SiOON ~(l) )l I)) -. ft' .,'

.

.

\JLAILIT i .

f.L"' --":. -, d

SiOON ~(l) )l I)) -. ft' .,'

RULE ~7~ -5 _ ~

~i ,:':~:-'~i ~Ji.~~ï1~¡i'?7.~:C;

~:; FEB 2 I 1997 t

'lrrLIC 31 7. I '1 7. . . '

I REPONSE OF TI OFFCE OF Clß COUNSEL

DIVISION OF INTMEN MANAGEM

~~t:-;.f" ~-~~:: '.~~';- '~-:'::r'.-:.'1i~it'::~;

~~R~f. Ñö:~tj6~61:4

KDSM, Inc. and Sinclai Capital

File No. 132-3

Based on the facts and representations in your letter, and without necssay agreeing

enforcement action to the Commission if

with your legal analysis, we would not remmend

KDSM, Inc. ("KDSM"), an indirt wholly owned subsidia of

Sinclai Broadcast Group, Inc.

("Sinclai Broadcast"), does not register as an investment company, in relice on either section

3(b)(1) of the Investment Company Act of 1940 ("Investment Company Act"), or rule 3a-5

under that Act. Ths position is based paricularly on your opinon that KDSM would not be

an investment company beuse either (i) KDSM would be priwy engaged ditly or thrugh

wholly owned subsidiares in a business or businesses other than investing, reinvestig, ownig,

holding, or tradig in seurities, or (ü) if KDSM is deemed to be priwy engaged in ownig

or holding securities due to its financing activities, its priar purpse would be to finance the

operations of Sinclai Broadcast and KDSM would mee al the reuirments of rule 3a-5.

In addition, based on the facts and representations in your letter, and without necessariy

agreing with your legal analysis, we would not reommend enforcment action to theCommission if Sinclai Capita, a wholly owned subsidia of KDSM, does not register as an

investment company in reliance on rule 3a-5 under the Investment Company Act. Ths position

is based paricularly on your opinon that Sinclai Capita would meet al the reuirements of

rule 3a- 5.

You should note that any different facts or

representations might reuire a different

conclusion with respt to each of your questions.

Your reuest for confdential treatment under 17 C.F.R. § 200.81(b) has ben granted

until the ealier of 120 days from the date of this letter or the date of any disclosure of the facts

sufficient to revea the essence of the no-action reuest or this response. Please inorm this

office if this inormation is made public in any fashion prior to the expirtion of the 120-day

period.

f:c;& /:i-¡t.., I~­

Rochelle Kauffman Plesset

Senior Counsel

WILMER, CUTLER 8. PICKERING

2445 M STREET. N.W.

WASHINGTON.

4 CARLTON GARDENS

LONDON SWIY 5""

D.C. 20037-1420

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CONFENT TRATMENT REQUESTED

BY KDSM AN SINCLAI CAPITAL

PURUANT TO 17 C.F.R. § 200.81

Febru 21, 1997

BY MESSENGER

Jack W. Murhy, Esq.

Chief Counsel

Division of Investent Management

Securties and Exchange Commssion

450 Fift Street, N.W.

Washigton, D.C. 20549

Re: KDSM, Inc. and Sinclair Capital Under Investment Company Act Rule 38-5

Dear Mr. Murhy:

On behalf of KDSM, Inc. ("KDSM"), a Marland corporation, and Sinclair Capital, a

Delawar business tr and based on the facts described below, we request a sttement by the

st

of

the Division of

Investent Manement (the "Sta) of

the Securties and Exchange

Commssion (the "Commssion") that the Sta will not recommend enforcement action to the

Commssion ifKDSM and Sinclai Capita do not register as investent companes.

KDSM is an operatig company tht also will fuction as a fiance subsidiar of its parent

company, Sinclai Broadcas Grup, Inc. ("Sinclair Broadcas"). As discussed in grater detail

below, we believe that KDSM will not be an investent company beus it either (i) will be

the Investent Company Act ("Company Act") because it will be

excepted by section 3(b)(1) of

engaged priarly, directly or though wholly-owned subsidiares, in a business or businesses

other than that of investng, reinvesting, ownng, holding, or trding in securties or,

\ alternatively, (ii) will be exempted by rule 3a-5 under the Company Act as a finance subsidiar

)

CONFIDENTIA TREATMENT REQUESTED

Jack W. Murhy, Esq.

BY KDSM AND SINCLAIR CAPITAL

PURUANT TO 17 C.F.R. § 200.81

Febru 21, 1997

Page 2

that complies with the rule's requirments including, in paricular, those in subparagrph (a)(5)

concernng the use of offenng or borrowing proceeds.

Sinclair Capita is a wholly-owned subsidiar ofKDSM that, unike KDSM, will engage in

. no business other th its activities relating to its sttu as a fiance company. Sinclair Capital

will issue preferrd secunties to investors that will be guteed by its ultimate parent, Sinclair

Broadcas. As fuer discussed below, we believe that Sinclai Capita will be exempted by rule

3a-5 under the Company Act as a finance subsidiar that complies with the rule's requirements

including, in paricular, those in subpargrph (a)(2) concernng the parnt company guantee.

i. Background

A. Genera Strctue

KDSM own all of the common secunties of Sinclair Capita. KDSM is an indirctly

wholly owned subsidiar of Sinclair Broadcas, a Marland corporation. Sinclair Broadcast is a

broadcasing company that own or provides progrng services to television and raio

stations. KDSM owns, or will own, together with its wholly owned subsidianes, in addition to

Sinclair Capita, the assets and operations ofKDSM-TV in Des

the voting secunties of

all of

Moines, Iowa. These other assets ar expected to have an estimated curnt value of

approximately $50 milion.

Sinclair Broadcas fonned Sinclair Capita for the sole purose of providing fiancing for

the operations of

Sinclair Broadcast via

an offerig ofSiIclair Capita preferrd secunties (the

"Public Preferred"). Sinclair Capita will sell to investors Public Preferrd and will use the net

proceeds to purchase senior debentus from KDSM (the "KDSM Debentus"). All expenses of

Public Preferred to be sold is

Sinclair Capita will be paid by KDSM. Although the amount of

stil subject to fial detennintion, for purses of

ths letter, we have assued that the Public

Preferred will have a liquidation preference totaing $200 millon. KDSM will, in tu, use the

proceeds from the sae of

the KDSM Debentus to purchas preferrd stock issued by Sinclair

Broadcas (the "Parnt Preferrd"). Sinclai Broadcas will issue a gutee for the benefit of

the Public Preferrd holders (the "Sinclai Broadcas Guatee") that, as discussed below, is

modeled on gutes permtted by the Sta in pnor interpretive and no-action letters. Sinclair

Capita will own no assets other than the KDSM Debentus.

