental Cash Flow and Other Financial Information Cash paid for interest totaled approximately $6,106,000, $11,523,000, and $29,249,000 for the years ended December 31, 1993, 1994, and 1995, respectively. River City Broadcasting purchased program rights, on an installment basis, amounting to approximately $16,285,000, $15,749,000, and $38,401,000 in 1993, 1994, and 1995, respectively. Amounts reflected as retirements of program rights payable represent amounts actually paid to vendors under various program rights agreements. In connection with the Keymarket acquisition, the Partnership granted $10,000,000 of limited partner units to the Keymarket seller. Cash overdrafts amounting to approximately $3,959,000 were included in accounts payable at December 31, 1995. Based on certain events, including network affiliation changes at certain broadcast properties, management performed a review of program rights to determine projected usage and revenue streams. Based on this review, the Partnership wrote off certain programming and recognized a charge of approximately $7,100,000 to operations for the year ended December 31, 1995. Pursuant to the deferred compensation agreements and Phantom Warrant Units described in note 2, the Partnership recognized approximately $1,161,000, $3,236,000, and $1,143,000 of deferred compensation expense in 1993, 1994, and 1995, respectively. At December 31, 1994, the Partnership recorded a distribution payable of $2,274,613 in anticipation of income taxes due by the partners as described in note 2. In accordance with the Limited Partnership Agreement this distribution was paid in 1995. In 1993, River City Broadcasting retired a $1,000,000 subordinated debenture for $8,191,527. This amount includes accrued interest of $350,443 of which $101,327 (Continued) 10 RIVER CITY BROADCASTING Notes to Consolidated Financial Statements represents 1993 interest expense. The debenture contained a contingent interest provision, determined based on certain equity like features, which was triggered concurrent with the Recapitalization. Retirement of this debenture was effected through its conversion to a limited partnership interest and a charge to interest expense of $7,191,527 (see note 16). (12) Extraordinary Items ------------------- Concurrently with the Recapitalization in 1993, the Partnership redeemed, through conversion to equity, the $1,000,000 1989 subordinated debenture for $8,191,527, including accrued interest of $350,443. This redemption was treated as an early extinguishment of debt for financial reporting purposes. As described in note 7, the Partnership redeemed $118,450,000 of the outstanding Continental notes with a put premium of $1,184,500. Additionally, in connection with the extinguishment of its prior Amended Senior Credit Facility, the Partnership expensed approximately $2,164,000 of related deferred financing fees. These items were treated as an early extinguishment of debt for financial reporting purposes. (13) Related Party Transactions -------------------------- Prior to the Recapitalization, the general partner received a management fee from each station primarily based on the individual station's revenues. Subsequent to the Recapitalization, the general partner no longer received management fees. Pursuant to the Recapitalization, corporate expenses are allocated to each station to cover the salaries and expenses of senior management. Such allocation is based upon certain financial information and management's estimate of actual time spent. Management believes the allocation is reasonable and approximates what the expenses would have been on a stand-alone basis. In 1993, management fees totaling approximately $1,220,000 were paid to a general partner whose interest was redeemed concurrent with the Recapitalization. Beginning in 1994, costs associated with certain members of senior management were allocated to corporate expenses. Previously, these costs were included in station operating expenses. Total management fees and expenses, including corporate expenses, for the years ended December 31, 1993, 1994, and 1995 amounted to approximately $1,873,000, $2,498,000 and $4,482,000, respectively. (Continued) 11 RIVER CITY BROADCASTING Notes to Consolidated Financial Statements (14) Employee Benefits ----------------- River City Broadcasting maintains a qualified profit-sharing plan with a trustee, which includes a thrift provision qualifying under Section 401(k) of the Internal Revenue Code, covering substantially all employees. The provision allows the participants to contribute up to 12% of their compensation in the plan year, subject to statutory limitations. River City Broadcasting contributed approximately $121,000, $215,000, and $388,000 for the years ended December 31, 1993, 1994, and 1995, respectively, to the Plan. In 1994, River City Broadcasting began contributing to a multi-employer plan on behalf of certain union employees. Contributions to the plan totaled approximately $20,000 and $31,000 for the years ended December 31, 1994 and 1995, respectively. (15) Commitments and Contingencies ----------------------------- In conjunction with River City Broadcasting's commitment to obtain new programming, the Partnership has purchased approximately $34,579,000 of future program rights, including $14,089,000 of sports rights, of which approximately $4,047,000 will become payable in 1996. These rights are generally for a period ranging from one to four years. Program rights and related obligations in the accompanying consolidated financial statements do not include these future commitments. The Partnership loaned approximately $6,200,000 to Keymarket of South Carolina (KSC), a Company owned by a member of Keymarket management. The loan bears interest at the applicable federal rate, is secured by all of the assets of KSC, and is payable upon demand by the Partnership. KSC owns three radio stations and operates two additional radio stations under an LMA. River City Broadcasting holds an option to acquire KSC for consideration totaling the amount of the loans outstanding, including accrued interest, plus $1,000,000. The Partnership has capitalized approximately $1,400,000 of fees associated with a bond offering filed with the SEC in 1995. In the event the offering is aborted, the Partnership will recognize a charge to operations of $1,400,000. If the offering is consummated, these fees will be amortized over the life of the bonds. River City Broadcasting is involved in certain litigation matters arising in the normal course of business. In the opinion of management, these matters are not significant and will not have a material adverse effect on the Partnership's financial position. (16) Subsequent Event ---------------- In January 1996, the Partnership acquired the remaining 40% partnership interest in Twin Peaks Radio which owned and operated three radio stations in the Albuquerque, New Mexico area. (Continued) Schedule 1 ---------- Schedule 2 ----------
RIVER CITY BROADCASTING Supplementary Information - Consolidating Balance Sheet December 31, 1995 WTTV-TV/ Assets KDNL-TV KABB-TV KDSM-TV WTTK-TV KOVR-TV ------ ------- ------- ------- ------- ------- Current assets: Cash and cash equiva- lents $ 136,987 663,728 61,963 257,698 276,919 Receivables, net 9,446,816 6,475,645 1,971,162 7,524,596 5,333,369 Current portion of program rights 5,048,222 4,990,635 990,783 7,557,344 2,270,161 Prepaid and other current assets 2,762,779 404,158 177,762 115,647 101,716 ---------- -------- -------- -------- -------- Total current assets 17,394,804 12,534,166 3,201,670 15,455,285 7,982,165 Property and equipment, net 13,398,013 6,071,055 1,628,463 6,306,885 25,573,822 Program rights, less current portion 3,804,258 3,727,993 805,856 9,598,582 458,149 Intangible assets, net 13,834,974 330,825 2,979,140 4,981,976 53,061,805 Other noncurrent assets 18,862,013 114,830 - 577,465 1,034,217 Intracompany receivable (payable) 419,533,197 6,829,155 (5,474,147) (6,508,035) (81,859,044) ----------- ---------- --------- ---------- ---------- Total assets $ 486,827,259 29,608,024 3,140,982 30,412,158 6,251,114 =========== ========== ========= ========== ========== WLOS-TV/ KPNT-FM/ Assets WSYX-TV WFBC-TV WVRV-FM KEYMARKET Consolidated ------ ------- ------- ------- ------- ------- Current assets: Cash and cash equiva- lents 150,287 167,249 418 1,294,700 3,009,949 Receivables, net 6,767,482 4,861,239 1,094,329 12,226,334 55,700,972 Current portion of program rights 1,432,430 986,192 - - 23,275,767 Prepaid and other current assets 302,959 399,386 18,945 173,000 4,456,352 ---------- -------- -------- -------- -------- Total current assets 8,653,158 6,414,066 1,113,692 13,694,034 86,443,040 Property and equipment, net 15,504,051 15,949,746 2,081,073 9,756,836 96,269,944 Program rights, less current portion 917,035 338,344 - - 19,650,217 Intangible assets, net 113,401,363 33,195,000 4,375,786 124,717,488 350,878,357 Other noncurrent assets - - - - 20,588,525 Intracompany receivable (payable) (128,728,876) (48,106,061) (11,616,036) (144,070,153) - ----------- ---------- ---------- ----------- ---------- Total assets $ 9,746,731 7,791,095 (4,045,485) 4,098,205 573,830,083 ========== ========== ========== ========== ===========
Liabilities and Partners' Capital (Deficit) Current liabilities: Current installments of long-term debt 38,587,000 - - - - Current installments of Program rights payable 6,152,592 4,610,141 1,322,747 10,670,157 2,992,716 Accrued expenses 5,881,279 849,425 534,880 912,655 987,257 Accounts payable 3,907,463 573,611 372,024 306,187 13,758 ---------- -------- -------- -------- ------- Total current liabilities 54,528,334 6,033,177 2,229,651 11,888,999 3,993,731 Long-term debt, less current installments 404,413,000 - - - - Program rights payable, less current install- ments 7,655,070 6,095,348 1,339,883 9,919,146 1,104,898 1,173,874 Deferred compensation 5,459,000 - - - 57,833 ---------- --- --- --- ------- Total liabilities 472,055,404 12,128,525 3,569,534 21,808,145 5,156,462 Partners' capital (deficit) 14,771,855 17,479,499 (428,552) 8,604,013 1,094,652 ----------- ---------- --------- ---------- ---------- Total liabilities and partners' capital (deficit) $ 486,827,259 29,608,024 3,140,982 30,412,158 6,251,114 =========== ========== ========= ========== ========== Liabilities and Partners' Capital (Deficit) Current liabilities: Current installments of long-term debt - - - - 38,587,000 Current installments of Program rights payable 1,726,769 1,343,423 - 1,253,000 30,071,545 Accrued expenses 515,993 980,540 422,952 1,377,435 12,462,416 Accounts payable 282,022 52,453 1,207 1,415,521 6,924,246 -------- ------- ------ ---------- ---------- Total current liabilities 2,524,784 2,376,416 424,159 4,045,956 88,045,207 Long-term debt, less current installments - - - - 404,413,000 Program rights payable, less current install- ments 7,655,070 291,382 - - 27,579,601 Deferred compensation - - - - 5,516,833 --- --- --- --- ---------- Total liabilities 3,698,658 2,667,798 424,159 4,045,956 525,554,641 Partners' capital (deficit) 6,048,073 5,123,297 (4,469,644) 52,249 48,275,442 ---------- ---------- ---------- ------- ----------- Total liabilities and partners' capital (deficit) $ 9,746,731 7,791,095 (4,045,485) 4,098,205 573,830,083 ========== ========== ========== ========== =========== Note: Financing for the Partnership's acquisitions and working capital needs, the acquisition of Twin Peaks, and Partnership distributions are included in KDNL-TV.
See accompanying independent auditors' report.
