As filed with the Securities and Exchange Commission on October 8, 1997
Registration No. 333-30795
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
RADIO ONE, INC.
RADIO ONE LICENSES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 4832 52-1166660
DELAWARE 4832 52-2037797
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
</TABLE>
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5900 PRINCESS GARDEN PARKWAY, 8TH FLOOR
LANHAM, MARYLAND 20706
TELEPHONE: (301) 306-1111
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ALFRED C. LIGGINS, III
RADIO ONE, INC.
5900 PRINCESS GARDEN PARKWAY, 8TH FLOOR
LANHAM, MARYLAND 20706
TELEPHONE: (301) 306-1111
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
RICHARD L. PERKAL
KIRKLAND & ELLIS
655 FIFTEENTH STREET, N.W., SUITE 1200
WASHINGTON, D.C. 20005
TELEPHONE: (202) 879-5000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
<PAGE>
CALCULATION OF REGISTRATION FEE
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<CAPTION>
TITLE OF EACH PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED PER NOTE(1) AGGREGATE OFFERING PRICE(1) REGISTRATION FEE(2)
<S> <C> <C> <C> <C>
Series B 12% Senior Subordinated Notes
due 2004 .............................. $85,478,000 $1,000 principal amount $85,478,000 $25,903
Guarantees of Series B 12% Senior Subordi-
nated Notes due 2004 .................. $85,478,000 (3) (3) None
</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f).
(2) Paid previously.
(3) No further fee is payable pursuant to Rule 457(n).
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 9, 1997
PROSPECTUS
[LOGO]
RADIO ONE, INC.
OFFER TO EXCHANGE ITS SERIES B 12%
SENIOR SUBORDINATED NOTES DUE 2004
FOR ANY AND ALL OF ITS OUTSTANDING 12%
SENIOR SUBORDINATED NOTES DUE 2004
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER 10,
1997, UNLESS EXTENDED.
RADIO ONE, INC., A DELAWARE CORPORATION (THE "COMPANY"), HEREBY OFFERS (THE
"EXCHANGE OFFER"), UPON THE TERMS AND CONDITIONS SET FORTH IN THIS Prospectus
(the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of its Series B 12% Senior
Subordinated Notes due 2004 (the "Exchange Notes"), registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this prospectus is a part, for each $1,000
principal amount of its outstanding 12% Senior Subordinated Notes due 2004 (the
"Notes"), of which $85,478,000 principal amount is outstanding. The form and
terms of the Exchange Notes are the same as the form and terms of the Notes
(which they replace) except that the Exchange Notes will bear a Series B
designation and will have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer and will not contain
certain provisions relating to an increase in the interest rate which were
included in the terms of the Notes in certain circumstances relating to the
timing of the Exchange Offer. The Exchange Notes will evidence the same debt as
the Notes (which they replace) and will be issued under and be entitled to the
benefits of the Indenture dated as of May 15, 1997 among the Company, Radio One
Licenses, Inc. and United States Trust Company of New York (the "Indenture")
governing the Notes. Cash interest on the Exchange Notes will accrue at a rate
of 7% per annum on the principal amount of the Exchange Notes through and
including May 15, 2000, and at a rate of 12% per annum on the principal amount
of the Exchange Notes after such date. Cash interest will be payable
semi-annually on May 15 and November 15 of each year, commencing November 15,
1997.
The Exchange Notes are redeemable at any time and from time to time at the
option of the Company, in whole or in part, on or after May 15, 2001, at the
redemption prices set forth herein plus accrued and unpaid interest to the date
of redemption. In addition, on or prior to May 15, 2000, the Company may redeem,
at its option, up to 25% of the aggregate original principal amount of the
Exchange Notes with the net proceeds of one or more Public Equity Offerings (as
defined) at 112% of the Accreted Value (as defined) thereof, together with
accrued and unpaid interest, if any, to the date of redemption, as long as at
least $64,109,000 of the aggregate principal amount of the Exchange Notes
remains outstanding after each such redemption.
Upon a Change of Control (as defined), the Company will be required to
offer to repurchase the Exchange Notes at 101% of the Accreted Value thereof
plus accrued and unpaid interest, if any, to the date of repurchase. See "The
Exchange Offer" and "Description of Exchange Notes."
The Exchange Notes will be unsecured obligations of the Company and the
payment of the principal of, premium (if any) and interest on the Exchange Notes
will be subordinate in right of payment to the prior payment in full in cash of
all Senior Debt (as defined) of the Company (including all outstanding
indebtedness under the New Credit Facility (as defined) or the Existing Credit
Facility (as defined)). As of the date of this Prospectus, the Company has no
indebtedness outstanding under either the New Credit Facility (which has not yet
been entered into) or the Existing Credit Facility. The Exchange Notes will rank
pari passu in right of payment with all senior subordinated indebtedness of the
Company and senior in right of payment to all other subordinated indebtedness of
the Company issued after the Exchange Offer. The Exchange Notes will be fully
and unconditionally guaranteed to the maximum extent permitted by law, jointly
and severally, and on an unsecured senior subordinated basis, by Radio One
Licenses, Inc., a wholly owned subsidiary of the Company, and, subject to
certain exceptions, all future subsidiaries of the Company (collectively, the
"Subsidiary Guarantors"). Notwithstanding the foregoing, each Subsidiary
Guarantee will be limited to an amount not to exceed the maximum amount that can
be guaranteed by the applicable Subsidiary Guarantor without rendering the
Subsidiary Guarantee, as it relates to such Subsidiary Guarantor, voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally. After giving pro forma
effect to the Transactions (as defined) as of June 29, 1997, the Company and the
Subsidiary Guarantors would have had approximately $44,000 of Senior Debt
outstanding.
The Company will accept for exchange any and all Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time, on November 10, 1997,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
The Notes were sold by the Company on May 19, 1997 to the Initial Purchasers (as
defined) in a transaction not registered under the Securities Act in reliance
upon an exemption under the Securities Act. The Initial Purchasers subsequently
placed the Notes with qualified institutional buyers in reliance upon Rule 144A
under the Securities Act and with a limited number of institutional accredited
investors that agreed to comply with certain transfer restrictions and other
conditions. Accordingly, the Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered under the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The Exchange Notes are being offered hereunder in
order to satisfy the obligations of the Company under the Registration Rights
Agreement (as defined) entered into by the Company in connection with the
offering of the Notes. See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the Exchange Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder thereof (other than any
such holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes. See "The Exchange Offer-Purpose and
Effect of the Exchange Offer" and "The Exchange Offer-Resale of the Exchange
Notes." Each broker-dealer (a "Participating Broker-Dealer") that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Notes where such Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days after
the Expiration Date, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. See "Plan of
Distribution."
Holders of Notes not tendered and accepted in the Exchange Offer will
continue to hold such Notes and will be entitled to all the rights and benefits
and will be subject to the limitations applicable thereto under the Indenture
and with respect to transfer under the Securities Act. The Company will pay all
the expenses incurred by it incident to the Exchange Offer. See "The Exchange
Offer."
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DESCRIPTION OF CERTAIN RISKS
TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is October 9, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
[PICTURES]
2
<PAGE>
There has not previously been any public market for the Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors-Absence of a Public Market."
Moreover, to the extent that Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Notes could
be adversely affected.
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to this Exchange Offer
will be issued in the form of a Global Certificate (as defined), which will be
deposited with, or on behalf of, The Depository Trust Company ("DTC" or the
"Depositary") and registered in its name or in the name of Cede & Co., its
nominee. Beneficial interests in the Global Certificate representing the
Exchange Notes will be shown on, and transfers thereof to qualified
institutional buyers will be effected through, records maintained by the
Depositary and its participants. After the initial issuance of the Global
Certificate, Exchange Notes in certified form will be issued in exchange for the
Global Certificate only on the terms set forth in the Indenture. See
"Description of Exchange Notes-Book-Entry, Delivery and Form."
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the Exchange
Notes being offered hereby. This Prospectus does not contain all the information
set forth in the Exchange Offer Registration Statement. For further information
with respect to the Company and the Exchange Offer, reference is made to the
Exchange Offer Registration Statement. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Exchange Offer Registration Statement, including
the exhibits thereto, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at the Regional Offices of the Commission at 75 Park
Place, New York, New York 10007 and at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Additionally, the
Commission maintains a web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission, including the Company.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, the Company will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will be required to file periodic reports and
other information with the Commission. The obligation of the Company to file
periodic reports and other information with the Commission will be suspended if
the Exchange Notes are held of record by fewer than 300 holders as of the
beginning of any fiscal year of the Company other than the fiscal year in which
the Exchange Offer Registration Statement is declared effective. The Company
will nevertheless be required to continue to file reports with the Commission if
the Exchange Notes are listed on a national securities exchange. In the event
the Company ceases to be subject to the informational requirements of the
Exchange Act, the Company will be required under the Indenture to continue to
file with the Commission the annual reports, information, documents or other
reports which would be required pursuant to the informational requirements of
the Exchange Act. Under the Indenture, the Company shall provide the Trustee and
the holders of the Exchange Notes with such reports, information, and documents
at the times specified for filing under the Exchange Act. The Company will also
furnish such other reports as may be required by law.
3
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS. ALL STATEMENTS OTHER
THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING
WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER THE HEADINGS "PROSPECTUS SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," "BUSINESS" AND "THE TRANSACTIONS-ACQUISITIONS" AND LOCATED
ELSEWHERE HEREIN REGARDING THE COMPANY'S FINANCIAL POSITION AND BUSINESS
STRATEGY, MAY CONSTITUTE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE
DISCLOSED IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH
THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK
FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the Consolidated
Financial Statements of the Company included elsewhere in this Prospectus.
Unless the context otherwise requires, references in this Prospectus to the
"Company" and "Radio One" refer to Radio One, Inc., a Delaware corporation, and
Radio One Licenses, Inc., a Delaware corporation and a wholly owned subsidiary
of the Company (the "License Company"), and their respective predecessors. See
"Market and Industry Data" for a description of the sources of information
regarding population data and market and industry data included in this
Prospectus.
THE COMPANY
Radio One, founded in 1980, is the largest radio broadcasting company in
the United States exclusively targeting African-Americans. The Company is
currently negotiating the acquisition of WYCB-AM pursuant to a non-binding
amended letter of intent (the "DC Acquisition"). WYCB-AM is currently the
top-rated Gospel radio station in Washington, D.C. After giving effect to the DC
Acquisition, the Company will own and operate a total of nine radio stations
(five FM and four AM) in three of the top-15 African-American markets. The
Company seeks to expand within its existing markets and into new, primarily
top-30 African-American markets. The Company believes that the African-American
community is an attractive target market for radio broadcasters and that the
Company has a competitive advantage serving this target market due in part to
its African-American ownership and its active involvement in the
African-American community.
After giving effect to the DC Acquisition, the Company will own and operate
four radio stations in Washington, D.C., the third largest African-American
market with an MSA (as defined) population of approximately 4.2 million in 1995
(approximately 27.4% of which was African-American), and four radio stations in
Baltimore, the eleventh largest African-American market with an MSA population
of approximately 2.5 million in 1995 (approximately 26.0% of which was
African-American). The Company has recently entered the Philadelphia market
pursuant to the acquisition of WPHI-FM (formerly WDRE-FM) (the "Philadelphia
Acquisition," and together with the DC Acquisition, the "Acquisitions"), the
sixth largest African-American market with an MSA population of approximately
4.9 million in 1995 (approximately 19.9% of which was African-American). On a
pro forma basis after giving effect to the Acquisitions and the other
Transactions (as defined), the Company would have had net broadcast revenues,
broadcast cash flow and EBITDA of approximately $28.0 million, $11.3 million,
and $9.5 million, respectively, for the fiscal year ended December 31, 1996 and
approximately $13.2 million, $4.6 million and $3.6 million, respectively, for
the six months ended June 29, 1997. See "Pro Forma Consolidated Financial Data."
The Company believes that operating radio stations targeting the
African-American population presents significant growth opportunities for the
following reasons:
o Rapid Population Growth. According to data compiled by the U.S.
Department of Commerce, Bureau of the Census (the "Census Bureau"),
from 1980 to 1995, the African- American population increased from
approximately 26.7 million to 33.1 million (a 24.0% increase, compared
to a 16.0% increase in the population as a whole). Furthermore, the
African-American population is expected to exceed 40 million by 2010
(a more than 20% increase from 1995, compared to an expected increase
of 13% for the population as a whole).
o Higher Income Growth. According to data compiled by the Census Bureau,
from 1980 to 1995, the rate of increase in median household income in
1995 adjusted dollars for African-Americans was approximately 12.3%
compared to 3.9% for the population as a whole.