Sinclair Broadcas electe ths the-tiered stctu to comply with cert restrctions in

the indentues relating to pnor debt obligations and in light of

ta considerations. In paricular,

Sinclai Broadcas and its subsidianes generaly, ar restcted under the tenns of its indentues

from issuing additional debt but may, under cert circumstces, issue preferrd stock.

Despite the indentu restctions, Sinclai Broadcas is penntted to designate certn

subsidianes as "unstcted subsidianes" that may issue their own debt. Sinclai Broadcast will

designate KDSM as an unstcted subsidiar. Sinclair Broadcas and KDSM ar members of

the sae consolidated group for federal income ta puroses. As a result, Sinclair Broadcast

will be, in effect, entitled to an income ta deduction for interest paid on debt issued by KDSM

CONFIDENT TREATMENT REQUESTED

Jack W. Murhy, Esq.

BY KDSM AN SINCLAIR CAPITAL

PURSUAN TO 17 C.F.R. § 200.81

Febru 21, 1997

Page 3

puroses.

to non-group members. Sinclai Capita will be a grtor tr for federal income ta

Sinclair Capita will not be a member of

the consolidated group for federal income ta puroses

because only entities that are taable as corprations may be members of a consolidated ta

group. Accordingly, KDSM can issue debt securties to Sinclai Capita and obtan a deduction

for the interest, effectively enabling Sinclair Broadcas to obta interest deductions without

the proposed

violating the terms of its indentues. For your convenience, a stctural diagr of

trsaction is provided below:

Sinclair Broadcast Group, Inc.

Pn

of

KDM

lOO of

Common Stk

Senior

Debentu

Parent

lOO of

Prferr

Common Stk

KDSM, InC.

Public Investors

Pr

of

Preferr

Seun_

Se

aD

Comm

Ne Cu

Pr

of

Publi Ofer

of Prfer

Seur

')

Sinclair Capital

Common

Seuriies

(39 of capitl)

CONFIDENTIA TRATMENT REQUESTED

Jack W. Murhy, Esq.

BY KDSM AND SINCLAI CAPITAL

PURUANT TO 17 C.F.R. § 200.81

Febru 21, 1997

Page 4

B. Terms of

the Sinclair Capital Preferrd Shars

Sinclair Capital will sell Public Preferrd shaes to investors. Although the amount of

ths letter, we

Public Preferrd to be sold is stil subject to fial determintion, for puroses of

_ have assumed that it will have a liquidation preference totaing $200 milion. Depending on

market conditions at the time of the offerig, Sinclair Capita may sell a greater or lesser number

of shares of Public Preferrd. The distrbution preference rate is likewise yet to be determined.

Sinclair Capita will use cash received from payments on the KDSM Debentues to make

distrbutions on the Public Preferred, and Sinclair Capita will be unable to declare distbutions

or redeem the Public Preferrd in the absence of such payments.

Sinclair Capita mus redeem the Public Preferrd for cash at the liquidation preference

plus accumulated and unpaid distbutions at the end of 12 year uness it does not have

suffcient fuds to do so due to a default by KDSM on its obligation to repay the KDSM

Debentues at matuty. Similarly, Sinclair Capita must redeem the Public Preferred ifKDSM

redeems the KDSM Debentues prior to matuty. If an event of default on the KDSM .

the Public

at least 25% in aggregate liquidation value of

Debentues occur, the holders of

Preferred will have the right to direct the trstees of Sinclair Capita to declare the principal of

and interest on the KDSM Debentues immediately due and payable.

If

indirectly

Sinclair Broadcas (or one or more of

50% or more of

its subsidiares which collectively own directly or

the company's consolidated assets) becomes banpt or insolvent or

the holders of a majority in aggregate

liquidation value of its Public Preferred, may be dissolved and liquidated. In addition, Sinclair

its term in 2015 ifit has not previously

Capital will liquidate and dissolve upon the expiration of

the Public Preferred, the holders of a

liquidated and dissolved. Upon an event of default of

the

Public

Preferrd will have the right to elect

majority in aggregate liquidation preference of

is dissolved or liquidated, Sinclai Capita, at the option of

new trstees of Sinclair Capita.1 .

C. Terms of

the Sinclair Broadcas Guatee

Sinclai Broadcas will unconditionally gutee, on a junor subordinated basis, the

payment in ful under the Public Preferrd of:

(a) any accrued and unpaid distbutions on the Public Preferrd that have been

theretofore

declard on the Public Preferrd from fuds of

Sinclai Capita legally

available therefor in accordance with the Sinclai Capita ti agrement;

l! Events of default on the Public Preferrd include the failur of Sinclair Capita to make

\ distbutions for any period for which KDSM pays interest on the KDSM Debentues and any

event of default on the KDSM Debentus.

CONFENTIA TRATMNT REQUESTED

Jack W. Murhy, Esq.

BY KDSM AN SINCLAI CAPITAL

PURUAN TO 17 C.F.R. § 200.81

Febru 21, 1997

Page 5

(b) the redemption pnce payable with respect to any Public Preferrd called for

redemption by Sinclair Capita from fuds legally available therefor in accordance with

the tenns of

the Sinclair Capita tr agrement; and

(c) upon a volunta or involunta dissolution, widing-up or tennination of

Sinclair Capita (other th in connection with a redemption of all of the Public

Preferrd), the payment of

Preferred ar lawflly

the Public

an amount if, when, and to the extent holders of

entitled to payment thereof frm Sinclair Broadcast equa to the

lesser of (i) the full liquidation preference plus accumulated and unpaid dividends to

which the holders of

the Public Preferrd ar lawfly entitled, and (ii) the amount of .

Sinclair Capital's legally available assets remaining afer satisfaction of all clais of

other paries which, as a matter oflaw, ar pnor to those of

the holders of

the Public

Preferred.

The Sinclair Broadcas Guatee will be unecurd and is expected to be subordinate to

most or all other liabilties of Sinclair Broadcast. Under the tenns of

of

the Guatee, any holder

Public Preferrd may intitute a legal proceeding directly agains Sinclair Broadcas to enforce

its nghts under the Sinclai Broadcas Guatee without fi inituting a legal proceeding

against Sinclair Capital or any other person or entity.