RIVER CITY BROADCASTING Supplementary Information - Consolidating Schedule of Operations Year ended December 31, 1995 WTTV-TV/ KDNL-TV KABB-TV KDSM-TV WTTK-TV KOVR-TV WSYX-TV ------- ------- ------- ------- ------- ------- Net operating revenues: Local time sales $ 15,219,598 9,291,868 4,327,637 14,617,850 10,941,996 15,378,536 National time sales 10,572,978 10,260,740 2,844,380 10,481,144 12,358,279 12,067,694 Other revenues 1,438,516 1,544,350 306,137 924,624 2,045,354 1,320,056 ---------- ---------- -------- -------- ---------- ---------- Total operating revenues 27,231,092 21,096,958 7,478,154 26,023,618 25,345,629 28,766,286 ---------- ---------- --------- ---------- ---------- ---------- Operating costs: Station operating expenses 9,043,580 6,355,009 1,972,370 4,927,980 11,095,313 8,133,543 Selling expenses 3,654,498 2,993,809 1,516,619 3,038,069 2,945,963 2,452,770 Program amortization expense 7,571,430 3,979,706 1,504,520 8,385,108 5,386,975 2,623,583 Corporate expenses 649,508 500,000 - 550,000 400,000 700,000 Depreciation 633,464 713,700 897,220 2,283,646 2,680,064 2,107,422 Amortization of intangi- ble assets 1,010,731 97,507 936,720 2,239,389 3,771,848 9,779,555 ---------- ------- -------- ---------- ---------- ---------- Total operating costs 22,563,211 14,639,731 6,827,449 21,424,192 26,280,163 25,796,873 ---------- ---------- --------- ---------- ---------- ---------- Operating income (loss) 4,667,881 6,457,227 650,705 4,599,426 (934,534) 2,969,413 ---------- ---------- -------- ---------- --------- ---------- Other income (expense): Interest expense (32,986,956) - - (100,677) - - Amortization of de- ferred financing costs and debt discount (1,434,904) - - - - - Interest income 1,697,599 3,965 - - - - Other - - 12,041 (98,111) 170,633 (56,771) (50,408 ---------- --- ------- -------- -------- -------- -------- (32,724,261) 3,965 12,041 (198,788) 170,633 (56,771 ---------- ------ ------- --------- -------- -------- Net earnings (loss) $(28,056,380) 6,461,192 662,746 4,400,638 (763,901) 2,912,642 ========== ========== ======== ========== ========= ========== WLOS-TV/ KPNT-FM/ WFBC-TV WVRV-FM KEYMARKET Consolidated ------- ------- --------- ------------ Net operating revenues: Local time sales 9,350,343 4,334,425 24,128,844 107,591,097 National time sales 8,407,648 322,655 2,629,669 69,945,187 Other revenues 1,566,790 363,859 1,144,174 10,653,860 ---------- -------- ---------- ----------- Total operating revenues 19,324,781 5,020,939 27,902,687 188,190,144 ---------- --------- ---------- ----------- Operating costs: Station operating expenses 6,808,280 2,313,721 11,390,894 62,040,690 Selling expenses 2,310,355 1,407,484 5,654,093 25,973,660 Program amortization expense 1,600,930 - 2,400,000 33,452,252 Corporate expenses 400,000 204,333 1,078,523 4,482,364 Depreciation 1,930,747 (91,281) 368,544 11,523,526 Amortization of intangi- ble assets 2,463,069 378,430 6,971,924 27,649,173 ---------- -------- ---------- ----------- Total operating costs 15,513,381 4,212,687 27,863,978 165,121,665 ---------- --------- ---------- ----------- Operating income (loss) 3,811,400 808,252 38,709 23,068,479 ---------- -------- ------- ----------- Other income (expense): Interest expense - - - (33,087,633) Amortization of de- ferred financing costs and debt discount - - - (1,434,904) Interest income - - 13,540 1,715,104 Other - - - (22,616) ---------- --- --- -------- (50,408) - 13,540 (32,830,049) -------- --- ------- ----------- Net earnings (loss) 3,760,992 808,252 52,249 (9,761,570) ========== ======== ======= =========== Note: Interest expense related to the financing of the Partnership's acquisitions and working capital needs, organization costs of the Partnerships, the acquisition of Twin Peaks, and deferred compensation expense are included in KDNL-TV.
See accompanying independent auditors' report. INDEX TO EXHIBITS EXHIBITS DESCRIPTION 10.70 Asset Purchase Agreement dated April 10, 1996 is by and between KRRP, and Inc. and Sinclair Broadcast Group, Inc. EX-10.70 2 EXHIBIT 10.70 ASSET PURCHASE AGREEMENT ------------------------ THIS ASSET PURCHASE AGREEMENT is dated as of April ____, 1996, and is by and between KRRT, Inc., a corporation duly organized under the law of the State of Texas ("Seller"), and Sinclair Broadcast Group, Inc., a corporation duly organized under the laws of the State of Maryland ("Buyer"). RECITALS -------- WHEREAS, Seller owns certain assets used in connection with the business and operation of KRRT-TV, Channel 35, in Kerrville, Texas (the "Station"). WHEREAS, Seller desires to sell, assign, and transfer certain assets useful in connection with the operation of the Station described in more detail below, and Buyer desires to acquire these certain assets described in more detail below, all on the terms and conditions described herein. NOW, THEREFORE, IN CONSIDERATION OF the foregoing and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE 1 --------- TRANSFER OF ASSETS ------------------ 1.1. Transfer of Assets. Upon and subject to the terms and conditions stated in this Agreement, on the Closing Date (as defined in Section 2.3 hereof) Seller shall convey, transfer, and deliver to Buyer and Buyer shall acquire from Seller certain of the assets and properties of Seller, real and personal, tangible and intangible, which are owned and used by Seller in connection with the business and operations of the Station, including, without limitation, rights under contracts and leases, real and personal property, plant and equipment, inventories, intangibles, but excluding the Excluded Assets described in Section 1.2 hereof. The rights, assets, property, and business of Seller with respect to the Station to be transferred to Buyer pursuant to this Section 1.1 are hereinafter referred to as the "Station Assets." The Station Assets include the following: (a) Tangible Personal Property. All equipment, vehicles, furniture, fixtures, office materials and supplies, spare parts and other tangible personal property of every kind and description owned as of the date of this Agreement by Seller and used in connection with the business and operations of the Station, including, without limitation, those shown on Schedule 1.1(a) to this Agreement, and any additions, improvements, replacements, and alterations thereto made between the date of this Agreement and the Closing Date, but excluding all such property which is consumed, retired, or disposed of by Seller in the ordinary course of its business between the date of this Agreement and the Closing Date or as otherwise permitted by this Agreement. (b) Real Property. All real property owned (the "Real Property"), and all buildings, structures, and improvements thereon (the "Real Property Improvements") used in the business and operations of the Station and all other leaseholds and other interests in real property (the "Leasehold Interests") listed and so designed on Schedule 1.1(b) to this Agreement. (c) Agreements for Sale of Time. All orders and agreements now existing or entered into in the Station's ordinary course of business between the date hereof and the Closing Date for the sale of advertising time on the Station to the extent unperformed as of the Closing Date. (d) Program Contracts. All program licenses and contracts listed on Schedule 1.1(d) under which Seller is authorized to broadcast film product or programs on the Station, other than the Excluded Contracts (as defined in Section 1.2(j)), together with all program licenses and contracts that will have been entered into in the ordinary course of business of the Station and which have been reviewed with and accepted by the Buyer between the date of this Agreement and the Closing Date and the making of which by Seller are permitted by this Agreement, to the extent existing as of the Closing Date (collectively, the "Program Contracts"). (e) Other Contracts. All contracts relating to the Station to which Seller is a party, including trade or barter arrangements, (in addition to and not included in those set forth in Sections 1.1(b), 1.1(c) and 1.1(d) hereof) (collectively, "Other Contracts"), including all agreements, equipment leases, and other leases listed on Schedule 1.1(e) to this Agreement, together with all such contracts that will have been entered into in the ordinary course of business of the Station between the date of this Agreement and the Closing Date and the making of which by Seller is permitted by this Agreement, to the extent existing as of the Closing Date. As used in this Agreement, "Contract" means any agreement, lease, arrangement, commitment, or understanding, written or oral, expressed or implied, to which the Station, or Seller with respect to the Station, is a party or is bound. (f) Trademarks, etc. All trademarks, service marks, patents, trade names, jingles, slogans, and logotypes (other than those set forth in Section 1.2(a) "Trademarks, etc.") owned and used by Seller in connection with the business and 2 operations of the Station as of the date hereof listed on Schedule 1.1(f) to this Agreement ("Trademarks, etc.") as well as any others acquired by Seller in connection with operation of the Station between the date hereof and the Closing Date. (g) Programming Copyrights. All program and programming materials and elements of whatever form or nature owned by Seller and used solely in connection with the business and operations of the Station as of the date hereof, whether recorded on tape or any other substance or intended for live performance, and whether completed or in production, and all related common law and statutory copyrights owned by or licensed to Seller and used in connection with the business and operations of the Station, together with all such programs, materials, elements, and copyrights acquired between the date hereof and the Closing Date as set forth on Schedule 1.1(g) to this Agreement (collectively, the "Programming Copyrights"). (h) Files and Records. All files and other records of Seller relating solely to the business and operations of the Station prior to the Closing, other than account books of original entry and other than duplicate copies of such files and records, if any, that are maintained at the corporate offices of Seller for tax and accounting purposes. (i) Goodwill. All of Seller's goodwill in and going concern value associated with the Station Assets. (j) Prepaid Items. All deposits and prepaid expenses (which shall be prorated as provided in Section 2.2 below). (k) Financial Statements, Books, and Records. Copies of all financial statements (whether internal, compilation, reviewed, or audited), including all books, records, accounts, checks, payment records, tax records (including payroll, unemployment, real estate, and other tax records), and other such similar books and records of Seller with respect to the Station for three (3) fiscal years immediately preceding the date hereof and all interim periods following the date hereof through and including the Closing. (l) Network Affiliation Agreements. Any and all of the Station's network affiliation agreements, including, but not limited to, Seller's affiliation agreement with the United Paramount Network ("UPN") listed on Schedule 1.1(e) to this Agreement. (m) News Materials. All news files, archives, tapes, and other materials stored or used by Seller relating to the news operation, if any, of the Station, including, but not limited to, any raw film footage and other similar materials, existing as of the 3 date of this Agreement and through the Closing Date, except for such materials that may be disposed of or consumed in the ordinary course of business. 1.2. Excluded Assets. There shall be excluded from the Station Assets and retained by Seller, to the extent in existence on the Closing Date, the following assets (the "Excluded Assets"): (a) Trademarks, etc. Seller's rights to use the call letters KRRT-TV in any related names and phrases as designed as such on Schedule 1.2(a) ("Excluded Trademarks, Etc.") (b) Cash. All cash, cash equivalents, and cash items of any kind whatsoever, certificates of deposit, money market instruments, bank balances, and rights in and to bank accounts, marketable and other securities of Seller. (c) Personal Property Disposed Of. All tangible personal property disposed of or consumed in the ordinary course of the business of the Station between the date of this Agreement and the Closing Date. (d) Insurance. All contracts of insurance and all insurance plans and the assets thereof. (e) Claims. Any and all claims of Seller with respect to transactions occurring prior to the Closing Date, including, without limitation, claims for tax refunds and claims of Seller under contracts with respect to events occurring prior to the Closing Date. (f) Name. Any right to use the names "JJK Broadcasting, Inc.," KRRT, Inc.," "KRRT Licensee Corp.," or any logo or variation thereof. (g) Pension Assets, Etc. Pension, profit sharing, retirement, bonus, stock purchase, savings plans and trusts, 401(k) plans, health insurance plans, and the assets thereof, and all other plans, agreements, or understandings to provide employee benefits of any kind for employees of Seller. (h) Certain Contracts. The agreements listed on Schedule 1.2(h) hereof (the "Excluded Contracts") and any contract which is not capable of being transferred or assigned without the approval or consent of any party thereto or any third party if such approval or consent has not been obtained, subject, however, to Sections 1.3 and 8.6 hereof. 