5
<PAGE>
o Concentrated Presence in Urban Markets. Approximately 58% of the
African-American population is located in the top-30 African-American
markets, and the Company believes that the African-American community
is usually geographically concentrated in such markets. This
concentration of African-Americans may enable the Company to reach a
large portion of its target population with radio stations that may
have less powerful signals, thus potentially lowering the Company's
acquisition and operating costs.
o Fewer Signals Required. The Company believes the current industry
trend is for radio broadcasters to acquire the maximum number of radio
stations allowed in a market under Federal Communications Commission
("FCC") ownership rules (up to eight radio stations in the largest
markets with no more than five being FM or AM), unless restricted by
other regulatory authorities. However, relative to radio broadcasters
targeting a broader audience, the Company believes it can cover the
various segments of its target niche market with fewer programming
formats and therefore fewer radio station signals than the maximum
allowed.
o Strong Audience Listenership and Loyalty. Based upon reports by
Arbitron (as defined) the Company believes that as a group,
African-Americans generally spend more time listening to radio than
non-African-American audiences. For example, during 1996,
African-Americans among all persons 12-years-old and older ("12-plus"
or the "12-plus market") in the ten largest 12-plus markets listened
to radio broadcasts an average of 27.2 hours per week compared to 22.9
hours per week for non-African-Americans in such markets. In addition,
the Company believes African-American radio listeners exhibit a
greater degree of loyalty to radio stations which target the
African-American community because those radio stations become a
valuable source of entertainment and information consistent with the
community's interests and lifestyles. As a result, the Company
believes that its target demographic group provides greater audience
ratings stability than that of other demographic groups.
o Cost Effective for Advertisers. The Company believes that advertisers
can reach the African-American community more cost effectively through
radio broadcasting than through newspapers or television because the
Company's radio broadcasts specifically target the African-American
community while newspapers and television typically target a much more
diverse audience.
Radio One is led by its Chairperson, Ms. Catherine L. Hughes, who is one of
the Company's founders, and her son, Mr. Alfred C. Liggins, III, its Chief
Executive Officer and President, who together have over three decades of
operating experience in radio broadcasting. Ms. Hughes and Mr. Liggins, together
with a strong management team, have implemented a successful strategy of
acquiring and turning around underperforming radio stations in top-30
African-American markets. In both Baltimore and Washington, D.C., the Company
has increased audience share at each radio station it has acquired. For all of
1996, the Company's radio stations, on a combined basis, were ranked first in
combined audience share of radio stations targeting African-Americans in both
Baltimore and Washington, D.C. and were ranked first and second in combined
revenue share of radio stations targeting African-Americans in Baltimore and
Washington, D.C., respectively. The Company believes that it is well-positioned
to apply its successful operating strategy to other radio stations in existing
and new markets as attractive acquisition opportunities arise.
6
<PAGE>
The following table sets forth certain information with respect to Radio
One and its markets:*
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PRO FORMA COMPANY DATA MARKET DATA
--------------------------------------------------- ---------------------
AFRICAN-AMERICAN RANKING BY
NUMBER OF MARKET ENTIRE MARKET SIZE OF
STATIONS -------------------- -------------------- AFRICAN-
--------- AUDIENCE REVENUE AUDIENCE REVENUE RADIO AMERICAN
MARKET FM AM RANK RANK SHARE SHARE REVENUE POPULATION
- ------------------- ---- ---- ---------- --------- ---------- --------- --------- -----------
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Washington, D.C. 2 2 1 2 11.4% 9.2% $ 187.9 3
Baltimore ......... 2 2 1 1 13.3% 12.5% 86.8 11
Philadelphia ...... 1 - NM NM 1.9% 1.2% 203.8 6
</TABLE>
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* Table assumes the consummation of the DC Acquisition and summarizes more
detailed information provided under "Business-General." "NM" means not
meaningful. Radio revenue for markets is in millions of dollars.
Historically, the financing for the Company's operations and expansion has
been provided by certain venture capital firms, several of which have made
multiple investments in the Company, including investments in the Company's
Senior Preferred Stock (as defined). As a result of warrants received in
connection with these investments, these venture capital firms currently have
the right to acquire approximately 51.5% of the Company's Common Stock (as
defined), subject to FCC approval. Two of the largest investors in the Company,
Syncom Capital Corporation ("Syncom") and Alta Subordinated Debt Partners III,
L.P. ("Alta"), an entity controlled by Burr, Egan, Deleage & Co., have
significant experience investing in radio broadcasting companies. As of March
15, 1997, Syncom and Alta had the right to collectively acquire approximately
23% of the Company's Common Stock and hold collectively approximately 41% of the
Company's Senior Preferred Stock. See "Principal Stockholders" and "Description
of Capital Stock."
OPERATING STRATEGY
In order to maximize broadcast cash flow at each of its radio stations, the
Company strives to create and operate the leading radio station group, in terms
of audience share, serving the African-American community and to effectively
convert these audience share ratings into advertising revenue while controlling
the costs associated with each radio station's operations. The success of the
Company's strategy relies on the following: (i) market research, targeted
programming and marketing; (ii) significant community involvement; (iii)
aggressive sales efforts; (iv) advertising partnerships and special events; (v)
strong management and performance-based incentives; and (vi) radio station
clustering, programming segmentation and sales bundling.
ACQUISITION STRATEGY
Radio One's primary acquisition strategy is to acquire and turn around
underperforming radio stations in the top-30 African-American markets. The
Company considers acquisitions in existing markets where expanded coverage is
desirable and considers acquisitions in new markets where the Company believes
it is advantageous to establish a presence. In analyzing potential acquisition
candidates, the Company generally considers (i) whether the radio station has a
signal adequate to reach a large percentage of the African-American community in
a market, (ii) whether the Company can reformat or improve the radio station's
programming in order to profitably serve the African-American community, (iii)
whether the radio station affords the Company the opportunity to segment program
formats within a market in which the Company already maintains a presence, (iv)
whether the Company can increase broadcast revenues of the radio station through
aggressive marketing, sales and promotions, (v) the price and terms of the
purchase, (vi) the level of performance that can be expected from the radio
station under the Company's management and (vii) the number of competitive radio
stations in the market.
7
<PAGE>
The Company believes that large segments of the African-American population
in its target markets are often concentrated in certain geographic sections of
such markets. The Company further believes that this geographic concentration
may provide it with an opportunity to acquire less expensive radio stations with
less powerful signals without materially diminishing the Company's coverage of
the African-American community. As a result, the Company believes it can have a
competitive advantage in securing a substantial share of the radio revenue at a
potentially lower acquisition cost per listener than radio stations targeting
other demographic groups.
THE TRANSACTIONS
The "Transactions" refer collectively to the offering of the Notes (the
"Notes Offering"), the Philadelphia Acquisition, the DC Acquisition, the
Existing Notes Exchange (as defined) and the Related Adjustments. See "The
Transactions." The "Related Adjustments" consist of (i) the Company's move to
the Lanham Offices (as defined) and the net saving related thereto, and (ii) the
elimination of certain station expenses which are not expected to recur after
the consummation of the Acquisitions. See "Pro Forma Consolidated Financial
Data."
THE NOTES OFFERING
NOTES .................. The Notes were sold by the Company on May 19, 1997
to Credit Suisse First Boston Corporation and
NationsBanc Capital Markets, Inc. (the "Initial
Purchasers") pursuant to a Purchase Agreement dated
as of May 14, 1997 (the "Purchase Agreement"). The
Initial Purchasers subsequently resold the Notes to
qualified institutional buyers pursuant to Rule 144A
under the Securities Act and to a limited number of
institutional accredited investors that agreed to
comply with certain transfer restrictions and other
conditions.
REGISTRATION RIGHTS
AGREEMENT.............. Pursuant to the Purchase Agreement, the Company, the
License Company and the Initial Purchasers entered
into a Registration Rights Agreement dated as of May
14, 1997 (the "Registration Rights Agreement"),
which grants the holder of the Notes certain
exchange and registration rights. The Exchange Offer
is intended to satisfy such exchange rights which
terminate upon the consummation of the Exchange
Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED...... $85,478,000 aggregate principal amount of Series B
12% Senior Subordinated Notes due 2004 (the
"Exchange Notes").
THE EXCHANGE OFFER ... $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of Notes.
As of the date hereof, $85,478,000 aggregate
principal amount of Notes are outstanding. The
Company will issue the Exchange Notes to holders on
or promptly after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Notes may be offered for resale, resold
and otherwise transferred by any holder thereof
(other than any such holder which is an "affiliate"
of the Company within
8
<PAGE>
the meaning of Rule 405 under the Securities Act)
without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are acquired
in the ordinary course of such holder's business and
that such holder does not intend to participate and
has no arrangement or understanding with any person
to participate in the distribution of such Exchange
Notes.
Each Participating Broker-Dealer that receives
Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating
Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Notes where such
Notes were acquired by such Participating
Broker-Dealer as a result of market-making
activities or other trading activities. The Company
has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer for use
in connection with any such resale. See "Plan of
Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes could not rely on the position of the staff of
the Commission enunciated in no-action letters and,
in the absence of an exemption therefrom, must
comply with the registration and prospectus delivery
requirements of the Securities Act in connection
with any resale transaction. Failure to comply with
such requirements in such instance may result in
such holder incurring liability under the Securities
Act for which the holder is not indemnified by the
Company.
EXPIRATION DATE......... 5:00 p.m., New York City time, on November 10, 1997
unless the Exchange Offer is extended by the Company
in its sole discretion, in which case the term
"Expiration Date" means the latest date and time to
which the Exchange Offer is extended.
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
NOTES .................. Each Exchange Note will bear interest from its
issuance date. Holders of Notes that are accepted
for exchange will receive, in cash, accrued interest
thereon to, but not including, the issuance date of
the Exchange Notes. Such interest will be paid with
the first interest payment on the Exchange Notes.
Interest on the Notes accepted for exchange will
cease to accrue upon issuance of the Exchange Notes.
CONDITIONS TO THE EXCHANGE
OFFER .................. The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer-Conditions."
9
<PAGE>
PROCEDURES FOR TENDERING
NOTES .................. Each holder of Notes wishing to accept the Exchange
Offer must complete, sign and date the accompanying
Letter of Transmittal, or a facsimile thereof or
transmit an Agent's Message (as defined) in
connection with a book-entry transfer, in accordance
with the instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile or such Agent's
Message, together with the Notes and any other
required documentation to the Exchange Agent (as
defined) at the address set forth herein. By
executing the Letter of Transmittal (or facsimile
thereof) or Agent's Message, each holder will
represent to the Company that, among other things,
the Exchange Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of
business of the person receiving such Exchange
Notes, whether or not such person is the holder,
that neither the holder nor any such other person
has any arrangement or understanding with any person
to participate in the distribution of such Exchange
Notes and that neither the holder nor any such other
person is an "affiliate," as defined under Rule 405
of the Securities Act, of the Company. See "The
Exchange Offer- Purpose and Effect of the Exchange
Offer" and "-Procedures for Tendering."
UNTENDERED NOTES ...... Following the consummation of the Exchange Offer,
holders of Notes eligible to participate but who do
not tender their Notes will not have any further
exchange rights and such Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such
Notes could be adversely affected.
CONSEQUENCES OF FAILURE TO
EXCHANGE ............... The Notes that are eligible but not exchanged
pursuant to the Exchange Offer will remain
restricted securities. Accordingly, such Notes may
be resold only (i) to the Company, (ii) pursuant to
Rule 144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States to a
foreign person pursuant to the requirements of Rule
904 under the Securities Act, or (iv) pursuant to an
effective registration statement under the
Securities Act. See "The Exchange Offer-
Consequences of Failure to Exchange."
SHELF REGISTRATION
STATEMENT.............. If any holder of the Notes (other than any such
holder which is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) is
not eligible under applicable securities laws to
participate in the Exchange Offer, and such holder
has provided information regarding such holder and
the distribution of such holder's Notes to the
Company for use therein, the Company has agreed to
register the Notes on a shelf registration statement
(the "Shelf Registration Statement") and use its
best efforts to cause it to be declared effective by
the Commission as promptly as practical on or after
the consummation of the Exchange Offer. The Company
has agreed to maintain the effectiveness of the
Shelf Registration Statement for, under certain
circumstances, a maximum of three years, to cover
resales of the Notes held by any such holders.