D. Terms of

the KDSM Debentus

KDSM will sell Sinclair Capital the KDSM Debentues for roughy $200 milion, assuming

the Public Preferred. The KDSM Debentues will have

an aggregate pnncipal amount equa to the purchase pnceand an interest rate equa to the

Sinclair Capita sells 2 milion shars of

distbution rate on the Public Preferrd. They will matu in 2008 and will be securd by a

the Parnt Preferrd. The abilty ofKDSM to make payments on its debentus

pledge of

depends pnmarly on its receipt of dividends on the Parnt Preferrd. In addition, because

KDSM own KDSM- TV, it may be able to finance payments on its debentus though the cash

flow generated by the operations ofKDSM-TV in the event incient dividends ar received.

KDSM may redeem the KDSM Debentus for cash at the liquidation value plus

accumulated interest and a spcified premium any tie afer five year from issuace or upon a

"Tax Event" or an "Investent Company Act Event."l' In addition, if a Tax Event occur,

KDSM can caus Sinclai Capita to dissolve and distbute the KDSM Debentus provided that

ths option can only be exercised if Sinclai Broadcas is able, at the time of such an event, to

l' A Tax Event is defied, among other thgs, to include cert clarfications or changes

the activities ofKDSM or Sinclai Capita or that

would cause Sinclair Broadcas on a consolidated basis to lose its ta deduction for interest on

the KDSM Debentues. An Investent Company Act Event is defied as a change or

clarfication of law that would cause Sinclair Capita or KDSM to be considered an investment

in ta law involving unexpected taation of

\

./I

company under Section 3 of the Company Act.

CONFIDENTIA TRATMENT REQUESTED

Jack W.Murhy, Esq.

Febru 21, 1997.

BY KDSM AN SINCLAIR CAPITAL

PURSUAN TO 17 C.F.R. § 200.81

Page 6

fully and unconditionally gutee the KDSM Senior Debentus on a junor subordinated basis

the distrbution ofKDSM Debentus. Sinclair Broadcas could not

effective at the time of

the date of

provide such a guartee as of

restctions in its existing debt

the offering beaus of

agreements. Prior to the year afer issuce, KDSM may also redeem up to 50% of the

the Parnt Preferrd for cash at the

liquidation value plus accnied interest and a spified premium.

KDSM Debentus with the proceeds ofa redemption of

KDSM will covenat that it will not, nor will it permit any of its subsidiares to, incur or

gutee or otherwse in any maner become dirctly or indirectly liable for any indebtedness,

except that KDSM may incur indebtedness if

the debt to anua operating cash flow ratio of

KDSM and its subsidiares at the time such indebtedness is incurd (afer giving pro forma

effect thereto), is 4 to 1 or less. In addition, and notwthding the ratio, KDSM will not be

business, and

restrcted from issuing the KDSM Debentues, trde debt in the ordinar course of

debt for working capital puroses not to exceed $5 milion.

the Parnt Preferrd

E. Terms of

The Parnt Preferrd will have a distbution rate that will be up to one percentage point

the KDSM Debentus and a liquidation preference equa to the

higher than the interest rate of

principal amount of

the KDSM Debentus. Sinclai Broadcas will have the option to repay the

Parent Preferred in the sae cirumstces and at the sae redemption prices as KDSM will

have the option to redeem the KDSM Debentues.

The Parent Preferred will have a stted matuty of approximately 12 year and will be

mandatorily redeemable on its matuty date. The holders of a majority in aggregate liquidation

the outstding Parnt Preferrd will have the right to cause Sinclair Broadcast to

value of

increase the size of its board of directors by two members and will have the right to elect the two

new directors upon Sinclair Broadcas's failur to: (a) pay dividends durng four consecutive

quaers; (b) make and consumate a change of control offer upon the occurnce of a change of

control in certn circumstces; (c) discharge any redemption obligation with respect to the

Parent

Preferrd; or (d) meet its covenants on the Parnt Preferr.

n. Anysis

Rule 3a-5 wa adopted afer the Commission grted many exemptive applications that

allowed operatig companes to rase capita though fice subsidiares. The Commission

recognzed tht a varety of ta and other reguatory reasons often .caused companes to seek to

rase capita though wholly-owned subsidiares rather th doing so dirctly. Exemption from

All Provisions of the Investment Company Act of 1940 for Certain Finance Subsidiaries of

United States and Foreign Private Issuers, SEC Releas No. IC-12679, 1982 WL 35650, * I

(Sept. 22, 1982) ("Proposing Release"). Whle these fiance subsidiares may meet the technical

defition of

investent company under Section 3(a)(3) of

recognzed that they "were not engaging in the kid of

to regulate." Id. at *1.*2.

the Company Act, the Commission

business the (Company) Act was intended

CONFENT TREATMNT REQUESTED

Jack W. Murhy, Esq.

BY KDSM AN SINCLAI CAPITAL

Febru 21, 1997

. PURSUAN

Page 7

TO 17 C.F.R. § 200.81

The primar intent of the Commission in developing Rule 3a-5 was to exempt appropriate

reguation while assug that "neither the stctue nor

subsidiares from counterproductive

resembles tht of an investent company."

mode of operation of a quaifyg fiance subsidiar

Exemption From the Definiton of Investment Company for Certain Finance Subsidiaries of

United States and Foreign Private Issuers, SEC Relea No. IC-14275, 1984 WL 52669, *3

(December 14, 1984) ("Adopting Release"). According to the Commssion:

We have found ths to be the cas where the primar purse of the subsidiar is to

finace the business operations of its parnt or other subsidiares of its parnt which are.

not investent companes. We have also found ths to be the cas where any purchaser

of the finance subsidiars debt inents ultimately looks to the parnt for repayment

and not to the finance subsidiar. The nie, therefore, describes a sitution where the

finance subsidiar is essentially a conduit for the parnt to rase capita for its own

business operations or for the business operations of its other subsidiares.

Id.

ths natu, the Commission imposed

To assure that quaifyg financing subsidiares ar of

Rule 3a-5. In suar, these ar:

six limitations on their activities in pargrph (a) of

(1) Any debt of the fice subsidiar issued to or held by the public mus be

unconditionally guteed by the parnt;

the finance subsidiar issued to or held by the

(2) any non-voting preferred stock of

public must be unconditionaly guteed by the parnt;

(3) the tenns of

the parnt's gutee mus allow the public holders to institute

legal proceedings dirctly agains the parnt to enforc the gutee without firs

proceeding agaist the

finace subsidiar;

(4) any securties issued by the fiance subsidiar tht ar convertible or

exchageable mus be convertble or exchangeable only for seurties issued by the

parnt or for debt or non-votig preferrd of

the finace subsidiar meeting the above

requiments;

(5) the fice subsidiar mus invest in or loan to its parnt or a company

the fiance

subsidiars debt or non-votig preferrd securties, or any other borrwigs, as soon as

controlled by its parnt at leas 85% of

the proceeds frm offerigs of

practicable, but in any event with six month afer receipt; and

(6) the finance subsidiar mus own, hold or trde in only Governent securties,

the parnt company or a company controlled by the parnt, or debt securties

the Securties Act of 1933 (Securties Act")

which ar exempted frm the provisions of

that Act.

by Section 3(a)(3) of

securties of

CONFENT TRATMNT REQUESTED

Jack W. M¡nhy, Esq.

