RELATED PERSON TRANSACTIONS

6 Months Ended

Jun. 30, 2012

RELATED PERSON TRANSACTIONS

RELATED PERSON TRANSACTIONS

6.RELATED PERSON TRANSACTIONS

David, Frederick, Duncan and Robert Smith (collectively, the controlling shareholders) are brothers and hold substantially all of the Class B Common Stock and some of our Class A Common Stock. We engaged in the following transactions with them and/or entities in which they have substantial interests.

Related Person Leases.  Certain assets used by us and our operating subsidiaries are leased from Cunningham Communications, Inc., Keyser Investment Group, Gerstell Development Limited Partnership and Beaver Dam, LLC (entities owned by the controlling shareholders).  Lease payments made to these entities were $1.1 million for each of the three months ended June 30, 2012 and 2011 and $2.2 million for each of the six months ended June 30, 2012 and 2011, respectively.

Bay TV.  In January 1999, we entered into a LMA with Bay Television, Inc. (Bay TV), which owns the television station WTTA-TV in Tampa/St. Petersburg, Florida market.  Each of our controlling shareholders owns a substantial portion of the equity of Bay TV and collectively have controlling interests.  Payments made to Bay TV were $0.4 million for each of the three months ended June 30, 2012 and 2011 and $2.2 million and $1.3 million for the six months ended June 30, 2012 and 2011, respectively.  See “Subsequent Events” in Note 1, Summary of Significant Accounting Policies, for further information.

Cunningham Broadcasting Corporation.  We have options from trusts, for which the children of our controlling shareholders are beneficiaries, that will grant us the right to acquire, subject to applicable FCC rules and regulations, 100% of the capital stock of Cunningham Broadcasting Corporation (Cunningham) or 100% of the capital stock or assets of Cunningham’s individual subsidiaries.  As of June 30, 2012, Cunningham was the owner-operator and FCC licensee of: WNUV-TV Baltimore, Maryland; WRGT-TV Dayton, Ohio; WVAH-TV Charleston, West Virginia; WTAT-TV Charleston, South Carolina; WMYA-TV Anderson, South Carolina; WTTE-TV Columbus, Ohio; and WDBB-TV Birmingham, Alabama (collectively, the Cunningham Stations).

In addition to the option agreement, we entered into five-year LMAs (with five-year renewal terms at our option) with Cunningham pursuant to which we provide programming to Cunningham for airing on the Cunningham Stations.

Effective November 5, 2009, we entered into amendments and/or restatements of the following agreements between Cunningham and us: (i) the LMAs, (ii) option agreements to acquire Cunningham stock and (iii) certain acquisition or merger agreements relating to the Cunningham Stations.

Pursuant to the terms of the LMAs, options and other agreements, beginning on January 1, 2010 and ending on July 1, 2012, we are obligated to pay Cunningham the sum of approximately $29.1 million in 10 quarterly installments of $2.75 million and one quarterly payment of approximately $1.6 million, which amounts will be used to pay down Cunningham’s bank credit facility and which amounts will be credited toward the purchase price for each Cunningham station.  An additional $3.9 million will be paid in two installments on July 1, 2012 and October 1, 2012 as an additional LMA fee and will be used to pay off the remaining balance of Cunningham’s bank credit facility.  The aggregate purchase price of the television stations, which was originally $78.5 million pursuant to certain acquisition or merger agreements subject to 6% annual increases, will be decreased by each payment made by us to Cunningham up to $29.1 million in the aggregate, pursuant to the foregoing transactions with Cunningham as such payments are made.  Beginning on January 1, 2013, we will be obligated to pay Cunningham an annual LMA fee for the television stations equal to the greater of (i) 3% of each station’s annual net broadcast revenue and (ii) $5.0 million, of which a portion of this fee will be credited toward the purchase price to the extent of the annual 6% increase.  The remaining purchase price as of June 30, 2012 was approximately $58.7 million.

Additionally, we reimburse Cunningham for 100% of its operating costs, as well as pay Cunningham a monthly payment of $50,000 through December 2012 as an LMA fee.

We made payments to Cunningham under these LMAs and other agreements of $4.0 million and $4.2 million for the three months ended June 30, 2012 and 2011, respectively, and $7.9 million and $8.4 million, for the six months ended June 30, 2012 and 2011, respectively.  For the three months ended June 30, 2012 and 2011, Cunningham’s stations provided us with approximately $24.8 million and $22.6 million, respectively, and approximately $48.1 million and $45.9 million for the six months ended June 30, 2012 and 2011, respectively, of net broadcast revenues.  The financial statements for Cunningham are included in our consolidated financial statements for all periods presented.  Our Bank Credit Agreement contains certain cross-default provisions with certain material third-party licensees.  As of June 30, 2012, Cunningham was the sole material third-party licensee.

Atlantic Automotive.  We sold advertising time to and purchased vehicles and related vehicle services from Atlantic Automotive Corporation (Atlantic Automotive), a holding company which owns automobile dealerships and an automobile leasing company.  David D. Smith, our President and Chief Executive Officer, has a controlling interest in, and is a member of the Board of Directors of Atlantic Automotive. We received payments for advertising totaling less than $0.1 million for each of the three months ended June 30, 2012 and 2011. We received payments for advertising time of $0.1 million for each of the six months ended June 30, 2012 and 2011, respectively. We paid $0.4 million for vehicles and related vehicle services from Atlantic Automotive during each of the three months ended June 30, 2012 and 2011, respectively.  For the six months ended June 30, 2012 and 2011, we paid fees of $0.6 million and $0.5 million, respectively, for vehicles and related vehicle services.

Thomas & Libowitz P.A.  Basil A. Thomas, a member of our Board of Directors, is the father of Steven A. Thomas, a partner and founder of Thomas & Libowitz, P.A. (Thomas & Libowitz), a law firm providing legal services to us on an ongoing basis.  We paid fees of $0.2 million to Thomas & Libowitz for each of the three months ended June 30, 2012 and 2011.  For the six months ended June 30, 2012 and 2011, we paid fees of $0.5 million and $0.3 million, respectively, to Thomas & Libowitz.

Charter Aircraft.  From time to time, we charter aircraft owned by certain controlling shareholders.  We incurred $0.2 million and $0.3 million for the three and six months ended June 30, 2012, respectively. We did not incur such expenses in the three or six months ended June 30, 2011, related to these arrangements.