4 (i) Certain Books and Records. Seller's account books of original entry with respect to the Station, and all original books, records, accounts, checks, payment records, tax records (including payroll, unemployment, real estate, and other tax records), and other similar books, records, and information of Seller relating to Seller's operation of the business of the Station prior to Closing, with the proviso that Buyer shall be allowed to maintain copies of all such records and/or upon a written request for same shall be allowed further access to all excluded records at all reasonable times. (j) FCC Licenses and Licensee Equipment. All FCC station licenses issued with respect to the Station and all applications, including renewal applications, filed with the FCC with respect to the Station, and all antennae, transmitters, engineering equipment, etc. which are necessary and required by the FCC or otherwise and as listed on Schedule 1.2(j) hereof for the proper, legal, and effective operation of the Station as a broadcast facility. (k) Receivables. All notes and accounts receivable and other receivables of Seller relating to or arising out of the operation of the Station prior to Closing. 1.3. Liabilities. The Station Assets shall be sold and conveyed to Buyer free and clear of all liens, security interests, and encumbrances except (a) those disclosed on Schedules 1.3 and 3.6 hereto as "continuing" and the leases listed on Schedules 1.1(b) and 1.1(e); (b) liens or encumbrances on the real property included in the Station Assets that do not materially affect the value or the current use and enjoyment thereof in the operation of the Station Assets; and (c) the Assumed Liabilities (as hereinafter defined) and the other obligations and liabilities of Buyer assumed hereunder (all of the foregoing are sometimes referred to collectively herein as "Permitted Encumbrances"). Buyer agrees that on the Closing Date Buyer shall assume, undertake, and agree to pay, satisfy, perform, and discharge only those liabilities and obligations of Seller which have not yet accrued but which arise on or after the Closing Date under the contracts assigned pursuant to Sections 1.1(b), (c), (d), and (e) and any contracts that are entered into after the date hereof as permitted by this Agreement (all of the foregoing are referred to herein collectively as the "Assumed Liabilities"). If any required approval of or consent to the transfer and assignment of any contract included in the Station Assets is not obtained, Buyer shall assume and shall pay, satisfy, perform, and discharge Seller's liabilities and obligations which arise thereunder on and after the Closing Date unless Buyer's enjoyment of the rights and benefits under any such contract is expressly terminated by the other party thereto by affirmative action within twelve (12) months after the Closing Date because of such failure to obtain approval or consent and not because of any other default or nonperformance by Buyer or of a failure of Buyer to comply with the provisions of Section 6.5 below. The liabilities 5 and obligations assumed pursuant to the immediately preceding sentence shall also constitute "Assumed Liabilities" for purposes of this Agreement. Buyer shall not assume or be liable for (a) any liability or obligation arising out of the business or operations of the Station or the Station Assets prior to the Closing Date (except for the Assumed Liabilities and other obligations and liabilities specifically assumed by Buyer hereunder); (b) any liability or obligation under any contracts not specifically assumed by Buyer hereunder; (c) any liability or obligation of Seller for any federal, state, or local income or other taxes (subject, in the case of real estate taxes, to the proration provided for in Section 2.2 hereof); (d) any liability or obligation with respect to the Excluded Contracts; (e) any liability or obligation to any employee or former employee of Seller or the Station attributable to any period of time prior to the Closing Date; (f) any liability or obligation of Seller arising out of any litigation, proceeding, or claim by any person or entity relating to the business or operations of the Station or the Station Assets by Seller prior to the Closing Date, whether or not such litigation, proceeding, or claim is pending, threatened, or asserted before, on, or after the Closing Date; (g) any severance or other liability arising out of the termination of any employee's employment with or by Seller; (h) any duty, obligation, or liability relating to any pension, 401(k) or other similar plan, agreement, or arrangement provided by Seller to employees of Seller, and none of such plans shall be assumed by Buyer; or (i) any liability or obligation of Seller to Bank of Montreal or River City Broadcasting, L.P. The foregoing paragraph shall act exclusively for the benefit of the parties to this Agreement and not for the benefit of any other person or entity. To the extent, if any, Seller makes payment to Buyer as a result of any proration and adjustment pursuant to Section 2.2 hereof, Buyer shall then assume and shall be obligated to pay the obligations and liabilities for which adjustment was made pursuant to Section 2.2. Seller shall not be liable for (a) any liability or obligation arising out of the business or operations of the Station by Buyer on or after the Closing Date; (b) any Assumed Liabilities or other liabilities and obligations assumed by the Buyer under this Agreement; (c) any liability or obligation of Buyer for any federal, state, or local income or other taxes; (d) any liability or obligation incurred or assumed by Buyer with respect to any Station Assets; (e) any liability or obligation to any employee or former employee of Buyer attributable to any period of time on or after the Closing Date; (f) any liability or obligation of Buyer arising out of any litigation, proceeding, or claim by any person or entity relating to the business or operation of the Station Assets by Buyer on or after the Closing Date; or (g) any duty, obligation, or liability relating to any pension, 401(k) or other similar plan, agreement, or arrangement provided by Buyer to employees of Buyer. 6 ARTICLE 2 --------- PURCHASE/CLOSING ---------------- 2.1. Purchase Price. -------------- (a) In consideration of Seller's performance of this Agreement and the transfer and delivery of the Station Assets to Buyer at the Closing, Buyer will pay to Seller the purchase price which shall be calculated as set forth on Schedule 2.1 to this Agreement (the "Purchase Price"), plus or minus the amount of any adjustments made pursuant to Section 2.2 below, and Buyer will assume the Assumed Liabilities and the other obligations and liabilities to be assumed by Buyer hereunder. The Purchase Price shall be paid by Buyer to Seller on the Closing Date by wire transfer of immediately available funds to such bank accounts as are designated by Seller on or prior to the Closing Date. (b) Buyer and Seller agree to allocate the Purchase Price among the Station Assets based on an appraisal of a recognized appraisal firm selected by Buyer which is reasonably acceptable to Seller, whose fee shall be paid by Buyer. Subject to the immediately preceding sentence, Buyer and Seller agree to file returns and reports (including income tax returns) on the basis of such allocations provided that they are reasonable. Buyer shall provide Seller with a copy of such appraisal as soon as available but, in no event, not later than April 15, 1996. 2.2. Adjustments. ----------- (a) Operation of the Station and the income, expenses, and liabilities attributable thereto through 11:59 p.m. on the day preceding the Closing Date (the "Adjustment Date") shall be for the account of Seller and, thereafter, for the account of Buyer, and shall be prorated accordingly. Items including, but not limited to, power and utilities charges, ad valorem property taxes upon the basis of the most recent assessment available, rents, and similar prepared and deferred items, shall be prorated between Seller and Buyer, the proration to be made as of the Adjustment Date. All special assessments and similar charges or liens imposed against the Real Property, Leasehold Interests, or Real Property Improvements in respect of any period of time through the Adjustment Date, whether payable in installments or otherwise, shall be the responsibility of Seller, and amounts payable with respect to such special assessments, charges, or liens in respect of any period of time after the Adjustment Date shall be the responsibility of Buyer and shall be adjusted as required hereunder. 7 All trade, barter, or similar arrangements for the sale of advertising time other than for cash (with the exception of film or program barter agreements and radio barter agreements) ("Trades") shall be prorated as of the Adjustment Date. If, on the Closing Date, the aggregate value of the Station's performance obligations on or after the Closing Date under all such Trades, less the aggregate value of the goods, services, or other items to be received thereunder on or after the Closing Date, exceeds $50,000.00, then Buyer shall receive a credit against the Purchase Price for the amount of such excess and, if on the Closing Date, aggregate value of the goods, services, or other items to be received under all Trades exceeds the Station's performance obligations on or after the Closing Date by more than $50,000.00, then the Purchase Price shall be increased by the amount of such excess. Trades shall be valued in accordance with the valuation method currently used by Seller and approved by Buyer. There shall be no other proration or adjustment with respect to Trades, and there shall be no proration or adjustment with respect to any film or program barter agreements, radio barter agreements, or program contracts all of which shall be assumed by Buyer as part of the Assumed Liabilities. (b) On the Closing Date, to the extent practicable, the adjustments provided in Section 2.2(a) shall be made on the basis of the then most recently available financial statements and other information of the Station (the "Preliminary Adjustments"). Within forty five (45) days after the Closing Date, Buyer shall prepare a closing balance sheet (the "Closing Balance Sheet") as of the close of business on the Adjustment Date and submit it to Seller for review. Within seventy five (75) days after the Closing Date, final adjustments pursuant to Section 2.2 shall be determined, and any required refund or payment shall be made on the basis of the Closing Balance Sheet. Upon acceptance, payment hereunder will be remitted within five (5) days thereafter. If any dispute arises over the amount to be refunded or paid, such refund or payment shall nonetheless be made to the extent such amount is not in dispute. If any such dispute cannot be resolved by the parties or their respective independent public accountants within ninety (90) days after the Closing Date, the disputed matters shall be referred to a mutually satisfactory independent public accounting firm of national stature which has not been employed by any party hereto for the two (2) years preceding the date of such referral; such firm to be selected by Seller's and Buyer's respective independent public accountants. The determination of such firm shall be conclusive and binding on each party. One half of the fees of such firm shall be paid by Seller, and one half shall be paid by Buyer. 2.3. The Closing. The closing of the transactions provided for in this Agreement (the "Closing") shall be held in the offices of Thomas & Libowitz, P.A., USF&G Tower, Suite 1100, 100 Light Street, Baltimore, Maryland 21202, or such other location as Buyer may select at 10:00 a.m. on a date (the "Closing Date") as shall be set by Buyer upon 8 five (5) days previous notice to Seller, which is not later than December 31, 1996 (the "Termination Date"). 