BY KDSM AN SINCLAI CAPITAL

Febru 21, 1997

TO 17 C.F.R. § 200.81

PURUAN

Page 8

Rule 3a-5.

KDSM will not issue any preferrd stock or debt to the public, elimting the need for any

gutee that otherwse might be requid under subparphs (a)(I), (a)(2), and (a)(3).lI

Because securties issued by KDSM will not be convertble or exchageable, subpargrph

. (a)(4) is inapplicable (and any volunta dissolution ofKDSM in whicli KDSM Debentus are

parph (a) of

KDSM has been stctud to satisfy the reuiments of

distbuted is conditioned on such debentus being guteed by Sinclai Broadcas). KDSM

will own, hold or trde in only Governent securties, securties of Sinclair Broadcas or a

. company controlled by Sinclai Broadcas or debt securties which ar exempted from the

provisions of

tht Act as requid by subpargrph

the Securties Act by Section 3(a)(3) of

(a)(6). As discussed in grater detal below, we believe that KDSM will comply with the

remaining provisions of

proceeds requirement of

Rule 3a-5, including the use of

subpargrph

(a)(5) and the definition offinance subsidiar in pargrph (b).

pargrph (a). Sinclai

We also believe tht Sinclai Capita meets the requirements of

Capita will not issue any debt to the public, elimatig any need to comply with subpargrph

the

(a)(1). Sinclai Broadcas will, as discussed below, issue an unconditional gutee of

Public Preferred stctud to comply with the Stas inteipretations of subpargrph (a)(2). The

Sinclai Broadcas Guatee will give the Public Preferrd holders the right to proceed dirctly

the gutee without first proceeding against

against Sinclair Broadcas to enforce the tenns of

Sinclair Capita, thus complying with subpargrph (a)(3). Neither the Public Preferred nor any

other securty issued by Sinclai Capita will be convertble or exchageable into any other

securty, thus renderig the requiements of

subpargrph (a)(4) inapplicable, as discussed

net offerig proceeds in KDSM, a

company controlled by Sinclair Broadcas as soon as practicable, but in any event withn six

subpargrph (a)(5). Finally,

month afer receipt, thereby satisfyg the requirements of

Sinclai Capita will own, hold or trde in only Governent securties, securties of Sinclair

below. Sinclair Capital will invest substatially all of

the'

Broadcast or a company controlled by Sinclai Broadcas, or debt securties which ar exempted

from the provisions of

the Securties Act Section 3(a)(3) in compliance with subpargrph (a)(6).

In our view, KDSM and Sinclai Capita ar able to comply with the requiments of

3a-5 becaus they

Rule

ar engaged in the ty offiancing activities that the Commssion envisioned

when it promulgated Rule 3a-5. Jus as the CommssÌon intended, both entities ar stctud to

li See PSEG Capital Corp., SEC No-Action Letter, 1988 WL 234525 (July 13,1988)

(private placement of non-guteed debt securties permtted by the Sta in light of the fact

that Rule 3a-5 only requis the gutee of securties "issued to or held by the public"); see

also Societe Generale and SGA Society Generale Acceptance N. V., SEC No-Action Letter, 1992

WL 75606 (Feb. 14, 1992) and MEC Finance USA, Inc., SEC No-Action Letter, 1991 WL

243175 (Oct. 25, 1991) (securties sold in public offerigs to persns outside the United States

Rule 3a-5 and accordingly need not be

are not "issued to or held by the public" for puroses of

guteed by the parnt company).

CONFIENT TRATMENT REQUESTED

Jack W. Murhy, Esq.

BY KDSM AN SINCLAI CAPITAL

PURUAN TO 17 C.F.R. § 200.81

Febru 21, 1997

Page 9

business and ta considerations. Specific issues

raise capita for their ultimate parnt becaus of

associated with KDSM and Sinclai Capita ar discussed below.

Finance Subsidiai. and the "Primai PUTose" Test

A. KDSM. the Definition of

As a prelimina matter, an entity seking to rely on Rule 3a-5 mus fall with the

fiance subsidiar provided in subpargrph (b)(I). Tht subpargrph provides

definition of

that a finance subsidiar mean any company:!'

(i) all of

whose seurties other th debt or preferrd stock meeting the

requirements of subpargrphs (a)(l) thugh (a)(3) or dirctors' quaifyng shas are

owned by its parent company or a company contrlled by its parnt company; and

(ii) the primar purse of

which is to finace the business operations of

its parnt

company or companes controlled by its parnt company.

These requirements serve to insur that the finance subsidiar is a conduit though which the

parent rases capita. Adopting Releas at .6.

KDSM will comply with subpargrph (b)(I)(i) both intially and for so long as it relies on

Rule 3a-5. Intially, KDSM will issue securties only to Sinclair Broadcas and Sinclair CapitaL.

Sinclair Broadcas meets the defition of "parent company" as it is a corpration, which is not

an investent company under Section 3(a), or is excepted or exempted from that definition

puruat to Section 3(b) or the rues under Section 3(a), and which is organzed under the laws of

Marland. The KDSM Debentus issued by KDSM to Sinclair Capita will not be publicly

offered, and thus subpargrphs (a)(I) though (a)(3) will be inapplicable. IfKDSM issues

additional securties, whether debt or equity, such securties will be limited to those pennitted by

pargrph (b) for so long as KDSM relies on Rule 3a-5.

The only substtial queston about whether KDSM falls withn the definition of fiance

subsidiar relates to the priar purose requiment of subpargrph (b)( 1 )(ii). As noted

previously, KDSM own and will contiue to own assets other th its interest in Sinclai

believe tht such operations will be subsidiar to its

Capita and the Parnt Prferr. We

priar purse of ficing the operations of Sinclai Broadcas and accordingly that KDSM

meets the defition of

fice subsidiar.