10
<PAGE>
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS ..... Any beneficial owner whose Notes are registered in
the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender
should contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on such owner's own behalf, such
owner must, prior to completing and executing the
Letter of Transmittal and delivering its Notes,
either make appropriate arrangements to register
ownership of the Notes in such owner's name or
obtain a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time. The Company
will keep the Exchange Offer open for not less than
twenty days in order to provide for the transfer of
registered ownership.
GUARANTEED DELIVERY
PROCEDURES ............ Holders of Notes who wish to tender their Notes and
whose Notes are not immediately available or who
cannot deliver their Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent (or
comply with the procedures for book-entry transfer)
prior to the Expiration Date must tender their Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer- Guaranteed Delivery
Procedures."
WITHDRAWAL RIGHTS ....... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
ACCEPTANCE OF NOTES AND
DELIVERY OF EXCHANGE
NOTES ................. The Company will accept for exchange any and all
Notes which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued pursuant
to the Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer- Terms of the Exchange Offer."
FEDERAL INCOME TAX
CONSEQUENCES............ The exchange pursuant to the Exchange Offer should
not be a taxable event for Federal income tax
purposes. See "Certain Federal Tax Consequences."
USE OF PROCEEDS......... There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
EXCHANGE AGENT ......... United States Trust Company of New York.
THE EXCHANGE NOTES
GENERAL.................. The form and terms of the Exchange Notes are the
same as the form and terms of the Notes (which they
replace) except that (i) the Exchange Notes bear a
Series B designation, (ii) the Exchange Notes have
been registered under the Securities Act and,
therefore, will not bear legends restricting the
transfer thereof, and (iii) the holders of Exchange
Notes will not be entitled to certain rights under
the Registration Rights Agreement, including the
provisions providing for an increase in the interest
rate on the
11
<PAGE>
Notes in certain circumstances relating to the
timing of the Exchange Offer, which rights will
terminate when the Exchange Offer is consummated.
See "The Exchange Offer-Purpose and Effect of the
Exchange Offer." The Exchange Notes will evidence
the same debt as the Notes and will be entitled to
the benefits of the Indenture. See "Description of
Exchange Notes." The Notes and the Exchange Notes
are referred to herein collectively as the "Senior
Subordinated Notes."
SECURITIES OFFERED...... $85,478,000 aggregate principal amount of Series B
12% Senior Subordinated Notes due 2004 of the
Company.
MATURITY DATE............ May 15, 2004
INTEREST ............... Cash interest on the Exchange Notes will accrue at a
rate of 7% per annum on the principal amount of the
Exchange Notes through and including May 15, 2000,
and at a rate of 12% per annum on the principal
amount of the Exchange Notes after such date. Cash
interest will be payable semi-annually on May 15 and
November 15 of each year, commencing November 15,
1997.
OPTIONAL REDEMPTION ... The Exchange Notes are redeemable at any time and
from time to time at the option of the Company, in
whole or in part, on or after May 15, 2001, at the
redemption prices set forth herein plus accrued and
unpaid interest to the date of redemption. In
addition, on or prior to May 15, 2000, the Company
may redeem, at its option, up to 25% of the
aggregate original principal amount of the Exchange
Notes with the net proceeds of one or more Public
Equity Offerings (as defined) at 112% of the
Accreted Value (as defined) thereof, together with
accrued and unpaid interest, if any, to the date of
redemption, as long as at least $64,109,000 of the
aggregate principal amount of the Exchange Notes
remains outstanding after each such redemption. See
"Description of Exchange Notes-Optional Redemption."
CHANGE OF CONTROL ...... Upon a Change of Control (as defined), the Company
will be required to offer to repurchase the Exchange
Notes at 101% of the Accreted Value thereof plus
accrued and unpaid interest, if any, to the date of
repurchase. A Change of Control includes a sale of
substantially all of the Company's assets, the
adoption by the Company of a plan of liquidation, a
material change in the ownership of the voting power
of the voting stock of the Company or certain
changes in the composition of the Company's board of
directors. Future indebtedness of the Company may
contain, and the New Credit Agreement (if any) would
contain, prohibitions on the occurrence of certain
events that would constitute a Change of Control or
require such indebtedness to be repurchased upon a
Change of Control. Moreover, the exercise by the
holders of the Exchange Notes of their right to
require the Company to offer to repurchase the
Exchange Notes could cause a default under such
indebtedness, even if the Change of Control itself
does not, due to the financial effect of such Offer
to Purchase (as defined) on the Company. There can
be no assurance that sufficient funds will be
available when necessary to make an offer to
repurchase the Exchange Notes or to repay such
indebtedness. See "Risk
12
<PAGE>
Factors-Leverage and Debt Service; Refinancing
Required" and "Description of Exchange Notes-Certain
Covenants-Change of Control."
RANKING AND GUARANTEES The Exchange Notes will be unsecured obligations of
the Company and the payment of the principal of,
premium (if any) and interest on the Exchange Notes
will be subordinate in right of payment to the prior
payment in full in cash of all Senior Debt (as
defined) of the Company (including all outstanding
indebtedness under the New Credit Facility (as
defined) or the Existing Credit Facility (as
defined)). As of the date of this Prospectus, the
Company has no indebtedness outstanding under either
the New Credit Facility (which has not yet been
entered into) or the Existing Credit Facility. The
Exchange Notes will rank pari passu in right of
payment with all senior subordinated indebtedness of
the Company and senior in right of payment to all
other subordinated indebtedness of the Company
issued after this Offering. The Exchange Notes will
be guaranteed (the "Subsidiary Guarantees") to the
maximum extent permitted by law, jointly and
severally, on an unsecured senior subordinated
basis, by the License Company (as defined) and,
subject to certain exceptions, all future Restricted
Subsidiaries (as defined) (collectively, the
"Subsidiary Guarantors"). See "Description of
Exchange Notes-Guarantees." The Subsidiary
Guarantees will be subordinated to all existing and
future Senior Debt of such Subsidiary Guarantors,
including any guarantees of Senior Debt. The Company
may from time to time create Unrestricted
Subsidiaries (as defined), the indebtedness of which
would be effectively senior to the Exchange Notes.
After giving pro forma effect to the Transactions as
of December 31, 1996, the Company and the Subsidiary
Guarantors would have had approximately $46,000 of
Senior Debt outstanding. The indenture governing the
Exchange Notes (the "Indenture") will permit the
Company to incur additional Senior Debt (subject to
certain limitations) but will prohibit the Company
from incurring additional Indebtedness (as defined)
that is senior to the Exchange Notes and
subordinated to any Senior Debt. See "Description of
Exchange Notes - Subordination."
MODIFICATION OF
THE INDENTURE ........ The Company and the Trustee, with the consent of the
holders of a majority in aggregate principal amount
of the outstanding Senior Subordinated Notes, may
amend the Indenture; provided, however, that consent
is required from the holder of each such Senior
Subordinated Note affected thereby in instances such
as reductions in the amount or changes in the timing
of interest payments, or reductions in the principal
and changes in the maturity of the Senior
Subordinated Notes. See "Description of Exchange
Notes - Modification and Waiver."
EVENTS OF DEFAULT...... An Event of Default (as defined) occurs under the
Indenture in instances such as the failure to pay
principal when due, the failure to pay any interest
within 30 days of when such interest is due and
payable, the failure to perform or comply with
various covenants under the Indenture or the default
under the terms of certain other indebtedness of the
Company. See "Description of Exchange Notes - Events
of Default."
13
<PAGE>
RESTRICTIVE COVENANTS The Indenture contains certain restrictive covenants
with respect to the Company and its Restricted
Subsidiaries (as defined), including limitations on
(a) the sale of assets, including the equity
interests of the Company's Restricted Subsidiaries,
(b) asset swaps, (c) the payment of Restricted
Payments (as defined), (d) the incurrence of
indebtedness and issuance of preferred stock by the
Company or its Restricted Subsidiaries, (e) the
issuance of Equity Interests (as defined) by a
Restricted Subsidiary, (f) the payment of dividends
on the capital stock of the Company and the
purchase, redemption or retirement of the capital
stock or subordinated indebtedness of the Company,
(g) certain transactions with affiliates, (h) the
incurrence of senior subordinated debt (i) certain
consolidations and mergers. The Indenture also
prohibits certain restrictions on distributions from
Restricted Subsidiaries. All of these limitations
and prohibitions, however, are subject to a number
of important qualifications. See "Description of
Exchange Notes-Certain Covenants."
TRUSTEE.................. United States Trust Company of New York. Except
during the continuance of an Event of Default, the
Trustee will perform only such duties as are
specifically set forth in the Indenture. If an Event
of Default occurs and is continuing, the Trustee or
the holders of at least 25% in principal amount of
the outstanding Senior Subordinated Notes may
declare the Accreted Value of and accrued but unpaid
interest, if any, on all the Exchange Notes to be
due and payable.
For additional information regarding the Exchange Notes, see "Description
of Exchange Notes."
RISK FACTORS
Holders of the Notes should carefully consider the specific matters set
forth under "Risk Factors" as well as the other information and data included in
this Prospectus prior to tendering their Notes in the Exchange Offer.
14
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table contains summary historical and unaudited pro forma
consolidated financial information with respect to the Company. The summary
historical consolidated financial data has been derived from the historical
consolidated financial statements of the Company, including the Consolidated
Financial Statements of the Company for the three fiscal years ended December
31, 1996 included elsewhere in this Prospectus, which have been audited by
Arthur Andersen LLP, independent public accountants. The consolidated financial
data for the six months ended June 30, 1996 and June 29, 1997 have been derived
from unaudited consolidated financial statements of the Company which, in the
opinion of management, include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial condition and
results of operations of the Company. The summary unaudited pro forma financial
information has been derived from the unaudited pro forma financial information
set forth under "Pro Forma Consolidated Financial Data" and gives pro forma
effect to the Transactions, including the Notes Offering, the Philadelphia
Acquisition, the DC Acquisition, the Existing Notes Exchange and the Related
Adjustments for the fiscal year ended December 31, 1996 and the six months ended
June 29, 1997. The summary historical and pro forma consolidated financial
information are unaudited, and should be read in conjunction with "Management's
Discussion and Analysis of Results of Operations and Financial Condition," "Pro
Forma Consolidated Financial Data" and the Consolidated Financial Statements of
the Company included elsewhere in this Prospectus. The summary unaudited pro
forma consolidated financial information does not purport to represent what the
Company's results of operations or financial condition would actually have been
had the Transactions occurred on the dates indicated therein or to project the
Company's results of operations or financial condition for any future period or
date.
<TABLE>
<CAPTION>
HISTORICAL(A)
--------------------------------------------------------
FISCAL YEAR ENDED
--------------------------------------------------------
DEC. 27, DEC. 26, DEC. 25, DEC. 31, DEC. 31,
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net broadcast revenues(b), (c) ......... $10,833 $11,638 $15,541 $21,455 $ 23,702
Station operating expenses ............ 6,036 6,972 8,506 11,736 13,927
Corporate expenses(d) .................. 553 683 1,128 1,995 1,793
Depreciation and amortization ......... 2,299 1,756 2,027 3,912 4,262
------- -------- ------- -------- ----------
Operating income (loss) ............... 1,945 2,227 3,880 3,812 3,720
Interest expense(b), (e) ............... 1,890 1,983 2,665 5,289 7,252
Other (income) expenses, net ......... (72) - (38) (89) 77
Income tax expense(f) .................. - 92 30 - -
------- -------- ------- -------- ----------
Income (loss) before extraordinary
item ................................. $ 127 $ 152 $ 1,223 $(1,388) $ (3,609)
======= ======== ======= ======== ==========
OTHER DATA:
Broadcast cash flow(g) ............... $ 4,797 $ 4,666 $ 7,035 $ 9,719 $ 9,775
Broadcast cash flow margin(h) ......... 44.3% 40.1% 45.3% 45.3% 41.2%
EBITDA(i) .............................. $ 4,244 $ 3,983 $ 5,907 $ 7,724 $ 7,982
Cash interest(j) ..................... 1,909 1,946 2,356 5,103 4,815
Capital expenditures(k) ............... 708 212 639 224 251
Ratio of earnings to fixed charges(l) 1.1x 1.1x 1.5x - -
Ratio of total debt to EBITDA(m) ......
Ratio of EBITDA to interest expense(n)
Ratio of EBITDA to cash interest(n) ...