2.4. Deliveries at Closing. All actions at the Closing shall be deemed to occur simultaneously, and no document or payment shall be deemed to be delivered or made until all documents and payments are delivered or made to the reasonable satisfaction of Buyer, Seller, and their respective counsel; provided, however, the execution, delivery, or assignment of the Time Brokerage Agreement, more fully described below, will be deemed to occur immediately after the Closing of this Agreement. (a) Deliveries by Seller. At the Closing, Seller shall deliver to Buyer such instruments of conveyance and other customary documentation as shall in form and substance be reasonably satisfactory to Buyer and its counsel, including, without limitation, the following: (i) Consents to the assignment from Seller to Buyer of the Leasehold Interests; (ii) one or more bills of sale conveying the personal property included in the Station Assets; (iii) any mortgage discharges or releases of liens that are necessary in order to transfer the Station Assets as contemplated by Section 1.3; (iv) certificates of Seller as required by Section 8.1(c); (v) a certified copy of the resolutions or proceedings of the Seller authorizing the transactions contemplated by this Agreement; (vi) a certificate as to the existence and good standing of Seller issued by the Clerk of the State Corporation Commission of the State of Texas (the "SCC") dated shortly before the Closing Date; (vii) a receipt for the Purchase Price; (viii) the opinions of counsel required by Section 8.3; (ix) all consents received by Seller through the Closing Date to the assignment to or assumption by Buyer of the Program Contracts, the other contracts and the other licenses, contracts, and leases included in the Station Assets; 9 (x) the Time Brokerage Agreement contemplated by Sections 7.6 and 8.7; (xi) the Leases or Subleases contemplated by Sections 7.5 and 8.6; (xii) such other documents as Buyer shall reasonably request; and (xiii) a list of all cable television systems which carry the Station's signal as of a date that is not prior to the seventh (7th) day prior to the Closing Date, which list will be certified by officer or similar representative of the Seller as not being materially inaccurate to the best of Seller's knowledge, information and belief. (b) Deliveries by Buyer. At the Closing, Buyer shall deliver to Seller the Purchase Price and such instruments of assumption and other customary documentation as shall in form and substance be reasonably satisfactory to Seller and its counsel, including, without limitation, the following: (i) the Purchase Price which shall be delivered in the manner set forth in Section 2.1(a); (ii) an assumption of liabilities agreement pursuant to which Buyer will assume the Assumed Liabilities; (iii) a certificate of Buyer as required by Section 7.1(c); (iv) a certified copy of the resolutions or proceedings of Buyer authorizing the transactions contemplated by this Agreement; and (v) a certificate as to the existence and good standing of Buyer issued by the Maryland Department of Assessment and Taxation shortly before the Closing Date and certificate of the SCC of Buyer's qualification to do business in the State of Texas. (vi) the opinion of counsel required by Section 7.3; (vii) the Leases or Subleases contemplated by Sections 7.5 and 8.6; (viii) the Time Brokerage Agreement contemplated by Sections 7.6 and 8.7; (ix) such other documents as Seller shall reasonably request. 10 2.5. Effect of Laws or Proceedings. The parties hereto acknowledge and agree that, notwithstanding anything in this Agreement or any other documents related hereto to the contrary (including, without limitation, any representations or warranties made by Seller, covenants of the Seller made herein, any condition precedent to the obligations of Buyer set forth in this Agreement, or any provisions relating to indemnification to be made by Seller hereunder), matters relating to, in connection with or resulting or arising from: (a) the effect, for purposes of any laws, statutes, ordinances, rules, regulations, orders or other actions, whenever promulgated or enacted, including any communications or communications-related laws, statutes, ordinances, rules, regulations, orders or other actions, whenever promulgated or enacted, and any licenses, permits or authorizations issued by any governmental authority (including, without limitation, the FCC) (collectively, "Laws") or any contract or agreement to be conveyed to or assumed, directly or indirectly, by Buyer pursuant hereto (collectively, "Conveyed Contracts"), of (1) the transfer of the Station Assets to Buyer and the retention by Seller of the Excluded Assets; (2) the execution, delivery and performance of the Time Brokerage Agreement; or (3) the consummation of the other transactions contemplated hereby; (b) any conflict with, violation of, or breach or default under, or termination of any Laws or Conveyed Contracts as a result of the consummation of any of the transactions contemplated hereby (including, without limitation, the Time Brokerage Agreement; or (c) any claims, actions, suits or other proceedings of any nature whatsoever ("Proceedings"), by any person or entity (including, without limitation, any governmental entity) by or before any court, administrative agency or otherwise, alleging a conflict, violation of, breach or default under, termination of, or other inconsistency with Laws or Conveyed Contracts as a result of the consummation of any of the transactions contemplated hereby, including, without limitation, the Time Brokerage Agreement shall not: (i) cause or constitute, directly or indirectly, a breach by Seller of any of its representations, warranties, covenants or agreements set forth in this Agreement or any other document related hereto (and such representations, warranties, covenants and agreements shall hereby be deemed to be modified appropriately to reflect and permit the impact and existence of such Laws, Conveyed Contracts and Proceedings and to permit any action by Seller to comply with or attempt in good faith to comply with such Laws, Conveyed Contracts and Proceedings); (ii) otherwise cause or constitute, directly or indirectly, a default or breach by Seller under this Agreement or any other documents related hereto; (iii) result in the failure of any condition precedent to the obligations of Buyer under this Agreement or any other document related hereto to be satisfied; 11 (iv) otherwise excuse Buyer's performance of its obligations under this Agreement or any other document related hereto; or (v) give rise to any claim for indemnification or other compensation by Buyer or any adjustment of the Purchase Price; provided that the foregoing clauses (i) through (v) shall not apply to (1) any claim brought by a shareholder of Seller, JJK Broadcasting, Inc., or KRRT License Corp., or any claim brought by any officer, director, agent or Affiliate of Seller; (2) any breach by Seller of its covenants set forth in this Agreement; or (3) any action instituted by the Federal Trade Commission or the Department of Justice under the HSR Act, in each case which shall be governed by other applicable provisions of this Agreement. For purposes of this Section 2.5, "Affiliate" means with respect to a party, any Person, directly or indirectly, controlling or controlled by such party, or any Person under direct or indirect common control with party (as such terms are interpreted from time to time pursuant to the Securities Act of 1933, as amended). For purposes of this Section 2.5, "Person" means and includes natural persons, corporations, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts, or other organizations, whether or not legal entities, and governments and agencies with political subdivisions thereof. ARTICLE 3 --------- REPRESENTATIONS AND WARRANTIES OF SELLER ---------------------------------------- Seller represents and warrants to Buyer as follows: 3.1. Organization. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Texas. Seller has the requisite power and authority to carry on the business of the Station now being conducted by it, to own and operate the Station Assets owned and operated by it, and to enter into and consummate the transactions contemplated by this Agreement. 3.2. Corporate Action. All corporate actions and proceedings necessary to be taken by or on the part of Seller in connection with the execution and delivery of this Agreement and the consummation of transactions contemplated hereby and necessary to make the same effective have been duly and validly taken. This Agreement has been duly and validly authorized, executed, and delivered by Seller and constitutes its valid and 12 binding agreement, enforceable in accordance with and subject to its terms, except as limited by laws affecting the enforcement of creditors' rights or contractual obligations generally. 3.3. Financials. Seller has delivered to Buyer a copy of its unaudited balance sheet of KRRT, Inc. as of September 30, 1995 and its statement of Income and Retained Earnings for the three (3) months ended September 30, 1995 and related Statement of Cash Flows for the period ending September 30, 1995 (the "Financial Statements"). The Financial Statements are, in all material respects, (a) in agreement with the books and records regularly maintained by Seller with respect to the Station, and (b) prepared in the usual and ordinary course of business and fairly reflect the financial condition and operations of the Station (except, to the extent not applied on a consistent basis in all material respects, as noted thereon and except with respect to the 1996 Internal Financial Statements the absence of notes thereto) throughout the year or period involved, and the 1995 Financial Statements present, and the 1996 Internal Financial Statements will present fairly in all material respects the financial position of the Station as at the respective dates of the balance sheet and the results of its operations and its cash flow for the year or period then ended. The 1996 Internal Financial Statements are, and the 1996 Quarterly Internal Financial Statements (defined below) to be delivered pursuant to Section 5.3(a) hereof will be, in all material respects, in agreement with the books and records regularly maintained by Seller with respect to the Station. December 31, 1995 is sometimes referred to herein as the "Balance Sheet Date." 3.4. Business Since the Balance Sheet Date. From the Balance Sheet Date to the date of this Agreement, there has been no material adverse change in the Station's financial condition, business, or assets taken as a whole (provided that the foregoing shall exclude any material adverse change attributable to facts affecting the television industry generally or to general economic conditions or governmental or legislative laws, rules, or regulations or actions taken by Buyer, or any affiliate of Buyer), and the business of the Station has in all material respects been conducted in the ordinary course of business and in the same manner as it was before the Balance Sheet Date. 3.5. Condition of Assets. The material tangible assets included in the Station Assets, and the Leasehold Interests are being maintained in accordance with general industry practices in good operating condition and repair, wear and tear in ordinary usage excepted. 13 3.6. Title, Etc. ---------- (a) Seller does not own any Real Property in connection with the operation of the Station. Seller is not in material default under any of the Leasehold Interests. Seller has not received any notice and has no knowledge of any pending, threatened, or contemplated condemnation proceeding affecting the Leasehold Interests listed on Schedule 1.1(b) or any part thereof or of any sale or other disposition of the Leasehold Interests, or any portion thereof in lieu of condemnation. Except as set forth on Schedule 3.6, Seller has good and marketable title to the tangible assets and personal property included in the Station Assets, and all such assets and personal property will on the Closing Date be free and clear of all security interests, mortgages, pledges, liens, encumbrances, or charges of any nature whatsoever except for Permitted Encumbrances. 3.7. Trademarks, Etc. Seller possesses adequate rights, licenses, or other authority to use all trademarks, and trade names necessary to conduct the business of the Station as presently conducted or presently proposed to be conducted by Seller. Seller has not received any notice with respect to any alleged infringement or unlawful or improper use of any copyright, trademark, trade name, or other intangible property right owned or alleged to be owned by others and used in connection with the Station. Seller represents and warrants that all trademarks listed on Schedule 1.1(f) hereto have not been registered. 