Neither Rule 3a-5, nor the releases accompanyig its proposa and adoption, defie

priar purose. The Proposing Releas made clear tht the reason for the primar purse test

~ Whle subpargrph (b )(1) uses the tenn "corporation," in severa no-action letters the

)

.i

Stahas allowed Delawar business tr to rely on Rule 3a-5. See Lehman Brothers, Inc.,

SEC No-Action Letter, 1995 WL 329629 (May 26,1995); Goldman, Sachs & Co., SEC No­

Action Letter, 1995 WL 271721 (April

27, 1995).

Jack W. Murhy, Esq.

Febru 21, 1997

Page 10

CONFENT TRATMENT REQUESTED

BY KDSM AN SINCLAI CAPITAL

PURUAN TO 17 C.F.R. § 200.81

was to "ensur that the exemption does not provide a vehicle thugh which some other tye of

investment company warting reguation might evade the (Company) Act." Proposing Release

at *4. In response to comments that were cntical of

the priar purse requiment, the

Adopting Releas made it clear that a fice subsidiar ca hold other assets not invested with

. the parnt and stll quaify:

The Commssion has decided to retan the pnmar purse test in the fi rule; to do

otherwse would be inconsistent with the rue's underlyig rationale. If a subsidiar were

to be engaged prianly in non-finacing activities, it could not be considered a conduit

for the parnt to rase capita. In addition, the Commssion notes that the primary

a finance subsidiary from engaging in nonfinancing activities so long as its primary purpose is to engage in financing activities.

purpose test by no means prevents

Adopting Release at *6 (emphasis added).

Whle the Commssion has not yet expanded upon ths explantion, in simlar contexts, in

determnig the business in which a company is "pnmanly engaged," the stha used the

maner in which the assets of a company ar deployed as the predominant factor. "In vanous

context, the tenn 'pnmanly engaged' in a business has been taen to mean that at leas 55% of a

company's assets ar employed in, and 55% of a company's income is denved from, that

business." Exemption from the Investment Company Act of J 940 for the Offer and Sale of

Securities by Foreign Banks and Foreign Insurance Companies and Related Entities, SEC

Release No. IC-17682, 1990 WL 321555, *17 n.33 (Aug. 17, 1990); see also Econo Lodges of

America, Inc., SEC No-Action Letter, 1989 WL 246651 (Dec. 22, 1989) (agreing that the

requestor quaified for a Section 3(c)(5)(C) exception where 55% of

invested in quaifyg assets and the company planed to lend 85% of

the company's assets were

the proceeds of a public

offenng to its parnt).

In our view, the pnmar purose of KDSM is to fiance the operations of Sinclai

Broadcas. The substatial majonty of its assets will be used to engage in fiancing activities.

the KDSM

Debentus. KDSM also will own the operations ofKDSM-lV which ar expected to have a

approxiately $50 millon. Although the precise offerig proceeds may var

over 55% ofKDSM assets would be

the offerig. KDSM's

remainig assets will indirctly faciltate these fiancing activities. We note in parcular that

KDSM will purha Parnt Preferrd with the offerig proceeds frm the sae of

curnt value of

depending upon market conditions, under any scenano well

used dirctly in KDSM's ficing activities upon completion of

KDSM mus reta operating assets because of

its financing activities, and not due to any

the Act or become a defacto investent company. Sinclair

Broadcas has been advised that it could not replace KDSM with a fiance subsidiar ownng no

Preferrd and retan its abilty to deduct interest paid on

attempt to evade the purses of

substtial assets other than the Parnt

the KDSM Debentus.

CONFDENT TRATMNT REQUESTED

Jack W. Murhy, Es.

BY KDSMAN SINCLA CAPITAL .

PURUAN TO 17 C.F.R. § 200.81

Febru 21, 1997

Page 1 I

We acknowledge, however, that it may be possible to view KDSM as priarly engaged. in

a non-investent business due to the fact that the day by day activities of its offcei' and

is known as a broadcas sttion operator,

employees pnmarly relate to its broadcas business, it

and may contiue to operate its broadcas sttion afer any ficing activities ar teminated. If

KDSM fails to meet the "priar purse" test of subpargrph (b Xl Xii) beaus it is deemed to

be priarly engaged in its broadcasing business, we ar of

excluded frm the defition of

the opinon that it would be

the Company

investent company puruat to Section 3(bXI) of

. Act. Section 3(b)( 1) excepts companes that meet the prima facie definition of investent

company in Section 3(a)(3) but that, dictly or though wholly-owned subsidiares, ar engaged

priarly in a business or businesses other than investg, reinvestng, ownng, holding or

trding in securties. Although KDSM expects to hold a broadcas license in a wholly-owned

the opinon tht KDSM is not an

subsidiar, it has no other subsidiares. Accordingly, we ar of

investent company because it either (i) is priarly engaged dirctly or though wholly-owned

subsidiares in a business or businesses other than investg, reinvesting, owng, holding, or

trding in securties or, (ii) ifKDSM is deemed to be priarly engaged in owng or holding

securties due to its financing activities, its "priar purse" would be to engage in financing

activities and, subject to the sts concurence with our views concernng subpargrph (a)(5)

Rule 3a-5.

as discussed below, it complies with the remainig provisions of

B. Additional Borrowings by KDSM

To avoid any question about KDSM's sttu as an investent company, we seek the Stas

concurence that KDSM would be in compliance with subpargrph (a)(5) assumg that it meets

the definition of

fiance subsidiar. Subpargrph (a)(5) requis that a financing subsidiar

invest in or loan to its "parnt company" or a "company contrlled by the parnt company" at

leas 85% of the proceeds of an offenng of debt, non-voting preferrd securties, or other

borrowings as soon as practicable and in any event with six month afer receipt of the

proceeds. According to the Adopting Release, in the absence of such a requirement, "the finance

subsidiar could act as a de facto investent company for an indefinite penod." Adopting

Release at *7.

the net offerig proceeds in Sinclai Broadcas simultaeously

KDSM wil invest all of

with their receipt, therby complyig with subparph (a)(5) intially. KDSM, however,

would be both a fice subsidiar and an operatig company. KDSM thus ha retaed the

nght to isse additiona debt to fice its operations, although such rights ar substtially

restcted under the term of the KDSM Debentus. As discussed above, in addition to issuing

business, debt for

the KDSM Debentus, KDSM can incur trde debt in the ordi cour of

working capita puroses not to exceed $5 millon, and additiona indebtedness only if

the debt

to operatig cash flow ratio ofKDSM when such indebtedness is incurd, afer givig

pro

forma effect thereto, is 4 to i or less. We believe that KDSM's nght to incur additional debt

offends neither the policy nor the letter of the Rule.

CONFENT TRATMNT REQUESTED

Jack W. Murhy, Esq.