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents ............ $ 1,708
Working capital(o) ..................... 771
Intangible assets, net ............... 39,358
Total assets ........................... 51,777
Debt, including current portion and de-
ferred interest(l) 64,939
Senior Cumulative Redeemable Pre-
ferred Stock -
Total stockholders' equity (deficit) ... (15,003)
<PAGE>
<CAPTION>
PRO FORMA PRO FORMA
------------- ------------
SIX
FISCAL YEAR MONTHS
SIX MONTHS ENDED ENDED ENDED
------------------------- ------------- ------------
JUNE 30, JUNE 29, DEC. 31, JUNE 29,
1996 1997(B) 1996 1997
------------ ------------ ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net broadcast revenues(b), (c) ......... $ 10,847 $ 13,236 $ 27,974 $ 14,150
Station operating expenses ............ 6,805 8,592 16,737 9,245
Corporate expenses(d) .................. 620 1,080 1,793 1,080
Depreciation and amortization ......... 2,225 2,366 7,665 3,541
---------- ---------- -------- ----------
Operating income (loss) ............... 1,197 1,198 1,779 284
Interest expense(b), (e) ............... 3,614 4,195 10,108 4,989
Other (income) expenses, net ......... (54) (107) (48) (107)
Income tax expense(f) .................. - - - -
---------- ---------- -------- ----------
Income (loss) before extraordinary
item $ (2,363) $ (2,890) $ (8,281) $ (4,598)
========== ========== ======== ==========
OTHER DATA:
Broadcast cash flow(g) ............... $ 4,042 $ 4,644 $ 11,237 $ 4,905
Broadcast cash flow margin(h) ......... 37.3% 35.1% 40.2% 34.7%
EBITDA(i) .............................. $ 3,422 $ 3,564 $ 9,444 $ 3,825
Cash interest(j) ..................... 1,706 1,480 6,365 3,181
Capital expenditures(k) ............... 108 664 1,551 1,499
Ratio of earnings to fixed charges(l) - - - -
Ratio of total debt to EBITDA(m) ...... 8.2x
Ratio of EBITDA to interest expense(n) 1.0x
Ratio of EBITDA to cash interest(n) ... 1.6x
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents ............ $ 1,592 $ 8,782 $ 8,782
Working capital(o) ..................... 4,799 13,597 13,535
Intangible assets, net ............... 40,420 57,183 60,996
Total assets ........................... 52,418 77,296 81,109
Debt, including current portion and de-
ferred interest(l) 63,791 73,252 77,002
Senior Cumulative Redeemable Pre-
ferred Stock - 20,931 20,931
Total stockholders' equity (deficit) ... (13,757) (19,877) (19,877)
</TABLE>
15
<PAGE>
(footnotes relate to previous page)
- ----------
(a) Year-to-year comparisons are significantly affected by the timing of the
Company's acquisition of various radio stations during the periods covered.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and note (j) below. Prior to the fiscal year ended
December 31, 1996, the Company's accounting reporting period was based on a
fifty-two/fifty-three week period ending on the last Sunday of each
calendar year. During 1996, the Company elected to end its fiscal year on
December 31 of each year.
(b) Includes $271,000 related to the LMA under which the Company began to
operate WPHI-FM on February 8, 1997.
(c) Net broadcast revenues are gross revenues less agency commissions. Net
broadcast revenues include historical broadcast revenues of each radio
station acquired (or to be acquired, in the case of pro forma data) from
the date of acquisition (or assumed date of acquisition, in the case of pro
forma data) and do not reflect the impact of any changes or planned changes
to programming formats at such acquired radio stations.
(d) Corporate expenses include all expenses incurred which are not associated
with or attributable to the operations of any individual radio station,
including compensation and benefits paid to senior management, rent of
corporate offices, general liability and keyman life insurance,
professional fees, and travel and entertainment expenses.
(e) Interest expense includes non-cash interest, such as the accretion of
principal, the amortization of discounts on debt and the amortization of
deferred financing costs. The calculation of pro forma interest expense is
based on a yield to maturity of 12% per annum (computed on a semi-annual
bond equivalent basis), including cash interest payable at 7% per annum on
the principal amount during the first three years and cash interest payable
at 12% per annum thereafter.
(f) Effective January 1, 1996, the Company elected to be treated as an S
Corporation for U.S. federal and state income tax purposes and, therefore,
it generally has not been subject to income tax at the corporate level
since that date. In connection with the consummation of the Existing Notes
Exchange, the Company's S Corporation status was terminated.
(g) Broadcast cash flow means EBITDA before corporate expenses. Although
broadcast cash flow is not calculated in accordance with generally accepted
accounting principles ("GAAP"), it is widely used in the broadcast industry
as a measure of a radio broadcasting company's performance. Broadcast cash
flow should not be considered in isolation from or as a substitute for net
income, cash flows from operating activities and other income or cash flow
statement data prepared in accordance with GAAP, or as a measure of
profitability or liquidity. Pro Forma broadcast cash flow for the fiscal
year ended December 31, 1996 and for the six months ended June 29, 1997,
without including activities relating to the DC Acquisition in light of the
Company's intent to hold all the assets acquired in the DC Acquisition in
Newco a wholly owned subsidiary of the Company which would be designated as
a Unrestricted Subsidiary, are $10.4 million and $4.6 million, repectively.
(h) Broadcast cash flow margin is defined as broadcast cash flow divided by net
broadcast revenues.
(i) EBITDA means operating income (loss) before depreciation and amortization.
Although EBITDA is not calculated in accordance with GAAP, it is widely
used as a measure of a company's ability to service and/or incur debt.
EBITDA should not be considered in isolation from or as a substitute for
net income (loss), cash flows from operating activities and other income or
cash flow statement data prepared in accordance with GAAP, or as a measure
of profitability or liquidity. Pro Forma EBITDA for the fiscal year ended
December 31, 1996 and for the six months ended June 29, 1997, without
including any activities relating to the DC Acquisition in light of the
Company's intent to hold all of the assets acquired in the DC Acquisition
in Newco, a wholly owned subsidiary of the Company which would be
designated as an Unrestricted Subsidiary, are $8.7 million and 3.5 million,
respectively.
(j) Cash interest is calculated as interest expense less non-cash interest,
including the accretion of principal, the amortization of discounts on debt
and the amortization of deferred financing costs, for the indicated period.
The calculation of pro forma cash interest utilizes the interest rates
applicable to the Notes: 7% per annum on the aggregate principal amount of
the Notes during the period presented, which aggregate principal amount is
based on a yield to maturity of 12% per annum (computed on a semi-annual
bond equivalent basis), including cash interest payable at 7% per annum on
the principal amount during the first three years and cash interest payable
at 12% per annum thereafter. Pro Forma cash interest for the fiscal year
ended December 31, 1996 and for the six months ended June 29, 1997 without
including any activities relating to the DC Acquisition in light of the
Company's intent to hold all of the assets acquired in the DC Acquisition
in Newco, a wholly owned subsidiary of the Company which would be
designated as an Unrestricted Subsidiary, are $6.0 million and $3.0
million, respectively.
(k) Excludes capital expenditures in connection with all radio station
acquisitions by the Company which occurred during the periods presented
including: (i) WWIN-FM and WWIN-AM acquired in January 1992 for total
consideration of approximately $4.7 million, (ii) WERQ-FM and WOLB-AM
(previously WERQ-AM) acquired in September 1993 for total consideration of
approximately $9.0 million and (iii) WKYS-FM acquired in June 1995 for
total consideration of approximately $34.4 million.
(l) For purposes of this calculation, earnings consist of net income (loss)
before income taxes, extraordinary items and fixed charges. Fixed charges
consist of interest expense, including the amortization of discounts on
debt and the amortization of deferred financing costs, and the component of
rental expense believed by management to be representative of the interest
factor thereon. Pro Forma ratio of earnings to fixed charges for the fiscal
year ended December 31, 1996 and for the six months ended June 29, 1997
would remain less than 1.0x without including any activities relating to
the DC Acquisition in light of the Company's intent to hold all of the
assets acquired in the DC Acquisition in Newco, a wholly owned subsidiary
of the Company which would be designated as an Unrestricted Subsidiary.
Earnings were insufficient to cover fixed charges for the fiscal years
ended December 31, 1995 and 1996 and for the six months ended June 30, 1996
and June 29, 1997 by approximately $1.4 million, $3.6 million, $2.4 million
and $2.9 million, respectively, and on a pro forma basis for the year ended
December 31, 1996 and for the six months ended June 29, 1997 by
approximately $8.3 million and $4.6 million, respectively.
(m) Debt means long-term indebtedness, including the current portion thereof
and deferred interest, net of unamortized discount on such indebtedness.
The Pro Forma ratio of total debt to EBITDA for the fiscal year ended
December 31, 1996, without including any activities relating to the DC
Acquisition in light of the Company's intent to hold all of the assets
acquired in the DC Acquisition in Newco, a wholly owned subsidiary of the
Company which would be designated as an Unrestricted Subsidiary is 8.5x.
(n) The pro forma ratio of EBITDA to interest expense and the pro forma ratio
of EBITDA to cash interest for the fiscal year ended December 31, 1996,
excluding any activities relating to the DC Acquisition in light of the
Company's intent to hold all of the assets acquired in the DC Acquisition
in Newco, a wholly owned subsidiary of the Company which would be
designated as an Unrestricted Subsidiary; are 1.0x and 1.5x, repectively.
(o) Working capital means current assets less current liabilities.
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RISK FACTORS
In addition to the other information and data included in this Prospectus,
the following factors should be considered carefully before tendering in the
Exchange Offer.
LEVERAGE AND DEBT SERVICE; REFINANCING REQUIRED
The Company incurred significant debt in connection with the Transactions.
As of December 31, 1996, after giving pro forma effect to the Transactions, the
Company would have had outstanding indebtedness of approximately $75.0 million,
Senior Preferred Stock with an aggregate liquidation value of $20.5 million and
stockholders' deficit of approximately $19.0 million. For the year ended
December 31, 1996 and for the six months ended June 29, 1997, after giving pro
forma effect to the Transactions, the Company's earnings would have been
inadequate to cover fixed charges by approximately $8.3 million and $4.6
million, respectively. See "Pro Forma Consolidated Financial Data" and "Selected
Historical Consolidated Financial Data." The Company's highly leveraged
financial position poses substantial risks to holders of the Exchange Notes,
including the risks that: (i) a substantial portion of the Company's cash flow
from operations is required to be dedicated to the payment of interest on the
Exchange Notes and the payment of principal and interest under any Senior Debt;
(ii) the Company's highly leveraged position may impede its ability to obtain
financing in the future for working capital, capital expenditures and general
corporate purposes, including acquisitions; and (iii) the Company's highly
leveraged financial position may make it more vulnerable to economic downturns
and may limit its ability to withstand competitive pressures. The Company
believes that, based on its current level of operations, it will have sufficient
capital to carry on its business and will be able to make the scheduled cash
interest payments on the Exchange Notes and meet its other obligations and
commitments. However, there can be no assurance that the future cash flow of the
Company will be sufficient to make the scheduled cash interest payments of the
Exchange Notes and meet the Company's other obligations and commitments. If the
Company is unable to generate sufficient cash flow from operations in the future
to make the scheduled cash interest payments on the Exchange Notes and to meet
its other obligations and commitments, the Company will be required to adopt one
or more alternatives, such as refinancing or restructuring its indebtedness,
selling material assets or operations, or seeking to raise additional debt or
equity capital. Furthermore, the Company believes it will be necessary to
refinance the Exchange Notes at or prior to the scheduled maturity date in 2004.
There can be no assurance that any of these actions could be effected on a
timely basis or on satisfactory terms or that these actions would enable the
Company to continue to satisfy its capital requirements. In addition, the terms
of existing or future debt agreements, including the Indenture, may prohibit the
Company from adopting any of these alternatives. In addition, the Company does
not have sufficient funds available to purchase all of the outstanding Exchange
Notes were they to be tendered in response to an offer made as a result of a
Change of Control, and certain provisions of the agreements which may govern
Senior Debt may restrict such purchase. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition-Liquidity and Capital
Resources," and "Description of Exchange Notes."
SUBORDINATION OF EXCHANGE NOTES
The Exchange Notes will be unsecured senior subordinated obligations of the
Company and will be subordinated in right of payment to all existing and future
Senior Debt of the Company. In the event of a bankruptcy, liquidation,
reorganization or other winding up of the Company, the assets of the Company
will be available to pay obligations on the Exchange Notes only after all Senior
Debt of the Company has been paid in full, and, as a result, there may not be
sufficient assets remaining to pay amounts due on the Exchange Notes. In the
event of a payment default with respect to any Senior Debt of the Company, no
payments may be made on account of principal, premium, if any, or interest on
the Exchange Notes until such default has been cured or waived. In addition,
under certain circumstances, no payments may be made for a specified period with
respect to principal, premium, if any, or interest on the Exchange Notes if
certain non-payment defaults exist with respect to certain Senior Debt of the
Company. See "Description of Exchange Notes."