3.8. Insurance. The Station and the Station Assets are, as of the date of this Agreement, adequately insured by Seller against loss or damage by fire and other hazards and risks of the character usually insured against by persons operating similar properties and businesses under policies issued by insurers of recognized responsibility. 3.9. Contracts. Schedules 1.1(b), 1.1(c), 1.1(d), 1.1(e), and 3.10 to this Agreement contain a complete list of the following, as to which the Station or Seller with respect to the Station Assets is a party, as of the date of this Agreement: (a) any television network affiliation agreements; (b) contracts evidencing time sales to advertisers or advertising agencies which are "trade" or "barter" transactions which require the furnishing of advertising time on the Station at any time after the Closing Date; (c) sales agency or advertising representation contracts which are not 14 terminable by Seller without penalty upon notice of thirty (30) days or less; (d) licenses or agreements under which Seller is authorized to broadcast on the Station filmed or taped programming supplied by others; (e) leases of personal property which have a term, including renewal options exercisable by any party thereto, ending more than one year after the date of this Agreement and/or which involve annual payments of more than $5,000.00; (f) contracts not made in the ordinary and usual course of business; and (g) any other contracts which are material to the business and operation of the Station Assets. Seller represents and warrants that all information regarding the contracts listed on Schedule 1.1(d) is correct and accurate including, without limitation, the contract price, number of exhibitions licensed or available, the amount of license fees paid or amount of unpaid license fees, any information concerning additional episodes licensed thereunder and the fees therefor, or any other information regarding such contracts set forth on Schedule 1.1(d). 3.10. Litigation. Except as set forth on Schedule 3.10 hereto: (i) Seller, with respect to the Station, has not been operating under or subject to or in default with respect to any order, writ, injunction, or decree of any court or federal, state, municipal, or other governmental department, commission, board, agency, or instrumentality which has had or could reasonably be expected to have a material adverse effect on the operations of the Station; (ii) there is no litigation pending by or against, or to Seller's actual knowledge (after inquiry of the Station's management) threatened against, Seller related to or affecting any of the Station Assets which materially interferes or could reasonably be expected to interfere materially with the operations of the Station or with Seller's ability to transfer the Station Assets to Buyer. There are no attachments, executions, or assignments for the benefit of creditors or voluntary or involuntary proceedings in bankruptcy pending against or contemplated by Seller, and no such actions have been threatened against Seller. There is no litigation or proceeding pending or, to the best of Seller's knowledge, threatened against or affecting Seller that would affect Seller's ability to carry out the transactions contemplated by this Agreement. 3.11. Compliance with Laws. Seller, with respect to the Station, is to its knowledge, in compliance in all material respects with all applicable laws, regulations, and orders, and the present uses by Seller of the Station Assets do not, to Seller's actual 15 knowledge (after inquiry of the Station's management), violate any such laws, regulations, or orders in any material respect. 3.12. No Defaults. Except as set forth on Schedule 3.12, on the Closing Date, neither the execution and delivery by Seller of this Agreement, nor the consummation by Seller of the transactions contemplated hereby would constitute or, with the giving of notice or the passage of time or both, would constitute a violation of or would conflict with or result in any breach of or any default under, any of the terms, conditions, or provisions of any law or regulation to which Seller is subject, or of Seller's articles of incorporation or bylaws, or of any material contract, agreement, or instrument to which Seller is a party or by which Seller is bound, except to the extent any necessary consents to assignment of the program contracts and consents to assignment of the leases and other contracts included in the Station Assets are required and have not been obtained. 3.13. Brokers. There is no broker or finder or other person who would have any valid claim against any of the parties to this Agreement for a commission or brokerage in connection with this Agreement or the transactions contemplated hereby as a result of any agreement or understanding of or action taken by Seller. 3.14. Information Regarding Certain Cable Matters. Schedule 3.14 hereto sets forth the following information regarding certain cable matters with regard to the Station: (a) a list of all cable systems which, to Seller's knowledge, carry the Station's signal; (b) a list of all cable systems, if any, located within the Station's respective television market[s], as defined in Section 76.55 (e) of the rules of the FCC (each, a "Market Cable System") to which Seller has provided a must-carry notice in accordance with provisions of the Cable Television Consumer Protection and Competition Act of 1992, and the rules and regulations of the FCC (collectively the "Cable Act Requirements"), and a list of market cable systems to which Seller has not provided any must-carry or retransmission consent notice, in each case as the date of this agreement; (c) a list of all Market Cable Systems, if any, to which Seller has provided or does provide a retransmission consent notice in accordance with the Cable Act Requirements on or prior to the date of this agreement; (d) a list of all retransmission consent and/or copyright indemnification agreements, if any, entered into by Seller with respect to the Station in effect on the date of this Agreement; 16 (e) a list of all retransmission consent and/or copyright indemnification agreements described in Section 3.14 (d), if any, which are not freely assignable by Seller to Buyer in connection with the sale of the Station Assets; (f) a list of all retransmission consent notices referred to in Section 3.14 (c), if any, which were not delivered to the Market Cable System in question on or before June 17, 1993; (g) a list of all cable market systems, if any, which are carrying Station's signal on the date of this Agreement and have notified Seller on or prior to the Date of this Agreement of such cable systems intention to delete the Station from carriage or to change the Station's channel position on such cable system, pursuant to any agreement furnished pursuant to this Section 3.14 (g); (h) copies of all notices, if any, received by Seller on or prior to the date of this Agreement from any Market Cable System alleging that the Station does not deliver an adequate signal level as defined in Section 76.55 (c) (3) of the rules of the FCC, to such market cable system's principal head (other than any such notice as to which such failure has been remedied or been determined not to exist), and all further correspondence between the Station and any such market cable system relating to such notice; (i) a list of all Petitions for Special Relief to include additional communities in the Station's television market, as defined in Section 76.55 (e) of the rules of the FCC, if any, filed by Seller with respect to the Station on or prior to the date of this agreement; and (j) copies of any and all Petitions for Special Relief requesting the deletion of any communities from the Station's television market, if any, which are pending as of the date of this agreement. ARTICLE 4 ---------- REPRESENTATIONS AND WARRANTIES OF BUYER --------------------------------------- 4.1. Incorporation. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Maryland, and has the corporate power and authority to enter into and consummate the transactions contemplated by this Agreement and is qualified (or will be qualified as of the Closing Date) to do business in the State of Texas. 17 4.2. Corporate Action. All corporate actions and proceedings necessary to be taken by or on the part of Buyer in connection with the execution and delivery of this Agreement and the consummation of transactions contemplated hereby and necessary to make the same effective have been duly and validly taken. This Agreement has been duly and validly authorized, executed, and delivered by Buyer, and constitutes its valid and binding agreement, enforceable in accordance with and subject to its terms, except as limited by laws affecting the enforcement of creditors' rights or contractual obligations generally. 4.3. No Defaults. Neither the execution and delivery by Buyer of this Agreement, nor the consummation by Buyer of the transactions contemplated hereby, will constitute or, with the giving of notice or the passage of time or both, would constitute a violation of or would conflict with or result in any breach of or default under any of the terms, conditions, or provisions of any judgment, law, or regulation, or Buyer's certificate of incorporation or bylaws, or any contract, agreement, or instrument to which Buyer is a party or by which it is bound. 4.4. Brokers. There is no broker or finder or other person who would have any valid claim against any of the parties to this Agreement for a commission or brokerage in connection with this Agreement or the transactions contemplated hereby as a result of any agreement or understanding of or action taken by Buyer. 4.5. Litigation. There is no litigation, proceeding, or investigation of any nature pending or, to the best of Buyer's knowledge, threatened against or affecting it that would affect Buyer's ability fully to carry out the transactions contemplated by this Agreement. There are no attachments, executions, or assignments for the benefit of creditors or voluntary or involuntary proceedings in bankruptcy pending against or contemplated by Buyer, and no such actions have been threatened against Buyer. ARTICLE 5 --------- COVENANTS OF SELLER PENDING AND AFTER THE CLOSING DATE ------------------------------------------------------ Seller covenants and agrees (that from the date hereof to and including the Closing Date and thereafter where so indicated) as follows: 5.1. Maintenance of Business. Seller shall through the Closing Date, with respect to the Station Assets, continue to carry on its business and operations and keep its books of account, records, and files in the ordinary and usual course of business. Seller shall from this date forward and at all times thereafter continue to operate the Station in all material respects in accordance with the terms of the FCC Authorizations 18 and in compliance in all material respects with all applicable laws and FCC rules and regulations. Seller will promptly execute any necessary applications for renewal of the FCC Authorizations. Through the Closing Date, Seller shall comply in all respects with the terms and conditions of the Time Brokerage Agreement between Seller and River City Broadcasting, L.P. dated August 3, 1995, as amended from time to time. Seller will maintain in full force and effect through the Closing Date adequate property damage, liability, and other insurance with respect to the Station Assets. Nothing contained in this Agreement shall give Buyer any right from this date forward or at any time thereafter to control the programming, operations, or any other matter relating to the Station, and Seller shall have complete control of the programming, operations, and all other matters relating to the Station subject to the effect of the Time Brokerage Agreement referred to in Sections 7.6 and 8.7 hereof. Prior to the Closing Date, except as otherwise permitted by the last paragraph of this Section 5.1, Seller will not without the prior written consent of Buyer (to the extent the following restrictions are permitted by the FCC and all applicable law): (a) sell, lease, transfer, or agree to sell, lease, or transfer any Station Assets which are material to the operation of the Station, considered as a whole or which have individually or in the aggregate a value in excess of $10,000.00 without replacement thereof with a substantially equivalent asset of substantially equivalent kind, condition, and value; (b) enter into any contracts under which Seller is authorized to broadcast programming on the Station; or (c) apply to the FCC for any construction permit that would materially restrict the Station's present operations or make any material change in the Leasehold Interests. Notwithstanding anything in this Agreement to the contrary, Seller shall be entitled to renew or extend the term of any contract listed on Schedules 1.1(b), 1.1(d), and 1.1(e) which, by its terms, expires or will expire prior to January 3, 1995 and, in connection therewith, agrees not to increase the amounts payable thereunder during any such renewal term except in accordance with the Station's usual practices. 