BY KDSM AN _SINCLAI CAPITAL

Febru 21, 1997

PURUAN TO i 7 C.F.R. § 200.81

Page 12

As a matter of

policy, the reasn for preserving KDSM's right to incur additiona

indebtedness is to help assur that its operatig business can fuction. KDSM will not incur

additional debt for investent puroses. Rather, as the owner and operator of an existing

to have ficial obligations and needs tht

television sttion, KDSM ha and will continue

relate to its continued mangement of the television sttion. The concern expressed in the

Adopting Releas - that a finance subsidiar tht retaed offerig proceeds might fuction as a

de facto investent company -- simply is not present.

As far as the letter of the rue is concerned, we believe tht the abilty to incur additional

debt also is consistent with subpargrph (aXS). KDSM will age tht it will invest in or loan to

tht ar contrlled by Sinclai Broadcas at

Sinclair Broadcas or companes other than itself

the cumulative proceeds of all issued and outsding debt securties or non-voting

preferred stock or any other debt (collectively, "fiancings") as soon as is practicable, but in any

leas 85% of

any cash puruat to a ficing. Thus, ifKDSM rases

event withn six month afer receipt of

$200 milion though KDSM Debentus and own Parnt Preferrd for which it ha paid $200

milion and which has not been redeemed, it could rase approxiately $35 milion of additional

debt or non-voting preferrd and us the proceeds to finace its operations ($200 milion is

slightly more than 85% of

$235 millon).

We would like to emphaize tht KDSM will not us the abilty to rase additional debt or

offering proceeds for securties investent purses. KDSM will continue to comply with

the rue, which will prevent it from. owng securties other than

subpargrph (a)(6) of

Governent securties, securties issued by Sinclair Broadcas or companes controlled by

Sinclair Broadcas, or debt securties exempted by section 3(a)(3) under the Securties Act.

Moreover, KDSM will us any debt or offerig proceeds, other th those tht ar promptly

forwarded to Sinclai Broadcas or companes -contrlled by Sinclai Broadcas, solely to fiance

its broadcas operations (or such other non-securties investent business or businesses in which

it may be engaged in the futu).

Given the limtations on KDSM's investent activities, interpretig the 85% requirement

on a cwnulative, rather th an offerig-by-offerig, basis is consistent with the primar purose

subparph (bXl) as well as subpargrph (aX5)'s intent to ensur tht a

requiment of

the

fiance subsidiar does not beome a de facto investent company. So long as all of

outsding pricipal amount of debt and preferrd stock is included in the calculation, at all

times the vas majority of

the outsdig ficing activity ofKDSM will be dirctly tied to

finacing the activities of Sinclai Broadcas and its other contrlled companes. In addition, the

limtations on the puroses for which KDSM can reta additiona debt provides fuer

assurce that it will not be used as a device to evade the policies underlyig, and provisions of,

the Company Act.

CONFENT TRATMNT REQUESTED

Jack W. Murhy, Esq.

BY KDSM AN SINCLAI CAPITAL

PURUAN TO 17 C.F.R. § 200.81

Febru 21, 1997

Page 13

2) in the event of a liquidation, to unconditionaly gutee the payment of the

lesse of

~ Intially, the Public Preferrd may be.offered in a non-public offerig exempted from the

registtion requirements of

the Securties Act by Section 4(2) of

that Act or the rues and

reguations thereunder. Becaus Sinclai Capita expects to grt registtion nghts to holders of

the Public Preferrd even if

securties as if

these securties intially ar offered pnvately, it is trating such

they were publicly issued ab inito for purses of

the gutee requirment

Jack W. Murhy, Esq.

TRATMENT REQUESTED

CONFENT

BY KDSM AN SINCLA CAPITAL

PURUAN TO-17 C.F.R. § 200.81

Febru 21, 1997

Page 14

i) the ful liquidation preference plus accumulated and unpaid dividends to which

the

preferrd stockholders ar lawfly entitled, or

ii) the amount of

the subsidiars assets remaig afer satisfaction of other paries

the preferrd stockholders."

havig clais which, as a matter oflaw, ar prior to those of

Cleary at .3.

Cleary presented the gutee issue on a purly policy basis, without identifyng or

describing any paricular proposa. The Sta subsequently was asked to consider subpargrph

Chieftain Intl Funding Corp., SEC No-Action Letter, 1992 WL

(a)(2) in a specific fact setting in

335318 (Nov. 3, 1992). Like the curnt proposa, Chieftain involved a multi-tiered stctue.

Chieftn International Funding Corp. ("Funding Corp.") was a wholly-owned subsidiar of

Chieft International (U.S.), Inc. ("Chieft U.S.") which was in tu a wholly-owned

subsidiar of Chieftn Interntional, Inc. ("Chieftn Canda"). Funding Corp. intended to issue

preferred stock to the public and loan the proceeds to or invest them in Chieftn Canada or its

subsidiares for use in business operations. The preferrd would be convertble into shs of

the holders at any tie. Chieft Canada

planed to unconditionally gutee on a subordinted basis:

Chieftn Canada common stock at the option of

properly declard by Funding Corp.'s

fuds legally available therefor;

(i) the payment of dividends, when, as and if

Board of

Directors, out of

(ii) in the event of liquidation, the payment of an amount if, when and to the

Preferrd Stock ar lawfly entitled to payment thereof

from

Funding Corp. equa to the lesser of

(a) the ful liquidation preference plus

accumulated and unpaid dividends to which the holde~ of

Preferrd Stock ar

extent holders of

lawfly entitled and (b) the amount of

Funding COrp.IS assets remaing afer

satisfaction of all clais of other paries which, as a matter of law, ar prior to

those of

the holders of

Preferrd Stock; (and)

(ii) in the event of redemption, the payment of the redemption price. .. if, when

from

Preferrd Stock ar lawfly entitled to payment thereof

and to the extnt holders of

Fundig Corp.

The Sinclai Broadca Guatee is modeled on and substtially identical to the

gutees in Cleary and Chieftain. All the gutees gutee the payment of dividends

lawfly declared. Specifically, Sinclai Broadcas will gutee the payment of any accrued

and unpaid distbutions on the Public Preferrd that have ben theretofore declard on the

Public Preferrd from fuds of Sinclai Capita legally available therefor in accordace with the

'

Sinclai Capita tr agrement. In Cleary the Sta approved a parnt gutee of

'te

payment of dividends on the subsidiars non-voting preferrd stock, which have been properly

declared by the subsidiars board of dirctors." Cleary at .3. Chieft proposed to gutee

CONFENT TRATMNT REQUESTED

Jack W. Murhy, Es.

