Item 1.01 Entry Into a Material Definitive Agreement.
Merger Agreement
On May 8, 2017, Sinclair Broadcast Group, Inc., a Maryland corporation (Sinclair), entered into an Agreement and Plan of Merger (the Merger Agreement) with Tribune Media Company, a Delaware corporation (Tribune), providing for the acquisition by Sinclair of all of the outstanding shares of Tribune Class A common stock, par value $0.001 per share (the Tribune Class A Stock), and of Tribune Class B common stock, par value $0.001 per share (Tribune Class B Stock, and together with the Tribune Class A Stock, the Tribune Stock), by means of a merger of a wholly owned subsidiary of Sinclair (Merger Sub) with and into Tribune (the Merger), with Tribune surviving the Merger as a wholly owned subsidiary of Sinclair (the Surviving Corporation).
Transaction Structure
In the Merger, each share of Tribune Stock will be converted into the right to receive (i) $35.00 in cash, without interest and less any required withholding taxes (such amount, the Cash Consideration), and (ii) 0.2300 (the Exchange Ratio) of a validly issued, fully paid and nonassessable share of Class A common stock, $0.01 par value per share (the Sinclair Common Stock), of Sinclair (the Stock Consideration, and together with the Cash Consideration, the Merger Consideration).
The Merger Agreement provides that each holder of an outstanding Tribune stock option (whether or not vested) will receive, for each share of Tribune Stock subject to such stock option, a cash payment equal to the excess, if any, of the value of the Merger Consideration (with the Stock Consideration valued over a specified period prior to the consummation of the Merger) and the exercise price per share of such option, without interest and subject to all applicable withholding.
Each outstanding Tribune restricted stock unit award will be converted into a cash-settled restricted stock unit award reflecting a number of shares of Sinclair Common Stock equal to the number of shares of Tribune Stock subject to such award multiplied by a ratio equal to (i) the Exchange Ratio plus (ii) the Cash Consideration divided by the trading value of the Sinclair Common Stock over a specified period prior to the consummation of the Merger. Otherwise, each such award will continue to be subject to the same terms and conditions as such award was subject prior to the Merger.
Each outstanding Tribune performance stock unit (other than supplemental performance stock units) will automatically become vested at target level of performance and will be entitled to receive an amount of cash equal to the number of shares of Tribune Stock that are subject to such unit as so vested multiplied by the sum of (i) the Cash Consideration and (ii) the Exchange Ratio multiplied by the trading value of the Sinclair Common Stock over a specified period prior to the consummation of the Merger without interest and subject to all applicable withholding.
Each holder of an outstanding Tribune supplemental performance stock unit that will vest in accordance with its existing terms will be entitled to receive an amount of cash equal to the number of shares of Tribune Stock that are subject to such unit as so vested multiplied by the sum of (i) the Cash Consideration and (ii) the Exchange Ratio multiplied by the trading value of the Sinclair Common Stock over a specified period prior to the consummation of the Merger without interest and subject to all applicable withholding. Any supplemental performance stock units that do not vest will be canceled without any consideration.
Each holder of an outstanding Tribune deferred stock unit will be entitled to receive an amount of cash equal to the number of shares of Tribune Stock that are subject to such unit as so vested multiplied by the sum of (i) the Cash Consideration and (ii) the Exchange Ratio multiplied by the trading value of the Sinclair Common Stock over a specified period prior to the consummation of the Merger without interest and subject to all applicable withholding.
Each outstanding Tribune warrant will become a warrant exercisable, at its current exercise price, for the Merger Consideration in respect of each share of Tribune Stock subject to the warrant prior to the Merger.
Conditions to the Merger
The consummation of the Merger is subject to the satisfaction or waiver of certain customary conditions, including, among others: (i) the approval of the Merger by the stockholders of Tribune, (ii) the receipt of approval from the Federal Communications
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Commission and the expiration or termination of the waiting period applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) the effectiveness of a registration statement on Form S-4 registering the Sinclair Common Stock to be issued in connection with the Merger and no stop order or proceedings seeking the same having been initiated by the Securities and Exchange Commission (the SEC), (iv) the listing of the Sinclair Common Stock to be issued in the Merger on the NASDAQ Global Select Market and (v) the absence of certain legal impediments to the consummation of the Merger.