19 5.2. Organization/Goodwill. Seller shall from this date forward and at all times thereafter use all reasonable efforts to preserve the business organization of the Station and preserve the goodwill of the Station's suppliers, customers, and others having business relations with it. 5.3. Reports; Access to Facilities, Files, and Records. (a) Seller will, within fifteen (15) days after completion (and receipt of the auditors report), provide to Buyer (i) a copy of the unaudited balance sheet of the Station as of December 31, 1995 and the related statements of operations and cash flows for the year then ended (the "1995 Financial Statements"), and (ii) copies of the internally prepared unaudited balance sheet of the Station and the related statement of operations (the "1996 Quarterly Internal Financial Statements") for the first fiscal quarter (and subsequent fiscal quarters, if any) during calendar year 1996 occurring prior to the Closing Date. (b) Seller will, within fifteen (15) days after completion, provide to Buyer, for informational purposes only (and without making any representation or warranty with respect thereto), copies of the Station's (i) quarterly and year-to-date broadcast cash flow, and (ii) monthly balance sheet and operating statement which, in each case, are prepared internally for management purposes in the ordinary course between the date hereof and the Closing Date. (c) At the request of Buyer, Seller shall from time to time give or cause to be given to the officers, employees, accountants, counsel, and representatives of Buyer (i) access, upon reasonable prior notice, during normal business hours to all facilities, property, accounts, books, deeds, title papers, insurance policies, licenses, agreements, contracts, commitments, records, equipment, machinery, fixtures, furniture, vehicles, accounts payable and receivable, and inventories related to the Station, and (ii) all such other information concerning the affairs of the Station as Buyer may reasonably request provided that the foregoing does not disrupt or interfere with the business and operations of the Station. 5.4. Consents. Seller shall use reasonable efforts (without being required to make any payment not specifically required by the terms of any licenses, leases, and other contracts) to obtain or cause to be obtained prior to the Closing Date consents to the assignment to or assumption by Buyer of all licenses, leases, and other contracts included in the Station Assets that require the consent of any third party by reason of the transactions provided for in this Agreement. If any necessary consent or approval is not obtained prior to the Closing Date, then Seller shall cooperate with Buyer in any reasonable arrangement deemed necessary or desirable by Buyer to provide to Buyer, 20 after the Closing Date, the benefits under such contracts, including enforcement for the benefit of Buyer of any and all rights of Seller against third parties. 5.5. Notice of Proceedings. Seller shall promptly notify Buyer in writing upon becoming aware of any order or decree or any complaint praying for an order or decree restraining or enjoining the consummation of this Agreement or the transactions contemplated hereunder, or upon receiving any notice from any governmental department, court, agency, or commission of its intention to institute an investigation into or institute a suit or proceeding to restrain or enjoin the consummation of this Agreement or such transactions, or to nullify or render ineffective this Agreement or such transactions if consumed. 5.6. Confidential Information. Seller shall not use or disclose to third parties (except as may be required by law and then only with prior notice to Buyer) any confidential information received from Buyer or its agents in the course of investigating, negotiating, and completing the transactions contemplated by this Agreement. Nothing shall be deemed to be confidential information that: (a) is known to Seller at the time of its disclosure to it; (b) becomes publicly known or available other than through disclosure by Seller; (c) is rightfully received by Seller from a third party; or (d) is independently developed by Seller. 5.7. Consummation of Agreement. Seller shall use its best efforts to fulfill and perform all conditions and obligations on its part to be fulfilled and performed under this Agreement and to cause the transactions contemplated by this Agreement to be fully carried out. 5.8. Notice of Certain Developments. Seller shall give prompt written notice to Buyer (a) if the Station Assets shall have suffered damage on account of fire, explosion, or other cause of any nature which is sufficient to prevent operation of Station for more than twenty-four (24) hours, and (b) if the regular broadcast transmission of Station in the normal and usual manner in which it heretofore has been operating is interrupted for a period of twenty-four (24) hours or more. 5.9. Hart-Scott-Rodino. As soon as possible after the date hereof, but in no event later than five (5) business days after the date hereof, Seller shall prepare and file all documents with the Federal Trade Commission and the United States Department of Justice, as is required to comply with the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("Hart-Scott-Rodino Act"), and shall promptly furnish all materials thereafter requested by any of the regulatory agencies having jurisdiction over such filings. 21 5.10. Updated Information. Seller agrees to provide to Buyer on or shortly prior to the Closing Date a list of any additional leases or contracts which would have been required to be listed on Schedules 1.1(b),(d), or (e) hereto pursuant to Article 3 hereof if such leases or contracts existed on the date of this Agreement, or are entered into subsequent to the date of this Agreement. ARTICLE 6 --------- COVENANTS OF BUYER PENDING THE CLOSING DATE ------------------------------------------- Buyer covenants and agrees that from the date hereof to and including the Closing Date: 6.1. Confidential Information. Buyer shall not use for its or any third party's benefit and shall not disclose to third parties (except as may be required by law and then with prior notice to Seller) any confidential information (including, without limitation, financial information and information regarding program contracts and revenue) received from Seller or their agents in the course of investigating, negotiating, and performing the transactions contemplated by this Agreement. Nothing shall be deemed to be confidential information that: (a) is known to Buyer at the time of its disclosure to it; (b) becomes publicly known or available other than through disclosure by Buyer; (c) is rightfully received by Buyer from a third party; or (d) is independently developed by Buyer. 6.2. Consummation of Agreement. Buyer shall use its best efforts to fulfill and perform all conditions and obligations on its part to be fulfilled and performed under this Agreement and to cause the transactions contemplated by this Agreement to be fully carried out. Buyer agrees to cooperate with Seller in connection with obtaining consents to the assignment to or assumption by Buyer of licenses, leases, and other contracts included in the Station Assets, and to execute such assumption instruments as may be required in connection with obtaining such consents. 6.3. Notice of Proceedings. Buyer will promptly notify Seller in writing upon becoming aware of any order or decree or any complaint praying for an order or decree restraining or enjoining the consummation of this Agreement or the transactions contemplated hereunder, or upon receiving any notice from any governmental department, court, agency, or commission of its intention to institute an investigation into or institute a suit or proceeding to restrain or enjoin the consummation of this Agreement or such transactions, or to nullify or render ineffective this Agreement or such transactions if consummated. 22 6.4. Hart-Scott-Rodino. As soon as possible after the date hereof, but in no event later than five (5) business days after the date hereof, Buyer shall prepare and file all documents with the Federal Trade Commission and the United States Department of Justice as is required to comply with the Hart-Scott-Rodino Act, and shall promptly furnish all materials thereafter requested by any of the regulatory agencies having jurisdiction over such filings. 6.5. Assignments. Buyer covenants and agrees that it shall provide, on request, to a Distributor financial or other information the Distributor may reasonably request which information is necessary in order for the Distributor to consent to the assignment of any Program Contract or other Contract to Buyer. In the event a Distributor refuses to consent to the assignment of any such contract(s) to Buyer solely because of Buyer's financial circumstances, Buyer agrees to increase the Purchase Price by an amount equal to the unpaid balance due on such contract(s) as of the Closing Date, provided however, that: (i) Buyer receives the economic benefit of such contract(s), (ii) any increase in the Purchase Price paid hereunder is used by Seller solely to payoff any unpaid balance due under such contract(s), and (iii) Buyer shall not be required to make any payment(s) hereunder in excess of the unpaid balance due on such contract(s) or more frequently than required by the schedule of payments contained in such contract(s). ARTICLE 7 --------- CONDITIONS TO THE OBLIGATIONS OF SELLER --------------------------------------- The obligations of Seller under this Agreement are, at its option, subject to the fulfillment of the following conditions prior to or at the Closing Date: 7.1. Representations, Warranties, Covenants. -------------------------------------- (a) each of the representations and warranties of Buyer contained in this Agreement shall have been true and accurate in all material respects as of the date when made and shall be deemed to be made again on and as of the Closing Date and shall then be true and accurate in all material respects except to the extent changes are permitted or contemplated pursuant to this Agreement; (b) Buyer shall have performed and complied in all material respects with each and every covenant and agreement required by this Agreement to be performed or complied with by it prior to or at the Closing Date; and 23 (c) Buyer shall have delivered to Seller a certificate of an officer of Buyer dated the Closing Date certifying to the fulfillment of the conditions set forth in Sections 7.1(a) and 7.1(b). 7.2. Proceedings. ---------- (a) As of the Closing Date, no action or proceeding shall have been instituted before any court or governmental body to restrain or prohibit, or to obtain substantial damages in respect of, the consummation of this Agreement that, in the reasonable opinion of Seller, may reasonably be expected to result in a preliminary or permanent injunction against such consummation or, if the transactions contemplated hereby were consummated, an order to nullify or render ineffective this Agreement or such transactions or the recovery against Seller of substantial damages; and (b) as of the Closing Date, none of the parties to this Agreement shall have received written notice from any governmental body of (i) its intention to institute any action or proceeding to restrain or enjoin or nullify this Agreement or the transactions contemplated hereby, or to commence any investigation (other than a routine letter of inquiry, including a routine Civil Investigative Demand) into the consummation of this Agreement, or (ii) the actual commencement of such an investigation. 