BY KDSM AN SINCLAI CAPITAL

PURUAN TO 17 C.F.R. § 200.81

Febru 21, 1997

Page 15

"the payment of dividends, when, as and if properly declard by Funding Corp. 's Board of

Directors, out offuds legally available therefor." Chieftain at .2.

All the gutees gutee upon liquidation the lesser of the liquidation preference

plus accuiulated and unpaid dividends, and assets remainig afer prior claims ar paid.

the lesser of:

(i) the ful liquidation preference plus accumulated and unpaid dividends to which the holders of

the Public Preferrd ar lawfly entitled; and (ii) the amount of Sinclai Capita's legally

Specifically, Sinclai Broadcas will gutee upon liquidation the payment of

available assets remainig afer satisfaction of all clais of other pares which, as a matter of

the Public Preferrd. In Cleary the Sta approved the

the lesser ofi) the ful liquidation preference plus

the holders of

law, ar prior to those of

gutee upon liquidation of "the payment of

accumulated and unpaid dividends to which the preferrd stockholders ar lawfly entitled, or

ii) the amount of

the subsidiars assets remaig afr satisfaction of other paries havig

the preferrd stockholders." Cleary at .3.

clais which, as a matter oflaw, ar prior to those of

"an amount if, when and to the

Chieft proposed to gutee upon liquidation the payment of

extent holders of

Preferrd Stock are lawfly entitled to payment thereof

from Funding Corp.

equa to the lesser of (a) the ful liquidation preference plus accumulated and unpaid dividends to

which the holders of

Preferrd Stock are lawflly entitled and (b) the amount of

Funding Corp.'s

assets remaining afer satisfaction of all claims of other paries which, as a matter of law, are

Preferrd Stock." Chieftain at .2.

prior to those 'ofthe holders of

Latly, all the gutees allow the public holders to insitute legal proceedings directly

againt the parnt without firs proceeding agai the fice subsidiai. In om view, the

Sinclair Broadcas Guatee meets the Stas interpretation of

Rule 3a-5 set out in Cleary and

applied in Chieftain.

We believe that one aspect of the gutee tht was not expressly discussed in Cleary and

Chieftain merits discussion: the meang of

the sttement that the parnt will gutee payment

of "the amount of the subsidiars" lawfly available assets remaig afer satisfaction of

claims if

ths "amount" is less th the ful liquidation preference plus accumulated and unpaid

the subsidiars assets"

the "amount of

dividends. In parcular, we believe tht the gutee of

does not requi tht the pant deliver the ciih equivalent value of

these assets, but rather tae

direct respnsibilty for ensg tht the subsidiai promptly deliver to the holders of its

preferrd securties any iisets held by the subsidiary that lawfully can be distrbuted. Any

requiment tht the parnt gutee the delivery of the cash equivalent value of the assets of a

finance subsidiai would, in effect, amount to a requiment that the parnt gute "the

existence of a cert amount of assets legally available for distbution" tht the Sta in Cleary

stted was inconsistent with the intent of

Rule 3a-S. In ths regar, we note tht Sinclai

Broadcas may be precluded from promising to deliver the cas equivalent value of any

liquidation preference under the terms of itS curnt indentus.

As discussed in Par I.B., above, Sinclai Capita may be liquidated and dissolved in the

absence of a redemption of the Public Preferrd for their ful liquidation preference plus

CONFENT TRATMNT REQUESTED

Jack W. Murhy, Esq.

BY KDSM AN SINCLAI CAPITAL

PURUAN TO 17 C.F.R. § 200.81

Febru 21, 1997

Page 16

accumulated and undistbuted dividends if: (i) a majority in interest of

the holders of

the Public

Preferred so elect afer Sinclair Broadcas becomes banpt, inlvent, dissolves, or liquidates;

(ii) a Tax Event occur and KDSM Debentus ar the sole ast distbuted and ar fuly and

unconditionally guteed by Sinclai Broadcas on a junor subordted basis effective at the

. time of

Sinclai Capital ha not previously liquidated

the distbution, or (ii) in the year 2015 if

and dissolved (which could occur only if

the KDSM Debentus were in default). It is

impossible to predict with complete certty what assets would be owned by - and therefore

. available for distbution from - Sinclai Capita in the event of a liquidation (other than one

involving a distbution of

the guteed KDSM Debentus) without a prior redemption of

the

Public Preferrd for cash. However, such asset$ could include KDSM Debentus or, in some

cases, any rights or other assets tht Sinclair Capita gaied as holder ofKDSM Debentus. We

believe that the parnt's gutee that it will cause the fiance subsidiar promptly to distbute

any assets remaig afer resolution and satisfaction of prior clais without requig that legal

the fice subsidiar fully satisfies

action be brought agains or demand be made of

subpargrph (a)(2) with respect to (i) and (ii), above.!'

Although not directly discussed in Cleary and Chieftain, out interpretation is consistent

with many other trctions tht relied on those letters. Moreover, a contr interpretation

would severely disrupt the abilty of fiance subsidiares to issue preferrd stock by requiring

precisely the tye of collection gutee tht was rejected by the Sta. For example, in Ford

Motor Company Capital Trut I, SEC No-Action Letter, 1996 WL 435548 (Aug. 2, 1996), Ford

Motor Company ("Ford") and Ford Motor Company Capita Tru I (the "Tru") sought an

exemption from the periodic reporting requirements of

Sections 13 and 15(d) of

the Exchange

Act. Whle Ford and the Tru did not seek assurce concerng Rule 3a-5, the trction

relied on the rule (Ford at *2) and is representative oftrsaciions that comport to the Cleary

and Chieftain positions.Z¡ As described in the requestg letter, "(t)he Preferrd Securties

Guatee consitutes a gutee of

payment and not of

collection." Ford at *9. The no-action

request subsequently described how the gutee would fuction. Fir the request noted that

!' As note previously, any volunta determtion to dissolve and liquidate KDSM

Debentus is conditioned upon the existence of a ful and unconditiona gutee of such

debentus, thus elimtig any concern tht a volunta liquidation would be usd as a

mechasm to evade a gute.

z¡ Ford is substtially identical to a large number of simlar letters under the Exchange

Act. Like Ford, each letter sttes tht the gutee is one of "payment and not of collection,"

and makes it clear that non-cash asts might be distbuted upon a liquidation of the fiance

subsidiar without any cash payment of a liquidation preference or its equivalent. See, e.g.,

Salomon Inc., SEC No-Action Letter, 1997 WL 47183 (Feb. 5,1997); Texas Utilties Electric

Co., SEC No-Action Letter, 1997 WL 29323 (Jan. 24, 1997); Commonwealth Edison Co. SEC

No-Action Letter, 1996 WL 183332 (Apr. 16,1996); Time Warner Inc., SEC No-Action Letter,

1996 WL 149073 (Apr. 1, 1996).

Jack W. Murhy, Esq.