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DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of its senior
management team including, in particular, Ms. Catherine L. Hughes and her son,
Mr. Alfred C. Liggins, III. Although the Company believes it can adequately
replace key employees in an orderly fashion should the need arise, there can be
no assurance that the loss of such key personnel would not have a material
adverse effect on the Company. The Company maintains key man life insurance
for, and anticipates entering into employment contracts with, Ms. Hughes and
Mr. Liggins. See "Management."
CONTROLLING STOCKHOLDERS
Ms. Catherine L. Hughes and her son, Mr. Alfred C. Liggins, III,
collectively hold approximately 99.3% of the outstanding voting power of the
Company's capital stock and thus have the voting power to control all matters
submitted for a vote to the stockholders of the Company. Such control may have
the effect of discouraging certain types of transactions involving an actual or
potential change of control of the Company. However, certain investors in the
Company hold the Warrants (as defined) which entitle them to acquire
approximately 51.5% of the voting power of the Company on a fully-diluted basis,
and thus to control matters requiring a majority vote, subject to FCC approval.
The exercise by the holders of their Warrants will not, in and of itself,
constitute a Change of Control under the Indenture. Additionally, subject to the
terms of the Standstill Agreement (as defined) which the Company entered into
with the Trustee (as defined) on behalf of the holders of the Senior
Subordinated Notes, and the Bank in connection with the New Credit Facility (as
defined), each of the Preferred Stockholders' Agreement (as defined) and the
Warrantholders' Agreement (as defined) will give the holders of a majority of
the outstanding shares of Senior Preferred Stock the right to cause either the
sale of the entire business of the Company or to refinance and to repay the New
Credit Facility, if entered into by the Company, the Exchange Notes, the Senior
Preferred Stock and the Warrants and other equity interests of the Company, upon
the breach by the Company of certain of its obligations under the agreements
governing the Senior Preferred Stock and the Warrants.
RESTRICTIONS IMPOSED BY THE PREFERRED STOCKHOLDERS' AGREEMENT
The Preferred Stockholders' Agreement contains various covenants which
restrict the Company's ability to, among other things, incur indebtedness for
borrowed money or liens, sell a material portion of its assets, merge or acquire
additional businesses, make loans to or investments in others, enter into
sale-leaseback transactions, amend its certificate of incorporation or bylaws,
change its accounting policies, engage in affiliate transactions, declare or pay
dividends or sell or issue capital stock. Generally, compliance with the terms
of the Preferred Stockholders' Agreement may be waived by the holders of a
majority of the outstanding shares of Senior Preferred Stock. However, any
amendments to the covenants regarding the prohibition on mergers and
acquisitions of additional businesses or the distribution, redemption or
issuance of capital stock will require the consent of the holders of at least
eighty percent of the outstanding shares of Senior Preferred Stock. These
restrictions severely limit the ability of the Company to take various actions
without the consent of the holders of a requisite percentage of the outstanding
shares of Senior Preferred Stock. In addition, if the Company fails to comply
with such covenants, the dividend rate payable by the Company with respect to
the Senior Preferred Stock will, at the election of the holders of a majority of
the outstanding shares of the Senior Preferred Stock, increase to 18% per annum
(except in certain specified circumstances). Furthermore, if certain material
covenants are violated, the holders of a majority of the outstanding shares of
Senior Preferred Stock will have the right, subject to the terms of the
Standstill Agreement, to cause the Company to enter into a signed agreement for
the sale of the Company or the assets thereof or a signed financing commitment
letter with an institutional lender providing for funds sufficient to repay, in
order of seniority, the New Credit Facility, the Exchange Notes, the Senior
Preferred Stock and the value of the Warrants, and close such transaction upon
FCC approval. See "Description of Capital Stock-Senior Preferred Stock."
RESTRICTIONS IMPOSED BY THE NEW CREDIT FACILITY; PLEDGE OF ASSETS
Assuming the Company enters into the New Credit Facility, the New Credit
Facility will contain certain financial and other covenants, including the
maintenance of certain financial tests and ratios, limitations on capital
expenditures and restrictions on the incurrence of debt or liens, the sale of
assets,
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the payment of dividends and transactions with affiliates. In addition, the New
Credit Facility, if entered into by the Company, will provide for various events
of default including an event of default upon the occurrence of a change of
control. These covenants would limit the operating flexibility of the Company,
and a failure to comply with the covenants included in the New Credit Facility
would generally result in an event of default thereunder, permitting holders of
the indebtedness thereunder to accelerate the maturity and to foreclose upon the
collateral securing such indebtedness. Under any such circumstances, there can
be no assurance that the Company would have sufficient assets to satisfy all of
its obligations, including its obligations on the Exchange Notes. See "Certain
Indebtedness-New Credit Facility."
The obligations of the Company and the Subsidiary Guarantors under the New
Credit Facility, if entered into by the Company, are expected to be secured by a
first priority perfected security interest in: (i) all of the Common Stock of
the Company and its direct and indirect Subsidiaries (subject to certain
exceptions), including all Warrants or options and other similar securities to
purchase such securities and (ii) substantially all of the assets of the Company
and its direct and indirect Subsidiaries (subject to certain exceptions)
including, without limitation, any and all licenses of the Company and its
direct and indirect Subsidiaries (subject to certain exceptions) issued by the
Federal Communications Commission (the "FCC") to the maximum extent permitted by
law. See "Certain Indebtedness-New Credit Facility." If the Company becomes
insolvent or is liquidated or if the indebtedness, if any, under the New Credit
Facility is accelerated, the lenders under the New Credit Facility would be
entitled to payment in full prior to any payment to holders of the Exchange
Notes. In such event, it is possible that there would be no assets remaining
from which claims of the holders of Exchange Notes could be satisfied or, if any
assets remained, such assets might be insufficient to fully satisfy such claims.
POTENTIAL CONFLICTS OF INTEREST
Mr. Liggins, who is the Chief Executive Officer and President of the
Company, is also the President of Radio One of Atlanta, Inc. ("ROA"), which owns
and operates one radio station in Atlanta and has a minority interest in Dogwood
Communications, Inc. ("Dogwood"). Dogwood holds a construction permit for
another radio station in the Atlanta area. Mr. Liggins has voting control of ROA
and owns approximately 47.0% of its outstanding capital stock. Mr. Liggins'
involvement with ROA may from time to time give rise to conflicts of interest
between ROA and the Company and may give rise to conflicting obligations for Mr.
Liggins. Such conflicts of interest could arise with respect to business
dealings between ROA and the Company, including potential acquisitions of
businesses or properties. The Company's board of directors will form an audit
committee of the board, two of the members of which will be directors who are
not employees of the Company. The audit committee will address certain potential
conflicts of interest and conflicting obligations that may arise with respect to
Mr. Liggins. In addition to Mr. Liggins' involvement with ROA, the Company's
Vice President of Programming is employed by ROA and programs ROA's radio
station. The Company also provides certain corporate services to ROA including
accounting, financial and strategic planning, other general management services
and programming services to ROA pursuant to a management agreement. In exchange
for such corporate services, the Company is paid an annual management fee of
$100,000 and is reimbursed for all of its out-of-pocket expenses incurred in
connection with the performance of such corporate services. Alta Subordinated
Debt Partners III, L.P. ("Alta") and Syncom are holders of the approximately
34.5% and 6.5%, respectively, of the outstanding shares of the Senior Preferred
Stock, and are holders of Warrants, which upon exercise entitle them to purchase
for nominal consideration approximately 10.3% and 12.7%, respectively, of the
outstanding shares of the Company's Class A Common Stock on a fully diluted
basis. Alta and Syndicated Communications Venture Partners II, L.P., an
affiliate of Syncom ("Syncom Venture"), hold approximately 15.0% and 24.0%,
respectively, of the outstanding shares of Class A Common Stock of ROA, are each
entitled to elect a director to ROA's board of directors and are also holders of
certain indebtedness of ROA. See "Principal Stockholders." The employment of the
Company's Vice President of Programming by ROA, the Company's management
agreement with ROA and Alta's and Syncom Venture's significant interests in ROA
may also give rise to conflicts of interest and conflicting obligations
particularly in terms of reducing the amount of time certain resources are
available to the Company. Additionally, a corporation ("Newco II") recently
formed at the direction of Mr. Liggins has entered into a binding letter of
intent with respect to the acquisition of certain radio
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stations in the State of Michigan. Although Newco II may become a wholly owned
subsidiary of the Company or assign its rights under such letter of intent to
the Company, there can be no assurance that Newco II will assign its rights
under such letter of intent to the Company, or that Newco II will become a
subsidiary of the Company or that if Newco II becomes a subsidiary of the
Company that it will not constitute an Unrestricted Subsidiary. See "Certain
Transactions-Newco II Acquisition." Although the Company does not believe any
conflicts of interest or conflicting obligations will adversely affect the
Company's operations, there can be no assurance that the Company's operations
will not be adversely affected or that any present or future conflicts of
interest or conflicting obligations will be resolved in favor of the Company.
See "Certain Transactions-Radio One of Atlanta, Inc." In addition, there can be
no assurance that Mr. Liggins will not seek, either individually or together
with Alta, Syncom, Syncom Venture or other holders of Common Stock, Warrants or
Senior Preferred Stock, to acquire additional radio stations in the future
through entities other than the Company or its Restricted Subsidiaries.
CONSUMMATION OF THE DC ACQUISITION
The Company's amended letter of intent with respect to the DC Acquisition
is non-binding and the consummation of the DC Acquisition is not a condition to
the consummation of the Exchange Offer. Pursuant to the terms of the amended
letter of intent, the Company and the seller of WYCB-AM have agreed that the
Company will form an Unrestricted Subsidiary (as defined) (upon the formation of
such Unrestricted Subsidiary, "Newco") to acquire all of the outstanding stock
of Broadcast Holdings, Inc. ("Broadcast Holdings"), the company that currently
owns and operates WYCB-AM. The purchase price payable in the DC Acquisition will
consist of a note issued by Newco in the original principal amount of $3,750,000
(the "Newco Note") which will be secured by a pledge of the stock of Broadcast
Holdings and, through a guarantee of Broadcast Holdings, by substantially all of
the assets of WYCB-AM. Interest on the Newco Note will accrue at the rate of 13%
per annum, payable quarterly in cash on the basis of 10% per annum, with the
balance thereof (3% per annum) to be accrued from the date of issuance of the
Newco Note and compounded quarterly. The outstanding principal amount of the
Newco Note together with all accrued and unpaid interest thereon will be payable
on the third anniversary of the date of issuance of the Newco Note. In addition,
in consideration of the payment of $100, the Company will issue a warrant to the
seller which would be exercisable for shares of the Senior Preferred Stock
having an aggregate liquidation value of up to $4,000,000 (the "WYCB Warrant").
The WYCB Warrant will only be exerciseable if, and then only to the extent that,
after a default on the Newco Note, the proceeds from any foreclosure or other
action taken by the holder of the Newco Note with respect to the collateral
securing the Newco Note are insufficient to cover the full amount due under the
Newco Note. Any such deficiency will be extinguished upon exercise of the WYCB
Warrant. The Company may enter into an LMA with Broadcast Holdings prior to
closing on terms satisfactory to the parties thereto and with Newco after such
closing. The amended letter of intent has been amended on various occasions to
extend the expiration date thereof. Pursuant to an oral agreement among the
parties thereto, the amended letter of intent will now expire on October 15,
1997. In addition, the non-binding letter of intent provides for liquidated
damages of $100,000 payable by the Company should the Company materially breach
the definitive acquisition agreement when, and if, entered into by the Company.
If the DC Acquisition is consummated on such terms, the indebtedness evidenced
by the Newco Note, and any other Unrestricted Subsidiary Indebtedness of Newco,
would be effectively senior to the Exchange Notes. See "Pro Forma Consolidated
Financial Data."
EXPANSION THROUGH ACQUISITIONS
The Company intends to continue to pursue the acquisition of additional
radio stations. Acquisitions of radio stations are subject to FCC approval and
the FCC limits the number and location of broadcasting properties that any one
person or entity (including its affiliates) may own. The market to purchase
radio stations is highly competitive, and many other potential acquirors have
greater resources than the Company available to effect such acquisitions.