Sinclairs and Tribunes respective
obligations to consummate the Merger are also subject to certain additional customary conditions, including (i) material accuracy of representations and warranties of the other party, (ii) performance by the other party of its covenants in all material respects and (iii) since the date of the Merger Agreement, no material adverse effect with respect to the other party having occurred.
The Merger does not require approval of the Sinclair stockholders and is not subject to any financing contingency.
Non-Solicit
Both parties have agreed, among other things, (i) not to solicit, initiate, knowingly encourage or knowingly facilitate alternative acquisition proposals from third parties and (ii) subject to certain exceptions, not to engage in any discussions or negotiations with any third parties, or furnish any nonpublic information, regarding alternative acquisition proposals.
Before the Tribune stockholders approve the Merger: (i) if Tribune receives a bona fide alternative acquisition proposal that the Tribune board of directors determines in good faith is or would reasonably be expected to lead to a superior proposal, and the board determines that the failure to take the following actions would reasonably be expected to be inconsistent with the Tribune board of directors fiduciary duties under applicable law, then Tribune may furnish nonpublic information with respect to Tribune and its subsidiaries to the person making such alternative acquisition proposal and engage in discussions or negotiations with such person regarding such alternative acquisition proposal; (ii) Tribune may, subject to compliance with certain obligations set forth in the Merger Agreement, including the payment of a termination fee to Sinclair and customary notice and matching rights in favor of Sinclair, terminate the Merger Agreement to enter into a definitive agreement with respect to a superior proposal in accordance with the Merger Agreement; and (iii) the Tribune board of directors may change its recommendation to the Tribune stockholders regarding adopting the Merger Agreement (x) in response to an intervening event if the Tribune board of directors determines in good faith that failure to take action would reasonably be expected to be inconsistent with the directors fiduciary duties under applicable law or (y) in response to a bona fide alternative acquisition proposal if the Tribune board of directors concludes in good faith that such alternative acquisition proposal constitutes a superior proposal and that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable law, in each case subject to customary notice and matching rights in favor of Sinclair.
Other Terms of the Merger Agreement
The Merger Agreement contains customary representations, warranties and covenants for a transaction of this nature. The Merger Agreement also contains customary mutual pre-closing covenants, including the obligation of Sinclair and Tribune to conduct their respective businesses in all material respects in the ordinary course consistent with past practices and to refrain from taking certain specified actions without the consent of the other party.
The Merger Agreement contains certain termination rights for both Sinclair and Tribune. Upon termination of the Merger Agreement under specific circumstances, Tribune will be required to pay Sinclair a termination fee. If the Merger Agreement is terminated in connection with Tribune entering into a definitive agreement with respect to a superior proposal, as well as under certain other circumstances, the termination fee payable by Tribune to Sinclair will be $135,500,000. If the Merger Agreement is terminated because the required Tribune stockholder vote is not obtained at a stockholder meeting duly held for such purpose, the amount of the termination fee payable by Tribune will be equal to the sum of $38,500,000
plus
Sinclairs costs and expenses, not to exceed $10,000,000 (Parent Expenses). If the Merger Agreement is terminated (i) by either Tribune or Sinclair because the Merger has not occurred by the end date described below or because Tribune stockholder approval is not obtained at a stockholder meeting duly held for such purpose or (ii) by Sinclair in respect of a willful breach of Tribunes covenants or agreements that would give rise to the
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failure of a closing condition that is incapable of being cured within the time periods prescribed by the Merger Agreement, and an alternative acquisition proposal has been made to Tribune and publicly announced and not withdrawn prior to the termination or the date of the stockholders meeting, as applicable, and within twelve months after termination of the Merger Agreement, Tribune enters into a definitive agreement with respect to an alternative acquisition proposal (and subsequently consummates such transaction) or consummates a transaction with respect to an alternative acquisition proposal, Tribune will pay Sinclair $135,500,000 less the Parent Expenses paid.
In addition to the foregoing termination rights, either party may terminate the Merger Agreement if the Merger is not consummated on or before an end date of May 8, 2018, with an automatic extension to August 8, 2018, if necessary to obtain regulatory approval under circumstances specified in the Merger Agreement.
The foregoing description of the Merger and the Merger Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, a copy of which is attached to this report as Exhibit 2.1 and which is incorporated herein by reference. The Merger Agreement has been attached to provide investors with information regarding its terms. It is not intended to provide any other factual information about Tribune or Sinclair. In particular, the assertions embodied in the representations and warranties contained in the Merger Agreement are qualified by information in confidential Disclosure Letters provided by each of Tribune and Sinclair to the other in connection with the signing of the Merger Agreement. These confidential Disclosure Letters contain information that modifies, qualifies and creates exceptions to the representations and warranties and certain covenants set forth in the Merger Agreement. Moreover, certain representations and warranties in the Merger Agreement were used for the purposes of allocating risk between Tribune and Sinclair rather than establishing matters as facts.