CONFIDENTIA TRATMENT REQUESTED

BY KDSM AN SINCLAI CAPITAL

PURUAN TO 17 C.F.R. § 200.81

Febru 21,1997

Page 17

the parnt's debt securties held by

the Tru, which would enable the Tru to make corrspnding payments on its preferrd

liquidation could occur at the matuty or early redemption of

the Tru was liquidated without repayment of

securties. Second, if

the parnt debt, the debt

Tru preferrd. Ford at .15.

securties held by the Tru would be distbuted to the holders of

assets actuly owned by

Like Ford, we believe that Sinclair Broadcas's gute tht any

Sinclair Capita will be delivered in the event of a liquidation fuly complies with subpargrph

(a)(2).

We also would like to emphaize that ths interpretation is consistent with the underlying

purses of rue 3a-S, which seeks to put the holder of securties issued by a finance subsidiar

the holder held parnt securties directly. In ths regard,

in substtially the sae position as if

we note that although debt and preferred securties often ar regarded as being fuctionaly

equivalent, there ar certn distinctions between such securties that ar material to the natu of

the parent's gutee. If a holder of debt securties is not paid pricipal or interest when due,

the holder can bring a direct suit to enforce its right to an imediate cash payment.

Accordingly, a holder of debt Securties issued by a fice subsidiar will be in substtially the

the holder simlarly can requir the parnt to

parent debt only if

sae position as a holder of

make a cash payment upon a default.

In contr, a holder of preferrd securties issued without a sinng fud ha no specific

preferred

preference plus any

securties simply would be entitled to the payment of any liquidation

accumulated and unpaid dividends before any payment could be made to the holders of the

the securties. Rather, a holder of

right to any payment upon the stted matuty of

issuets common securties, and might enjoy cert votig rights. Thus, a dirt holder of

preferred securties would not have any right to sue for an imediate cah payment upon stated

matuty. Of coure, ths does not mean that an issuer does not have a substtial incentive to

make timely and ful payments on its preferrd. Jus as if it ha not usd a fice subsidiar

stctu, Sinclai Broadcas will be unble to make distbutions to its common holders afer the

matuty of the Parnt Preferrd pending payment of any liquidation preference and accumulated

distbutions relatig to the Parnt Preferrd.

Finly, Chieftain involved one element in addition to a Cleary-ty gutee tht we

believe is not gerane but which we discus becaus Chieftain is the only no-action letter that

addrsses subparph (aX2) in the context of a spific stctu. In Chieftain, Funding

Corp.'s preferrd shs were to be convertble into Chieft Can common stock at any time

the holders. For tht reasn, Chieft Canad Stted tht it would gutee

at the option of

performance of

stock to the holders of

Funding Corp.'s obligation to deliver the proper number of shas of its common

Funding Corp.'s preferrd shas. In the cas of

Sinclai Capita, the

Public Preferred will not be convertible or exchageable for securties of any other entity.!'

!' Of coure, securties issued by KDSM might, or might not, be among the assets

distbuted to holders of

Public Preferrd if

Sinclair Capita is liquidated and the Public Preferrd

CONFIDENT TRATMNT REQUESTED

Jack W. Murhy, Esq.

BY KDSM AN SINCLAI CAPITAL

PURUAN TO 17 C.F.R. § 200.81

Febru 21, 1997

Page 18

In our view, the convertibilty provision was discussed in Chieftain because it was par of

the paricular trsaction at issue and not because of any requirement that preferrd stock issued

by a finance subsidiai be convertible into the securties of its parnt company. Fir and

foremost, Cleary made no mention of

such a convertbilty featu. Second, subpargrph (a)(4)

makes clear tht such convertibilty is permitted, but not required, providing simply tht any

securties issued by a fice subsidiar tht ar convertble or exchageable be convertible or

exchangeable only for securties issued by the parnt or for debt or non-voting preferrd of the

finance subsidiar.!' Although not spcifically sactioned by the st, we note that many other

trctions have been effected in reliance on Cleary without a convertibilty featu.

of convertibilty in Chieftain simply reflects the requestots

attempt to assur the Sta

that its securties would comply with subpargrph (a)(2) and that the

thee-tiered stctue would not interfere with the holdets abilty to receive taget securties.

We believe that the discussion

the Cleary position to a spcific trction,

Because Chieftain is the only application of

the

however, we seek confation that the Stawill not recommend enforcement action if

Public Preferred is not convertible into securties of Sinclair Broadcas.

..........

r

We believe that neither Sinclai Capita nor KDSM is the ty of entity that Congrss

intended to reguate under the Company Act. Each entity is priarly engaged in the bona fide

fiancing of

the operations of

Sinclair Broadcas and its controlled companes, and the holders of

the Public Preferred are able to look to the Sinclair Broadcas Guatee to assur that they

ha not been redeemed for ca in accordce with its terms. Such a liquidating distbution of

assets, under the limted cirumces described in ths letter, does not. constute an

convertbilty or exchage featu covered by subpargrph (aX4). A holder of

Public Preferrd

does not have any right to caus the Public Preferrd to be exchanged or converted into another

securty, and any reipt ofKDSM Debentus would merely constute the ordar distbution

the abilty to effect a volunta

of

Sinclai Capita's assets upon its cessation. In addition, even if

dissolution and distbution ofKDSM Debentus upon a Tax Event were viewed as the

fuctional equivalent of convertibilty, a volunta distbution would satisfy subpargrph (a)( 4)

becaus the KDSM Debentus would be fuly and unconditionaly guteed.

!' In ths regard, we note tht the Sta stted tht it approved the Chieft stctu "in

paricular" because the proposed gutee conformed to the Stas "interpretation" of

subpargrph (a)(2). Chieftain at .2. The Stas only mention of

in its discussion of

the deal terms.

the convertibilty featue was

Jack W. Murhy, Esq.

Febru 21, 1997

Page 19

receive payment. On the basis of

CONFENT TRATMNT REQUESTED

BY KDSM AN SINCLAI CAPITAL

PURUAN TO 17 C.F.R. § 200.81

the foregoing, we request a sttement that the Stawill not

recommend enforcement action to the Commssion ifKDSM and Sinclai Capita do not

register as investent companes.

Please contact Jeremy N. Rubensein at 202-663-6 i 59 or John C. Nagel at 202-663-6134 if you

need additional inonnation or if

\

,

you would like to discuss these matt~rs fuer.