Accordingly, there can be no assurance that the Company will be able to make
future acquisitions at prices acceptable to the Company. In addition, rapidly
growing businesses frequently experience unforeseen expenses and delays in
completing acquisitions, as well as difficulties and complications in
integrating the acquired operations without disruption in the overall
operations. As a result, acquisitions could adversely affect the Company's
operating results
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in the short term as a result of several factors, including increased capital
requirements. In addition, there can be no assurance that the Company will have
the resources necessary to acquire additional radio stations. See "-Leverage
and Debt Service; Refinancing Required."
COMPETITION
The financial success of each of the Company's radio stations depends, to a
significant degree, upon its audience share, its share of the overall radio
advertising revenue within a specific market and the economic health of that
market. Audience share and advertising revenue of the Company's individual radio
stations are subject to change, and any adverse change in a particular market
could have a material adverse effect on the total revenue and broadcast cash
flow of the Company. The Company's radio stations compete for audience share and
advertising revenue directly with other FM and AM radio stations and with other
media within their respective markets. While the Company already competes with
other radio stations with comparable programming formats in each of its markets,
if another radio station in the market were to convert its programming format to
a format similar to one of the Company's radio stations, if a new radio station
were to adopt a competitive format or if an existing competitor were to
strengthen its operations, the Company's radio stations could suffer a reduction
in audience share and/or advertising revenue and could require increased
promotion and other expenses. In addition, certain of the Company's radio
stations compete, and in the future other radio stations of the Company may
compete, with radio station clusters operated by a single operator. There can be
no assurance that the Company's radio stations will be able to maintain or
increase their current audience shares and radio advertising revenue. See
"Business-Competition."
Radio broadcasting is also subject to competition from new media
technologies that may be or are being developed or have been introduced, such as
the delivery of audio programming through cable television wires or the
introduction of digital audio broadcasting ("DAB"). DAB may provide a medium for
the delivery by satellite or terrestrial means of multiple audio programming
formats to local and national audiences. The Company cannot predict the effect,
if any, that any such new technologies may have on the radio broadcasting
industry or on the Company. See "Business-Federal Regulation of Radio
Broadcasting."
EFFECTS OF CHANGES IN THE RADIO BROADCASTING INDUSTRY
The profitability of the Company's radio stations is subject to various
factors which influence the radio broadcasting industry as a whole. The
Company's radio stations may be affected by changes in audience tastes,
priorities of advertisers, new laws and governmental regulations and policies,
changes in broadcast technical requirements, proposals to limit the tax
deductibility of expenses incurred by advertisers and changes in the willingness
of financial institutions and other lenders to finance radio station
acquisitions and operations. The Company cannot predict which, if any, of these
factors might have a significant impact on the radio broadcasting industry in
the future, nor can it predict what impact, if any, the occurrence of these
events might have on the Company's operations.
GOVERNMENT REGULATION
Each of the Company's radio stations operates pursuant to one or more
licenses issued by the FCC that have a maximum term of eight years prior to
renewal. The Company's radio operating licenses expire at various times from
August 1, 1998 to October 1, 2003, except that the license for WOL-AM expired on
October 1, 1995. The Company's timely filing of a license renewal application
has automatically extended the license term of WOL-AM until the FCC takes action
on the Company's renewal application. Although the Company may apply to renew
its FCC licenses, third parties may challenge the Company's renewal
applications. Except for a complaint filed against WOL-AM, the Company is not
aware of any facts or circumstances that would prevent the Company from having
its current licenses renewed. Action on the renewal application for WOL-AM
remains pending and has apparently been delayed due to the processing by the FCC
of a pending complaint against WOL-AM alleging that programming material
broadcast on the radio station was indecent and obscene. It is unlikely that
such a complaint would result in a denial of the renewal application. Rather, it
is most likely that the renewal
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application will be granted and that the complaint will be resolved by the FCC
with a minor sanction, if any, against WOL-AM. If a sanction is imposed, the
Company expects that WOL-AM would receive at most a small fine. If, as the
Company expects, the WOL-AM license renewal application is renewed without a
sanction greater than a monetary fine, such renewal of the license and broadcast
auxiliary licenses would be for a license term ending no earlier than October 1,
2003. However, there can be no assurance that any of the Company's radio station
licenses will be renewed. See "Business-Federal Regulation of Radio
Broadcasting." In addition, if the Company or any of its stockholders, officers
or directors violates the FCC's rules and regulations or the Communications Act
of 1934, as amended (the "Communications Act"), or is convicted of a felony, the
FCC may in response to a petition from a third party or on its own motion, in
its discretion, commence a proceeding to impose sanctions upon the Company which
would involve the imposition of monetary penalties, the revocation of the
Company's broadcast licenses or other sanctions. If the FCC were to issue an
order denying a license renewal application or revoking a license, the Company
would be required to cease operating the radio station subject to the license
only after the Company had exhausted administrative review without success.
The radio broadcasting industry is subject to extensive and changing
regulation. Among other things, the Communications Act and FCC rules and
policies limit the number of broadcasting properties that any person or entity
may own (directly or by attribution) in any market and require FCC approval for
transfers of control of FCC licensees and assignments of FCC licenses. The
filing of petitions or complaints against the Company or other FCC licensees
could result in the FCC delaying the grant of, or refusing to grant, its consent
to the assignment or transfer of licenses to or from an FCC licensee. In certain
circumstances, the Communications Act and FCC rules will operate to impose
limitations on non-U.S. ownership and voting of the capital stock of the
Company. See "Business-Federal Regulation of Radio Broadcasting."
Under various federal, state and local environmental laws, an owner or
operator of real property may become liable for the costs of removal or
remediation of certain hazardous substances released on its property. Such laws
often impose liability without regard to whether the owner or operator knew of,
or was responsible for, the release of such hazardous substances. The Company
believes it is in substantial compliance with all existing laws and regulations
and has obtained or applied for the necessary permits to conduct its business.
ANTITRUST MATTERS
An important element of the Company's growth strategy involves the
acquisition of additional radio stations. Following the passage of the
Telecommunications Act of 1996, the Antitrust Division of the Department of
Justice (the "Antitrust Division") has become more aggressive in reviewing
proposed acquisitions of radio stations and radio station networks which would
otherwise comply with the FCC's ownership limitations, particularly in instances
where the proposed acquiror already owns one or more radio stations in a
particular market and the acquisition involves another radio station in the same
market. Recently, the Antitrust Division has obtained consent decrees requiring
an acquiror to dispose of at least one radio station in a particular market
where the acquisition (which otherwise complied with the FCC's ownership
limitations) would have resulted in a concentration of market share by the
acquiror. In that case, it was unclear whether the post-acquisition
concentration of combined market share or combined advertising revenues of the
acquiror was the factor which caused the Antitrust Division to require
divestiture. Additionally, any radio station acquisitions by the Company are
potentially subject to review by the Federal Trade Commission (the "FTC"). There
can be no assurance that the Antitrust Division or the FTC will not seek to bar
the Company from acquiring additional radio stations in a market where the
Company's existing radio stations already have a significant market share.
SEASONALITY OF BUSINESS
Seasonal revenue fluctuations are common in the radio broadcasting industry
and are due primarily to fluctuations in advertising expenditures by local and
national advertisers. The Company's first fiscal quarter generally produces the
lowest revenue for the year.
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FRAUDULENT TRANSFER STATUTES
The incurrence by the Company and the Subsidiary Guarantors of indebtedness
such as the Notes, the Exchange Notes and the Guarantees to finance the
Transactions may be subject to review under relevant state and federal
fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on
behalf of unpaid creditors of the Company or the Subsidiary Guarantors. Under
these laws, if a court were to find that, after giving effect to the sale of the
Notes and the application of the net proceeds therefrom, either (a) the Company
or the Subsidiary Guarantors incurred such indebtedness with the intent of
hindering, delaying or defrauding creditors or (b) the Company or the Subsidiary
Guarantors received less than reasonably equivalent value or consideration for
incurring such indebtedness and (i) was insolvent or was rendered insolvent by
reason of such transactions, (ii) was engaged in a business or transaction for
which the assets remaining with the Company or the Subsidiary Guarantors
constituted unreasonably small capital or (iii) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they matured,
such court may subordinate such indebtedness to presently existing and future
indebtedness of the Company or the Subsidiary Guarantors, as the case may be,
avoid the issuance of such indebtedness and direct the repayment of any amounts
paid thereunder to the Company's or the Subsidiary Guarantors', as the case may
be, creditors or take other action detrimental to the holders of such
indebtedness.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all of its liabilities, including contingent
liabilities, were greater than the value of all of its property at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liabilities on its debts,
including contingent liabilities, as they become absolute and matured.
There can be no assurance as to what standard a court would apply in order
to determine solvency. To the extent that proceeds from the sale of the Notes
were used to finance the Transactions, a court may find that the Company or the
Subsidiary Guarantors, as the case may be, did not receive fair consideration or
reasonably equivalent value for the incurrence of the indebtedness represented
thereby. In addition, if a court were to find that any of the components of the
Transactions constituted a fraudulent transfer, to the extent that the proceeds
from the sale of the Notes were used to finance such Transactions, a court may
find that the Company or the Subsidiary Guarantors, as the case may be, did not
receive fair consideration or reasonably equivalent value for the incurrence of
the indebtedness represented by the Notes or the Guarantees, as the case may be.
Pursuant to the terms of the Guarantees, the liability of each Subsidiary
Guarantor is limited to the maximum amount of indebtedness permitted, at the
time of the grant of such Guarantee, to be incurred in compliance with
fraudulent conveyance or similar laws.
Each of the Company and the Subsidiary Guarantors believes that it received
or will receive equivalent value at the time the indebtedness under the Notes,
the Exchange Notes and the Guarantees was or is incurred. In addition, neither
the Company nor the Subsidiary Guarantors believes that it, after giving effect
to the Transactions, (i) was insolvent or rendered insolvent, (ii) was engaged
in a business or transaction for which its remaining assets constituted
unreasonably small capital or (iii) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they mature. These beliefs
are based on the Company's operating history and analysis of internal cash flow
projections and estimated values of assets and liabilities of the Company and
the Subsidiary Guarantors at the time of the Notes Offering. There can be no
assurance, however, that a court passing on these issues would make the same
determination.
ABSENCE OF PUBLIC MARKET
Prior to the Exchange Offer, there has not been any public market for the
Notes. The Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for Exchange Notes by holders who are entitled to participate in this
Exchange Offer. The holders of Notes (other than any such holder that is an
affiliate of the company within the meaning of Rule 405 under the Securities
Act) who are not eligible to participate in the
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Exchange Offer are entitled to certain registration rights, and the Company may
be required to file a Shelf Registration Statement with respect to such Notes.
The Exchange Notes will constitute a new issue of securities with no established
trading market. The Company does not intend to list the Exchange Notes on any
national securities exchange or to seek approval for quotation through any
automated quotation system. The Initial Purchasers of the Notes currently make a
market in the Notes, but they are not obligated to do so and may discontinue
such market making at any time. In addition, such market making activity will be
subject to the limits imposed by the Securities Act and the Exchange Act and may
be limited during the Exchange Offer and the pendency of the Shelf Registration
Statement. Accordingly, no assurance can be given that an active public or other
market will develop for the Exchange Notes or as to the liquidity of the trading
market for the Exchange Notes. If a trading market does not develop or is not
maintained, holders of the Exchange Notes may experience difficulty in reselling
the Exchange Notes or may be unable to sell them at all. If a market for the
Exchange Notes develops, any such market may be discontinued at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors, including, among other
things, prevailing interest rates, the Company's results of operations and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financing
condition of the Company, the Exchange Notes may trade at a discount from their
principal amount.