Voting Agreement
In connection with entering into the Merger Agreement, Oaktree Tribune, L.P. and OCM FIE, LLC, affiliates of Oaktree Capital Management (the Oaktree Stockholders), who collectively hold approximately 16.3% of the issued and outstanding shares of Tribune Class A Stock, entered into a voting and support agreement with Sinclair (the Oaktree Support Agreement). The Oaktree Support Agreement requires that the Oaktree Stockholders vote their shares of Tribune Class A Stock to approve the Merger and take certain other actions in furtherance of the transactions contemplated by the Merger Agreement, including voting any shares such parties then hold against an alternative acquisition proposal. The Oaktree Support Agreement terminates upon the earliest of (i) the effective time of the Merger, (ii) a termination of the Merger Agreement in accordance with its terms, and (iii) in the event that the Merger Agreement is amended or modified or a provision thereof is waived in a manner that alters or changes the amount or kind of consideration to be paid to Tribunes stockholders.
The foregoing summary of the Oaktree Support Agreement does not purport to be a complete description and is qualified in its entirety by reference to the full text of the Oaktree Support Agreement, which is attached hereto as Exhibit 10.1 and is
incorporated herein by reference.
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Commitment Letters
In connection with the Merger, Sinclair Television Group, Inc., a wholly owned subsidiary of Sinclair (STG) entered into financing commitment letters (the Commitment Letters) with JPMorgan Chase Bank, N.A., Royal Bank of Canada, Deutsche Bank AG New York Branch and Deutsche Bank Securities Inc. for (i) a seven-year senior secured incremental term loan B facility of up to $4.847 billion (the Incremental Term B Facility) and (ii) a one-year senior unsecured term loan bridge facility of up to $785 million (the Bridge Facility and, together with the Incremental Term B Facility, collectively the Facilities), convertible into a nine-year extended term loan, for purposes of financing a portion of the cash consideration payable under the terms of the Merger Agreement and to pay or redeem certain indebtedness of Tribune and its subsidiaries. The Commitment Letters also contemplate certain amendments to STGs existing credit agreement (which was previously filed as Exhibit 10.1 to Sinclairs Current Report on Form 8-K filed with the SEC on August 8, 2014 (as subsequently amended, the Existing Credit Agreement)) in connection with the Merger to permit the Merger and to provide for the Incremental Term B Facility in accordance with the terms of the Existing Credit Agreement. The Commitment Letters also provide for the syndication of an incremental revolving credit loan facility commitment of up to $225 million (the Incremental Revolving Commitments) to be provided in accordance with the terms of the Existing Credit Agreement. The provision of the Incremental Revolving Commitments is not a condition of the Incremental Term B Facility or the Bridge Facility.
The Incremental Term Loan B Facility will be subject to representations, warranties and covenants that, subject to certain agreed modifications, will be substantially similar to those in the Existing Credit Agreement. The documentation for the Bridge Facility shall, except as otherwise agreed, be based on and consistent with the indenture governing STGs 5.125% Senior Notes due 2027 (the Existing Borrower Notes), dated as of August 30, 2016, among STG and U.S. Bank National Association, as trustee (the Existing STG Indenture), which was previously filed as Exhibit 4.1 to Sinclairs Current Report on Form 8-K filed with the SEC on September 5, 2016, and shall in any case, except as expressly agreed, be no less favorable to the STG than the Existing STG Indenture.
The funding of the Facilities is subject to STGs compliance with customary terms and conditions precedent as set forth in the Commitment Letters, including, among others, (i) the execution and delivery by STG of definitive documentation consistent with the Commitment Letters and (ii) that the Merger shall have been, or substantially simultaneously with the funding under the Facilities shall be, consummated in accordance with the terms of the Merger Agreement without giving effect to any amendments or waivers that are material and adverse to the parties to the Commitment Letters.
The aggregate proceeds of the debt financing, together with the available cash of STG, will be sufficient for STG to pay the aggregate Cash Consideration in the Merger, refinance certain indebtedness of Tribune and its subsidiaries, and pay all related fees and expenses payable in connection with the Merger.
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