7.3. Opinion of Counsel. Seller shall have received an opinion of Buyer's counsel dated the Closing Date, in the form[s] attached to this Agreement as Schedule 7.3. 7.4. Hart-Scott-Rodino. The waiting period under the Hart-Scott-Rodino Act shall have expired, and there shall not be outstanding any order of a court restraining the transactions contemplated hereby. 7.5. Leases/Subleases. The Seller shall have received from Buyer certain leases (the "Leases") or subleases (the "Subleases") for the Leasehold Interests fully executed by the Buyer which will enable the Seller to continue to operate the Station consistent with: (i) previous operating expenses and practices, (ii) its FCC Authorizations, and (iii) all FCC rules, regulations and procedures. The Leases and/or Subleases to be delivered hereunder and which are contemplated hereby shall be reasonably acceptable to Seller and shall be consistent in all material terms with the material terms of the existing leases for the Leasehold Interests. 7.6. Time-Brokerage Agreement. The Seller shall have received from Buyer a time brokerage agreement for the Station in the form of Schedule 7.6 hereto (the "Time Brokerage Agreement") fully executed by Buyer which agreement shall be, in all material 24 respects, consistent with the rules, regulations and policies of the FCC and reasonably acceptable to Seller. 7.7. Other Instruments. Buyer shall have delivered to Seller such instruments, documents, and certificates as are contemplated by Section 2.4 (b) hereof. ARTICLE 8 --------- CONDITIONS TO THE OBLIGATIONS OF BUYER -------------------------------------- The obligations of Buyer under this Agreement are, at its option, subject to the fulfillment of the following conditions prior to or at the Closing Date. 8.1. Representations, Warranties, Covenants. -------------------------------------- (a) Each of the representations and warranties of Seller contained in this Agreement shall have been true and accurate in all material respects as of the date when made and shall be deemed to be made again on and as of the Closing Date and shall then be true and accurate in all material respects except to the extent changes are permitted or contemplated pursuant to this Agreement. (b) Seller shall have performed and complied in all material respects with each and every covenant and agreement required by this Agreement to be performed or complied with by it prior to or at the Closing Date, other than delivery to Buyer of the instruments conveying the Station Assets to Buyer. (c) Seller shall have delivered to Buyer a certificate of an officer of Seller dated the Closing Date certifying to the fulfillment of the conditions set forth in Sections 8.1(a) and 8.1(b). 8.2. Proceedings. ----------- (a) As of the Closing Date, no action or proceeding shall have been instituted before any court or governmental body to restrain, or prohibit or to obtain substantial damages in respect of, the consummation of this Agreement that, in the reasonable opinion of Buyer, may reasonably be expected to result in a preliminary or permanent injunction against such consummation or, if the transactions contemplated hereby were consummated, an order to nullify or render ineffective this Agreement or such transactions or the recovery against Seller of substantial damages; and (b) as of the Closing Date, none of the parties to this Agreement shall have received written notice from any governmental body of (i) its intention to institute any action or proceeding to 25 restrain or enjoin or nullify this Agreement or the transactions contemplated hereby, or to commence any investigation (other than a routine letter of inquiry, including a routine Civil Investigative Demand) into the consummation of this Agreement, or (ii) the actual commencement of such an investigation. 8.3. Opinion of Counsel. Buyer shall have received an opinion of Seller's counsel dated the Closing Date in the form[s] attached to this Agreement as Schedule 8.3. 8.4. Damage to the Assets. The Station Assets shall not have suffered damage on account of fire, explosion, or other similar cause of any nature that is sufficient to prevent operation of the Station or the transmission of its normal and usual signal for a period of at least ten (10) consecutive days; provided if, after Seller has duly notified Buyer of such event or damage, Buyer, within five (5) days thereafter, does not notify Seller that Buyer is terminating this Agreement pursuant to Section 10.1(b)(iii) hereof, then Buyer shall be deemed to have waived this condition of Closing. 8.5. Hart-Scott-Rodino. The waiting period under the Hart-Scott-Rodino Act shall have expired, and there shall not be outstanding any order of a court restraining the transaction contemplated hereby. 8.6. Leases/ Subleases. Buyer shall have received from the Seller fully executed by Seller Leases and/or Subleases referred to in Section 7.5 hereof. 8.7. Time Brokerage Agreement. The Buyer shall have received from the Seller the Time Brokerage Agreement, fully executed by Seller which agreement shall be, in all material respects, consistent with the rules, regulations and policies of the FCC and reasonably acceptable to Buyer. 8.8. Other Instruments. Seller shall have delivered to Buyer such instruments, documents, and certificates as are contemplated by Section 2.4(a) hereof. ARTICLE 9 --------- INDEMNIFICATION --------------- 9.1. Survival. All statements of any party contained in this Agreement (including the Schedules hereto) or in any certificate delivered by it pursuant to this Agreement shall be deemed to be representations and warranties made pursuant to this Agreement. The representations, warranties, covenants, and agreements of Seller and Buyer contained in or made pursuant to this Agreement shall be deemed to have been made on the Closing Date, shall survive the Closing Date, and shall remain operative and in full force and 26 effect for a period of one (1) year after the Closing Date regardless of any investigation or statement as to the results thereof made by or on behalf of any party; provided, however, that: (i) Buyer's obligation to pay, perform, and discharge the Assumed Liabilities shall survive until such Assumed Liabilities have been paid, performed, or discharged in full; (ii) Seller's obligations with respect to all obligations and liabilities not assumed by Buyer pursuant to this Agreement shall survive until such obligations and liabilities have been paid, performed, or discharged in full; (iii) the covenants and agreements contained in this Article 9 shall continue in full force and effect until fully discharged; (iv) the representations and warranties contained in Sections 3.13 and 4.4 (Brokers) shall continue in full force and effect in perpetuity; and (v) any covenants or agreements contained herein or made pursuant hereto which by their terms are to be performed after the Closing shall survive until fully performed and discharged in full. 9.2. Indemnification of Buyer. Seller agrees that, after the Closing, it shall indemnify and hold Buyer harmless from and against any and all damages, claims, losses, expenses, costs, obligations, and liabilities including, without limiting the generality of the foregoing, liabilities for reasonable attorneys' fees and expenses ("Loss and Expense") suffered directly or indirectly by Buyer by reason of or arising out of (i) any material breach of representation or warranty made by Seller pursuant to this Agreement; (ii) any material failure by Seller to perform or fulfill any of their covenants or agreements set forth in this Agreement; (iii) any failure by Seller to pay, perform, or discharge any liabilities or obligations not specifically assumed by Buyer pursuant to this Agreement; or (iv) any litigation, proceeding, or claim by any third party arising from the business or operations of the Station Assets by Seller prior to the Closing Date, except to the extent arising from obligations or liabilities of or assumed by Buyer pursuant to this Agreement. 9.3. Indemnification of Seller. Buyer agrees that, after the Closing, it shall indemnify and hold Seller harmless from and against any and all Loss and Expense suffered directly or indirectly by Seller by reason of or arising out of (i) any material breach of representation or warranty made by Buyer pursuant to this Agreement; (ii) any material failure by Buyer to perform or fulfill any of its covenants or agreements set forth in this Agreement; (iii) any failure by Buyer to pay, perform, or discharge any Assumed Liabilities or any other obligations or liabilities of or assumed by Buyer under this Agreement; or (iv) any litigation proceeding or claim by any third party arising from the use of the Station Assets on or after the Closing Date. 9.4. Limitation of Liability. Notwithstanding Sections 9.1, 9.2, and 9.3 hereof, after the Closing, Seller shall not indemnify or otherwise be liable to Buyer, and Buyer shall not indemnify or otherwise be liable to Seller unless the aggregate amount of Buyer's or Seller's, as applicable, Loss and Expense exceeds $30,000.00, in which event 27 the indemnified party shall be entitled to recover its aggregate Loss and Expense inclusive of such $30,000.00 threshold; provided, however, that the foregoing limitation shall not be applicable to the obligations of either party under Section 2.2 or to the obligation of Buyer to pay and discharge any Assumed Liabilities or any other obligations or liabilities of Buyer under this Agreement or the obligation of Seller to pay and discharge liabilities to third parties not assumed by Buyer hereunder. Notwithstanding any provision contained herein, in no event shall Seller be liable for any amount, which, when combined with other amounts for which Seller previously has been liable under Section 9.2 hereof is in excess of $1,260,000.00, and subject to such other limitations as the parties may otherwise agree in writing. 9.5. Bulk Sales Indemnity. Buyer hereby waives compliance with the provisions of any applicable bulk transfer laws, and Seller covenants to pay and discharge when due all debts, obligations, and liabilities incurred prior to the Closing Date relating to the Station Assets except the Assumed Liabilities and other obligations assumed by Buyer under this Agreement. Seller further agrees to indemnify and hold Buyer harmless from and indemnify Buyer against any and all Loss and Expense, including, without limitation, any claims made by creditors, with respect to non-compliance with any bulk transfer law, except to the extent that such claims result from the Assumed Liabilities and other obligations or liabilities to be paid or discharged by Buyer as provided in this Agreement and/or Buyer's failure to pay the same when due. 9.6. Notice of Claims. If Buyer or Seller believes that it has suffered or incurred any Loss and Expense, such party shall notify the other promptly in writing and, in any event, within the applicable time period specified in Section 9.1, describing such Loss and Expense, the amount thereof, if known, and the method of computation of such Loss and Expense, all with reasonable particularity and containing a reference to the provisions of this Agreement in respect of which such Loss and Expense shall have occurred. If any action at law or suit in equity is instituted by a third party with respect to which any of the parties intends to claim any liability or expense as Loss and Expense under this Article 9, such party shall promptly notify the indemnifying party of such action or suit. 9.7. Defense of Third Party Claims. The indemnifying party under this Article 9 shall have the right to conduct and control through counsel of its own choosing any third party claim, action, or suit, but the indemnified party may, at its election, participate in the defense of any such claim, action, or suit at its sole cost and expense provided that, if the indemnifying party shall fail to defend any such claim, action, or suit, then the indemnified party may defend through counsel of its own choosing such claim, action, or suit, and (so long as it gives the indemnifying party at least fifteen (15) days' notice of the terms of the proposed settlement thereof and permits the indemnifying party to then undertake the defense thereof) settle such claim, action, or suit, and to recover from the indemnifying party the amount of such settlement or of any judgment 28 and the costs and expenses of such defense. The indemnifying party shall not compromise or settle any third party