24
<PAGE>
THE TRANSACTIONS
ACQUISITIONS
Philadelphia Acquisition
In December 1996, the Company entered into an agreement to acquire the
assets of WPHI-FM in Philadelphia for a total consideration of $20.0 million,
subject to certain closing adjustments, and deposited $1.0 million in escrow to
be applied toward the purchase price. On February 4, 1997 and March 27, 1997,
the FCC issued approvals for the transfer of the FCC license for WPHI-FM to an
entity controlled by the Company. On February 8, 1997, the Company entered into
an LMA with the then-owner of WPHI-FM, and the radio station's programming
format was converted from Modern Rock to Young Urban Contemporary, targeting 18
to 34-year-old African-Americans. The LMA allowed the Company to program WPHI-FM
24 hours a day, seven days a week, and continued in effect until the
consummation of the Philadelphia Acquisition on May 19, 1997. On March 28, 1997,
the Company released the $1.0 million deposit from escrow to the then-current
owner simultaneously with the execution of closing documents related to the
Philadelphia Acquisition by the Company and the then-current owner, which were
held in escrow. On April 18,1997, the Company made a non-refundable $600,000
prepayment of the $20.0 million total consideration for the Philadelphia
Acquisition. On May 19, 1997 the closing documents for the Philadelphia
Acquisition were released and became effective simultaneously with the payment
of approximately $18.7 million (the remaining portion of the purchase price and
certain payments due under the related LMA). WPHI-FM is licensed as a Class A
facility and is permitted to operate at the equivalent of 3,000 watts at 100
meters. The radio station broadcasts from a 1,000 foot tower at a tower farm in
north Philadelphia. Although WPHI-FM is a lower powered radio station, the
Company believes it adequately reaches at least 90% of the African-Americans in
the Philadelphia market.
DC Acquisition
In March 1997, the Company entered into a binding letter of intent to
acquire the stock of the corporation holding WYCB-AM, currently Washington,
D.C.'s top-rated Gospel radio station, for a total consideration of $4.0
million, subject to certain closing adjustments, which is approximately 5.1
times proforma broadcast cash flow for the year ended December 31, 1996. This
letter of intent expired by its terms. On July 1, 1997, the Company and the
seller of WYCB-AM entered into an amendment to this letter of intent pursuant to
which the Company and the seller have agreed, among other things to negotiate in
good faith the form of the total consideration (i.e., cash, notes or a
combination thereof), to recast the letter of intent as non-binding, and to
terminate the prohibition on solicitation or negotiation by the seller with
prospective purchasers other than the Company. On July 31, 1997, the Company and
the seller of WYCB-AM amended the letter of intent again and agreed that the
Company will form an Unrestricted Subsidiary (as defined) (upon the formation of
such Unrestricted Subsidiary, "Newco") to acquire all of the outstanding stock
of Broadcast Holdings, Inc. ("Broadcast Holdings"), the company that currently
owns and operates WYCB-AM. The purchase price payable in the DC Acquisition will
consist of a note issued by Newco in the original principal amount of $3,750,000
(the "Newco Note") which will be secured by a pledge of the stock of Broadcast
Holdings and, through a guarantee of Broadcast Holdings, by substantially all of
the assets of WYCB-AM. Interest on the Newco Note will accrue at the rate of 13%
per annum, payable quarterly in cash on the basis of 10% per annum, with the
balance thereof (3% per annum) to be accrued from the date of issuance of the
Newco Note and compounded quarterly. The outstanding principal amount of the
Newco Note together with all accrued and unpaid interest thereon will be payable
on the third anniversary of the date of issuance of the Newco Note. In addition,
in consideration of the payment of $100, the Company will issue a warrant to the
seller which would be exerciseable for shares of the Senior Preferred Stock
having an aggregate liquidation value of up to $4,000,000 (the "WYCB Warrant").
The WYCB Warrant will only be exerciseable if, and then only to the extent that,
after a default on the Newco Note, the proceeds from any foreclosure or other
action taken by the holder of the Newco Note with respect to the collateral
securing the Newco Note are insufficient to cover the full amount due under the
Newco Note. Any such deficiency will be extinguished upon exercise of the WYCB
Warrant. The Company may enter into an
25
<PAGE>
LMA with Broadcast Holdings prior to closing on terms satisfactory to the
parties thereto and with Newco after such closing. The amended letter of intent
has been amended on various occasions to extend the expiration date thereof.
Pursuant to an oral agreement among the parties thereto, the amended letter of
intent will now expire on October 15, 1997. The DC Acquisition, if consummated,
would expand the Company's coverage in an existing market and will permit the
Company to target another segment of the African-American community in that
market. See "Business-Acquisition Strategy." The DC Acquisition is contingent
upon certain matters, including the execution of a definitive acquisition
agreement and the receipt of final approval from the FCC for the transfer of the
FCC license for WYCB-AM. In addition, such amended letter of intent provides for
liquidated damages of $100,000 payable by the Company should the Company
materially breach the definitive acquisition agreement when, and if, it is
entered into by the Company. The Company anticipates completing the DC
Acquisition in the fourth quarter of 1997. There can be no assurance of the
consummation of the DC Acquisition, and if the DC Acquisition is consummated on
such terms, the indebtedness evidenced by the Newco Note, and any other
Unrestricted Subsidiary Indebtedness of Newco, would be effectively senior to
the Exchange Notes. See "Risk Factors-Failure to Consummate the DC Acquisition."
EXISTING NOTES EXCHANGE
On May 19, 1997, all of the holders of the Company's 15% Subordinated
Promissory Notes due 2003 (together with any and all accrued interest thereon,
the "Existing Notes") exchanged all of their Existing Notes for shares of Senior
Preferred Stock (the "Existing Notes Exchange") pursuant to the Preferred
Stockholders' Agreement (as defined). See "Description of Capital Stock-Senior
Preferred Stock."
REFINANCING
On May 19, 1997 the Company effected the following additional Transactions:
(i) the Notes Offering and (ii) the repayment of all outstanding obligations
under the Company's "Existing Credit Facility.
The Exchange Offer results in no sources or use of cash to the Company. The
sources and uses of cash which occurred in connection with the closing of the
Transactions on May 19, 1997 (assuming that the DC Acquisition was consummated
for a total cash consideration as of such date) are set forth below (dollars in
thousands):
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
-----------------------
<S> <C>
Repayment of Existing Credit Facility ........................ $45,121
Philadelphia Acquisition ....................................... 18,686
Estimated leasehold improvements and new equipment in respect of
the Lanham Offices .......................................... 1,300
General purposes, including working capital .................. 5,893
Estimated fees and expenses .................................... 4,000
--------
Total ...................................................... $75,000
========
</TABLE>
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Exchange Notes in the
Exchange Offer. The gross proceeds of $75.0 million from the issuance of the
Notes on May 19, 1997 were used to: (i) repay all of the outstanding
indebtedness under the Amended and Restated Credit Agreement, dated as of June
6, 1995, among Radio One, NationsBank of Texas, N.A., as agent and lender, and
the other lenders named therein, as amended (the "Existing Credit Facility");
(ii) fund the balance of the total consideration in respect of the Philadelphia
Acquisition and certain payments due under the related LMA; (iii) pay for the
leasehold improvements and new equipment in respect of the Lanham Offices and
other amounts associated with moving the Company's Washington, D.C. offices and
studios; (iv) provide funding for other general purposes, including working
capital; and (v) pay the related fees and expenses in connection with the
consummation of the Transactions (other than expenses in connection with the DC
Acquisition). See "The Transactions."
26
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
29, 1997 on an actual basis and on a pro forma basis after giving effect to the
Transactions. The information in this table should be read in conjunction with
"Pro Forma Consolidated Financial Data," "Management's Discussion and Analysis
of Results of Operations and Financial Condition" and the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 29, 1997
----------------------------
(UNAUDITED)
PRO
ACTUAL FORMA
------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents .................................... $ 8,782 $ 8,782
========= ==========
Total debt (including current portion and deferred interest):(a)
Existing Credit Facility (b) ................................. $ - $ -
12% Senior Subordinated Notes Due 2004 ........................ 73,126 73,126
Existing Notes ................................................ - -
Notes payable ................................................ 126 3,876 (d)
--------- ----------
Total debt ................................................ 73,252 77,002
--------- ----------
Senior Preferred Stock(c) .................................... 20,931 20,931
--------- ----------
Stockholders' equity (deficit):
Common A Common Stock ($.01 par value, 1,000 shares autho-
rized, 138.45 shares issued and outstanding) - -
Common B Common Stock ($.01 par value, 2,000 shares autho-
rized, no shares issued and outstanding) - -
Additional paid-in capital .................................... - -
Accumulated earnings (deficit) .............................. (19,877) (19,877)
--------- ----------
Total stockholders' equity (deficit) ........................ (19,877) (19,877)
--------- ----------
Total capitalization ....................................... $ 74,306 $ 78,056
========= ==========
</TABLE>
- ----------
(a) See Notes to the Consolidated Financial Statements of the Company for
additional information regarding the components and terms of the Existing
Credit Facility, the Existing Notes and notes payable.
(b) All indebtedness under the Existing Credit Facility was repaid concurrently
with the consummation of the Notes Offering. See "Use of Proceeds."
(c) Consists of: (i) Series A 15% Senior Cumulative Redeemable Preferred Stock,
par value $.01 per share, of which 100,000 shares will be authorized and
83,200 shares would have been issued and outstanding, assuming the
consummation of the Existing Notes Exchange as of March 30, 1997, and (ii)
Series B 15% Senior Cumulative Redeemable Preferred Stock, par value $.01
per share, of which 150,000 shares will be authorized and 121,980 shares
would have been issued and outstanding, assuming the consummation of the
Existing Notes Exchange as of March 30, 1997.
(d) Includes the Newco Note, a promissory note in the original principal amount
of $3.75 million issued by Newco in consideration of all of the outstanding
stock of the corporation holding WYCB-AM.
27
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial statements (the
"Pro Forma Consolidated Financial Statements") are based on the Consolidated
Financial Statements of the Company included elsewhere in this Prospectus,
adjusted to give effect to the Transactions, which include (i) this Exchange
Offer, (ii) the Notes Offering, (iii) the Philadelphia Acquisition, (iv) the DC
Acquisition, (v) the Existing Notes Exchange and (vi) the Related Adjustments.
The Unaudited Pro Forma Consolidated Statement of Operations Data and Other Data
gives effect to the Transactions as if they had occurred as of January 1, 1996,
and the Unaudited Pro Forma Consolidated Balance Sheet gives effect to the
Transactions as if they had occurred as of March 30, 1997. The Transactions are
described in the accompanying notes to the Pro Forma Consolidated Financial
Statements. The pro forma data are based upon available information and certain
assumptions that management believes are reasonable. The Pro Forma Consolidated
Financial Statements do not purport to represent what the Company's results of
operations or financial condition would actually have been had the Transactions
occurred on such dates or to project the Company's results of operations or
financial condition for any future period or date. The Pro Forma Consolidated
Financial Statements should be read in conjunction with the Consolidated
Financial Statements of the Company and the historical consolidated financial
statements of Jarad Broadcasting Company of Pennsylvania, Inc., the former owner
of WPHI-FM, included elsewhere in this Prospectus, and "Management's Discussion
and Analysis of Results of Operations and Financial Condition."
The Acquisition will be accounted for using the purchase method of
accounting. After each of the Acquisitions, the total consideration of such
acquisition has been or will be allocated to the tangible and intangible assets
acquired and liabilities assumed, if any, based upon their respective estimated
fair values. The allocation of the aggregate total consideration included in the
Pro Forma Consolidated Financial Statements is preliminary as the Company
believes further refinement is impractical at this time. However, the Company
does not expect that the final allocation of such total consideration will
materially differ from the preliminary allocations set forth herein.
28
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS AND OTHER DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1996
------------------------------------------
PHILADELPHIA PHILADELPHIA
RADIO ONE ACQUISITION ACQUISITION
HISTORICAL HISTORICAL ADJUSTMENTS
------------ -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net broadcast revenues(a) . $ 23,702 $2,856 $ -
Station operating expenses. 13,927 2,423 (72)(l)
Corporate expenses(b) ...... 1,793 14 (14)(m)
Depreciation and amortiza-
tion 4,262 270 2,815 (n)
-------- ------ -----------
Operating income ............ 3,720 149 (2,729)
Interest expense(c) ......... 7,252 339 (339)(o)
Other (income) expenses,
net ........................ 77 - -
Income tax expense (ben-
efit)(d) - (98) 98 (p)
-------- ------ -----------
Income (loss) before
extraordinary item .......... $ (3,609) $ (92) $ (2,488)
======== ====== ===========
OTHER DATA:
Broadcast cash flow (e)
................................................................................
Broadcast cash flow margin
(f) ............................................................................
EBITDA (g)
................................................................................
Cash interest (h)
................................................................................
Capital expenditures
(i) ............................................................................
Ratio of earnings to fixed charges (j)
................................................................................
Ratio of total debt to EBITDA
(k) ............................................................................
Ratio of EBITDA to interest expense(w)
................................................................................
Ratio of EBITDA to cash interest(w)
................................................................................