claim, action, or suit without the prior written consent of the indemnified party, which consent will not be unreasonably withheld or delayed. ARTICLE 10 ---------- TERMINATION/MISCELLANEOUS ------------------------- 10.1. Termination of Agreement. This Agreement may be terminated at any time on or prior to the Closing Date as follows: (a) By Seller: --------- (i) if Buyer fails to comply with Section 6.4 hereof within five (5) days after Seller notifies Buyer that Buyer has not complied with such Section; provided that, in the case termination is based on Buyer's failure to comply with Section 6.4, Seller shall have complied with Section 5.9; or (ii) if any of the conditions provided in Article 7 hereof have not been met by the time required and have not been waived provided that the failure to meet such conditions is not due to Seller's breach of the Agreement; or (b) By Buyer: -------- (i) if Seller fails to comply with Section 5.9 hereof within five (5) days after Buyer notifies Seller that Seller has not complied with such Section; provided that, in the case termination is based on Seller's failure to comply with Section 5.9, Buyer shall have complied with Section 6.4; or (ii) if any of the conditions provided in Article 8 hereof have not been met by the time required and have not been waived provided that the failure to meet such conditions is not due to Buyer's breach of the Agreement; or (iii) no later than five (5) business days after Seller has notified Buyer pursuant to Section 8.4 of the occurrence of any damage or event as described in Section 8.4; or 29 (c) By Either Buyer or Seller as follows: (i) by mutual consent of all parties; or (ii) if the Closing shall not have been completed by the Termination Date. No party hereto shall have any liability to any other for costs, expenses, damages, loss of anticipated profits, or otherwise as a result of a termination pursuant to this Section 10.1. The parties hereto agree that time is of the essence with respect to the provisions of this Section 10.1. 10.2. Escrow Deposit. (a) Simultaneous with the execution and delivery of this Agreement, Buyer and Seller are entering into an escrow agreement (the "Escrow Agreement") with Thomas & Libowitz, P.A., as escrow agent (the "Escrow Agent"), substantially in the form of Schedule 10.2 hereto; and in connection therewith, Buyer is depositing Ten Thousand Dollars ($10,000.00) (the "Escrow Deposit") with the Escrow Agent by check or by wire transfer of immediately available funds, and any interest earned thereon will be held and disbursed pursuant to the Escrow Agreement. Each of Seller and Buyer agree to give notice to the Escrow Agent only in accordance with the Escrow Agreement and this Section 10.2. (b) The full amount of the Escrow Deposit, together with all interest earned thereon, shall be payable to Seller if: (i) the Agreement is terminated by Seller pursuant to Section 10.1(a); or (ii) the Agreement is terminated by either party pursuant to Section 10.1(c)(ii). (c) The full amount of the Escrow Deposit, together with all interest earned thereon, shall be payable to Buyer if: (i) the Agreement is terminated by Buyer pursuant to Section 10.1(b). (d) The full amount of the Escrow Deposit, together with any interest earned thereon, shall be payable pursuant to the joint instructions of Buyer and Seller in the event that this Agreement is terminated by Buyer and Seller pursuant to Section 10.1(c)(i). 30 (e) Seller's sole and exclusive remedy for any termination of this Agreement or any failure of performance or compliance by Buyer with any covenant or agreement contained in this Agreement prior to the Closing shall be its right to receive the Escrow Deposit and interest earned thereon as provided in this Section 10.2. Buyer's remedies for any wrongful failure of performance or compliance by Seller with any covenant, warranty, or agreement contained in this Agreement shall include, but not be limited to (i) its right to payment of the Escrow Deposit and any interest earned thereon as provided in this Agreement, (ii) its right to seek specific enforcement of this Agreement against Seller, (iii) its right to seek actual, incidental and consequential damages from Seller, and (iv) its right to receive payment of all costs and fees, including reasonable attorneys' fees, incurred in connection with any action brought to enforce its rights under (i) through (iii) in the event such action results in a resolution favorable to Buyer. 10.3. Expenses. Each party hereto shall bear all of its expenses incurred in connection with the transactions contemplated by this Agreement, including, without limitation, accounting and legal fees incurred in connection herewith provided that Seller and Buyer each shall pay one-half (1/2) of the Hart-Scott-Rodino Act filing fee, and any sales or transfer taxes arising from transfer of the Station Assets, including, without limitation, any transfer tax payable in connection with the transfer to Buyer of the Leasehold Interests. 10.4. Assignments. This Agreement shall not be assigned by any party hereto without the prior written consent of the other party, except that Buyer may assign its rights and interests hereunder to: (i) a wholly-owned subsidiary of Buyer, or (ii) a wholly-owned subsidiary of a subsidiary of Buyer, or parent of any such subsidiary; provided that any such assignment shall not relieve Buyer of any of its obligations or liabilities hereunder. Any attempt to assign this Agreement without any required consent shall be void. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 10.5. Further Assurances. From time to time prior to, at, and after the Closing Date, each party hereto will execute all such instruments and take all such actions as the other party being advised by counsel shall reasonably request in connection with carrying out and effectuating the intent and purpose hereof, and all transactions and things contemplated by this Agreement, including, without limitation, the execution and delivery of any and all confirmatory and other instruments, in addition to those to be delivered on the Closing Date, and any and all actions which may reasonably be necessary to complete the transactions contemplated hereby. 31 10.6. Notices. All notices, demands, and other communications which may or are required to be given hereunder or with respect hereto shall be in writing, shall be delivered personally or sent by nationally recognized overnight delivery service, charges prepaid, or by registered or certified mail, return-receipt requested, and shall be deemed to have been given or made when personally delivered, the next business day after delivery to such overnight delivery service, five (5) days after deposited in the mail, first class postage prepaid, addressed as follows: (a) If to Seller: KRRT, Inc. Station WJET-TV 8455 Peach Street Erie, Pennsylvania 16509 Attn: Myron Jones With Copy to: Reddy, Begley & McCormick 1001 22nd Street, N.W. Washington, D.C. 20037 Attn: Dennis Begley, Esquire or to such other address as Seller may from time to time designate. (b) If to Buyer: Sinclair Broadcast Group, Inc. 2000 W. 41st Street Baltimore, Maryland 21211 Attn: Mr. David D. Smith With Copy to: Steven A. Thomas, Esquire Thomas & Libowitz, P.A. USF&G Tower, Suite 1100 100 Light Street Baltimore, Maryland 21202-1053 or to such other address as Buyer may from time to time designate. 10.7. Captions. The captions of Articles and Sections of this Agreement are for convenience only, and shall not control or affect the meaning or construction of any of the provisions of this Agreement. 32 10.8. Law Governing. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED, AND ENFORCED IN ACCORDANCE WITH THE LAWS OF MARYLAND WITHOUT REFERENCE TO ITS PRINCIPLES OF CONFLICT OF LAWS, EXCEPT TO THE EXTENT THAT THE FEDERAL LAW OF THE UNITED STATES GOVERNS THE TRANSACTIONS CONTEMPLATED HEREBY. 10.9. Consent to Jurisdiction, Etc. IN THE EVENT OF ANY ACTION OR PROCEEDING WITH RESPECT TO ANY MATTER PERTAINING TO THIS AGREEMENT, THE PARTIES HERETO HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY. THE PARTIES HERETO HEREBY IRREVOCABLY CONSENT TO THE JURISDICTION OF ANY STATE CIRCUIT COURT LOCATED IN BALTIMORE COUNTY, MARYLAND AND OF ANY FEDERAL COURT LOCATED IN THE DISTRICT OF MARYLAND (NORTHERN DIVISION) IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. THE PARTIES HERETO HEREBY WAIVE PERSONAL SERVICE OF ANY PROCESS IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING AND AGREE THAT THE SERVICE THEREOF MAY BE MADE BY CERTIFIED OR REGISTERED MAIL ADDRESSED TO OR BY PERSONAL DELIVERY TO THE OTHER PARTY AT SUCH OTHER PARTY'S ADDRESS SET FORTH PURSUANT TO PARAGRAPH 10.6 HEREOF. IN THE ALTERNATIVE, IN ITS DISCRETION, ANY OF THE PARTIES HERETO MAY EFFECT SERVICE UPON ANY OTHER PARTY IN ANY OTHER FORM OR MANNER PERMITTED BY LAW. 10.10. Waiver of Provisions. The terms, covenants, representations, warranties, and conditions of this Agreement may be waived only by a written instrument executed by the party waiving compliance. The failure of any party at any time or times to require performance of any provision of this Agreement shall in no manner affect the right at a later date to enforce the same. No waiver by any party of any condition or the breach of any provision, term, covenant, representation, or warranty contained in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such condition or of the breach of any other provision, term, covenant, representation, or warranty of this Agreement. 10.11. Counterparts. This Agreement may be executed in two (2) or more counterparts, and all counterparts so executed shall constitute one (1) agreement binding on all of the parties hereto, notwithstanding that all the parties are not signatory to the same counterpart. 33 10.12. Entire Agreement/Amendments. This Agreement (including the Schedules hereto), constitutes the entire Agreement among the parties pertaining to the subject matter hereof and supersedes any and all prior and contemporaneous agreements, understandings, negotiations, and discussions, whether oral or written, between them relating to the subject matter hereof. No amendment or waiver of any provision of this Agreement shall be binding unless executed in writing by the party to be bound thereby. 10.13. Access to Books and Records. Buyer shall preserve for at least three (3) years after the Closing Date all books and records included in the Station Assets. At the request of Seller, Buyer agrees from time to time to give to the officers, employees, accountants, and counsel of Seller access, upon reasonable prior notice during normal business hours, to the property, accounts, books, contracts, records, accounts payable and receivable, records of employees of Seller and other information concerning the affairs of the Station and to the employees of Buyer as Seller may reasonably request in connection with an audit by Seller of the Station as of the Closing Date and Seller's preparation of tax returns and reports. At the request of Buyer, Seller agrees from time to time to give the officers, employees, accountants, and counsel of Buyer access, upon reasonable prior notice during normal business hours, to the books, records, and files retained by Seller with respect to the business and operation of the Station by Seller as Buyer may reasonably request in connection with an audit of the Station. Each of Buyer and Seller shall be permitted at their own expense to make extracts from or copies of the foregoing books, records, and files of the other party. 10.14. Public Announcements. Prior to the Closing Date, neither Seller nor Buyer shall, except by mutual agreement, make any press release or other public announcement concerning the transactions contemplated by this Agreement, except as may be required by any law, rule, or regulation (including, without limitation, filings and reports required to be made with or pursuant to the rules of the Securities and Exchange Commission) or any by existing contract, license, or agreement to which it is a party. 34 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written. WITNESS/ATTEST: BUYER: SINCLAIR BROADCAST GROUP, INC. /s/Melissa Johnson By: (SEAL) - - ------------------ --------------------------- Title: --------------------------- SELLER: KRRT-TV, INC. By: (SEAL) - - ------------------- --------------------------- Secretary Title: --------------------------- 35 -----END PRIVACY-ENHANCED MESSAGE-----