<CAPTION>
POST-NOTES
OFFERING,
NOTES OFFERING EXISTING NOTES
AND EXISTING EXCHANGE AND DC DC
NOTES PHILADELPHIA ACQUISITION ACQUISITION PRO
EXCHANGE ACQUISITION HISTORICAL ADJUSTMENTS FORMA
---------------- --------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net broadcast revenues(a) . $ - $ 26,558 $1,416 $ - $ 27,974
Station operating expenses. (167)(q) 16,111 750 (124)(l) 16,737
Corporate expenses(b) ...... - 1,793 94 (94)(m) 1,793
Depreciation and amortiza-
tion 62(q) 7,409 218 32 (t) 7,665
---------- -------- ------ ---------- --------
Operating income ............ 105 1,245 354 180 1,779
Interest expense(c) ......... 2,363(r) 9,615 444 49 (v) 10,108
Other (income) expenses,
net ........................ (125)(s) (48) - - (48)
Income tax expense (ben-
efit)(d) - - - - -
---------- -------- ------ ---------- --------
Income (loss) before
extraordinary item .......... $ (2,133) $ (8,322) $ (90) $ 131 $ (8,281)
========== ======== ====== ========== ========
OTHER DATA:
Broadcast cash flow (e)
........................................................................................... $ 11,237
Broadcast cash flow margin
(f) ....................................................................................... 40.2%
EBITDA (g)
........................................................................................... 9,444
Cash interest (h)
........................................................................................... 6,365
Capital expenditures
(i) ....................................................................................... 1,551
Ratio of earnings to fixed charges (j)
........................................................................................... -
Ratio of total debt to EBITDA
(k) ....................................................................................... 8.2x
Ratio of EBITDA to interest expense(w)
........................................................................................... 1.0x
Ratio of EBITDA to cash interest(w)
........................................................................................... 1.6x
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 29, 1997 (UNAUDITED)
---------------------------------------------
PHILADELPHIA PHILADELPHIA
RADIO ONE ACQUISITION ACQUISITION
HISTORICAL HISTORICAL ADJUSTMENTS
------------ -------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net broadcast revenues(a) .... $ 13,236 $ 582 $ (271)(u)
Station operating expenses. 8,592 387 -
Corporate expenses(b) ...... 1,080 - -
Depreciation and amortiza-
tion 2,366 102 905 (n)
--------- ------ ----------
Operating income ............ 1,198 93 (1,176)
Interest expense(c) ......... 4,195 129 (129)(o)
Other (income) expenses,
net ........................ (107) - -
Income tax expense (ben-
efit)(d) - (49) 49 (p)
--------- ------ ----------
Income (loss) before
extraordinary item .. ....... $ (2,890) $ 13 $ (1,096)
========= ====== ==========
OTHER DATA:
Broadcast cash flow (e)
................................................................................
Broadcast cash flow margin
(f) ............................................................................
EBITDA (g)
................................................................................
Cash interest (h)
................................................................................
Capital expenditures
(i) ............................................................................
Ratio of earnings to fixed charges (j)
................................................................................
<CAPTION>
POST-NOTES
OFFERING,
NOTES OFFERING EXISTING NOTES
AND EXISTING EXCHANGE AND DC DC
NOTES PHILADELPHIA ACQUISITION ACQUISITION PRO
EXCHANGE ACQUISITION HISTORICAL ADJUSTMENTS FORMA
---------------- --------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net broadcast revenues(a) . $ - $ 13,547 $ 603 $ - $ 14,150
Station operating expenses. (57)(q) 8,922 385 (62)(1) 9,245
Corporate expenses(b) ...... - 1,080 48 (48)(m) 1,080
Depreciation and amortiza-
tion 40 (q) 3,413 109 19 (t) 3,541
--------- --------- ------- --------- ---------
Operating income ............ 17 132 61 91 284
Interest expense(c) ......... 549 (r) 4,744 184 61 (v) 4,989
Other (income) expenses,
net ........................ - (107) - - (107)
Income tax expense (ben-
efit)(d) - - - - -
--------- --------- ------- --------- ---------
Income (loss) before
extraordinary item .......... $ (532) $ (4,505) $ (123) $ 30 $ (4,598)
========= ========= ======= ========= =========
OTHER DATA:
Broadcast cash flow (e)
......................................................................................... 4,905
Broadcast cash flow margin
(f) ..................................................................................... 34.7%
EBITDA (g)
......................................................................................... 3,825
Cash interest (h)
......................................................................................... 3,181
Capital expenditures
(i) ..................................................................................... 1,499
Ratio of earnings to fixed charges (j)
......................................................................................... -
</TABLE>
29
<PAGE>
- ----------
(a) Net broadcast revenues are gross revenues less agency commissions. Net
broadcast revenues include historical broadcast revenues of each radio
station acquired or to be acquired pursuant to the Acquisitions as if such
acquisition occurred as of January 1, 1996, and do not reflect the impact
of the conversion of WPHI-FM's programming format from Modern Rock to Young
Urban Contemporary.
(b) Corporate expenses include all expenses incurred which are not associated
with or attributable to the operations of any individual radio station,
including compensation and benefits paid to senior management, rent of
corporate offices, general liability and keyman life insurance,
professional fees, and travel and entertainment expenses.
(c) Interest expense includes non-cash interest, such as accretion of
principal, the amortization of discounts on debt and the amortization of
deferred financing costs. See footnote (r) below.
(d) Effective January 1, 1996, the Company elected to be treated as an S
Corporation for U.S. federal and state income tax purposes and, therefore,
it generally has not been subject to income tax at the corporate level
since that time. In connection with the consummation of the Existing Notes
Exchange, the Company's S Corporation status was terminated.
(e) Broadcast cash flow means EBITDA before corporate expenses. Although
broadcast cash flow is not calculated in accordance with GAAP, it is widely
used in the broadcast industry as a measure of a radio broadcasting
company's performance. Broadcast cash flow should not be considered in
isolation from or as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data prepared in
accordance with GAAP, or as a measure of profitability or liquidity. Pro
Forma broadcast cash flow for the fiscal year ended December 31, 1996 and
for the six months ended June 29, 1997, without including activities
relating to the DC Acquisition in light of the Company's intent to hold all
the assets acquired in the DC Acquisition in Newco, a wholly owned
subsidiary of the Company which would be designated as an Unrestricted
Subsidiary, are $10.4 million and $4.6 million, respectively.
(f) Broadcast cash flow margin is defined as broadcast cash flow divided by net
broadcast revenues.
(g) EBITDA means operating income (loss) before depreciation and amortization.
Although EBITDA is not calculated in accordance with GAAP, it is widely
used as a measure of a company's ability to service and/or incur debt.
EBITDA should not be considered in isolation from or as a substitute for
net income, cash flows from operating activities and other income or cash
flow statement data prepared in accordance with GAAP, or as a measure of
profitability or liquidity. Pro Forma EBITDA for the fiscal year ended
December 31, 1996 and for the six months ended June 29, 1997, and has been
calculated without including any activities relating to the DC Acquisition
in light of the Company's intent to hold all of the assets acquired in the
DC Acquisition in Newco, a wholly owned subsidiary of the Company which
would be designated as an Unrestricted Subsidiary, are $8.7 million and
$3.5 million, respectively.
(h) Cash interest is calculated as interest expense less non-cash interest,
including the accretion of principal, the amortization of discounts on debt
and the amortization of deferred financing costs. The calculation utilizes
the interest rates applicable to the Notes: 7% per annum on the aggregate
principal amount of the Notes during the period presented, which aggregate
principal amount is based on a yield to maturity of 12% per annum (computed
on a semi-annual bond equivalent basis), including cash interest payable at
7% per annum on the principal amount and amortization of the original issue
discount during the first three years and cash interest payable at 12% per
annum thereafter. Pro forma cash interest for the fiscal year ended
December 31, 1996 and for the six months ended June 29, 1997, without
including any activities relating to the DC Acquisition in light of the
Company's intent to hold all of the assets acquired in the DC Acquisition
in Newco, a wholly owned subsidiary of the Company which would be
designated as an Unrestricted Subsidiary, are $6.0 million and $3.0
million, respectively.
(i) Excludes capital expenditures in connection with the Acquisitions, but
includes leasehold improvements made with a portion of the proceeds of the
Notes Offering.
(j) For purposes of this calculation, earnings consist of net income (loss)
before income taxes, extraordinary items and fixed charges. Pro Forma ratio
of earnings to fixed charges for the fiscal year ended December 31, 1996
and for the six months ended June 29, 1997, would remain less than 1.0x
without including any activities relating to the DC Acquisition in light of
the Company's intent to hold all of the assets acquired in the DC
Acquisition in Newco, a wholly owned subsidiary of the Company which would
be designated as an Unrestricted Subsidiary. Fixed charges consist of
interest expense, including the amortization of discounts on debt, the
amortization of deferred financing costs, and the component of rental
expense believed by management to be representative of the interest factor
thereon. Earnings were insufficient to cover fixed charges on a pro forma
basis for the fiscal year ended December 31, 1996 and for the six months
ended June 29, 1997 by approximately $8.3 million and $4.6 million,
respectively.
(k) Debt means long-term indebtedness, including the current portion thereof
and deferred interest, net of unamortized discount on such indebtedness.
The pro forma ratio of total debt to EBITDA for the fiscal year ended
December 31, 1996, without including any activities relating to the DC
Acquisition in light of the Company's intent to hold all of the assets
acquired in the DC Acquisition in Newco, a wholly owned subsidiary of the
Company which would be designated as an Unrestricted Subsidiary is 8.5x.
(l) To eliminate certain station expenses which are not expected to be incurred
after consummation of the Philadelphia Acquisition and DC Acquisition for
services performed by the Company's existing corporate staff and which can
be performed without any increased cost.
(m) Because the Company centralizes its corporate functions, corporate expenses
of the radio stations acquired pursuant to the Acquisitions have not been
carried forward into the pro forma financial statements as these expenses
represent the cost of services redundant to those provided (or to be
provided) by the Company and compensation paid to owners and certain
employees whom the Company plans not to retain.
30
<PAGE>
(n) To record adjustments to depreciation and amortization in connection with
the Philadelphia Acquisition, calculated as follows:
<TABLE>
<CAPTION>
FOR THE SIX
FISCAL YEAR ENDED MONTHS ENDED
DECEMBER 31, 1996 JUNE 29, 1997
------------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Amortization of FCC license of approximately $15.9 million over 15 years $1,058 $ 440
Amortization of non-compete agreements of $4.0 million over 3 years ...... 2,000 555
Depreciation of property and equipment of $135,000 over 5 years ......... 27 12
Less: Depreciation and amortization previously recorded ............... (270) (102)
------ ------
Total .................................................................. $2,815 $ 905
====== ======
</TABLE>
The pro forma adjustments for depreciation and amortization of the total
consideration of the Philadelphia Acquisition are based upon estimates by
management, which management believes are reasonable.
(o) To reflect the elimination of the historical interest expense related to
indebtedness of the radio station acquired pursuant to the Philadelphia
Acquisition.
(p) To reflect the elimination of the historical income tax benefit associated
with the operation of the radio station acquired pursuant to the
Philadelphia Acquisition.
(q) To reflect the net reduction in rent expense and the net increase in
depreciation expense of leasehold improvement related to terminating its
prior office lease in Washington, D.C. (the "Existing DC Offices") and
entering the lease of the Lanham Offices (as defined), calculated as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31, 1996
-----------------------------
DEPRECIATION
RENT EXPENSE EXPENSE
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Elimination of expenses associated with the Existing DC Offices . $ (365) $ (25)
Expense associated with leasing the Lanham Offices. .................. 198 87
------ -----
Total ............................................................... $ (167) $ 62
====== =====
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 29, 1997
----------------------------
DEPRECIATION
RENT EXPENSE EXPENSE
-------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Elimination of expenses associated with the Existing DC Offices . $ (123) $ -
Expense associated with leasing the Lanham Offices. .................. 66 40
------ ----
Total ............................................................... $ (57) $40
====== ====
</TABLE>
(r) To reflect interest expense related to the Notes, and the reduction in
interest expense related to the repayment of the Existing Credit Facility
and the Existing Notes Exchange, including related amortization of original
issue discount and amortization of financing costs, calculated as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 29, 1997
------------------- -----------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Interest on the Notes ............................................................ $ 9,090 $ 3,450
Amortization of deferred financing costs related to the Notes of $4.0 million to be
amortized using the effective interest method .................................... 525 241
Less: Interest on Existing Credit Facility and the Existing Notes, including amor-
tization of discounts on debt (6,851) (2,794)
Amortization of deferred financing costs for Existing Credit Facility and the
Existing Notes .................................................................. (401) (77)
-------- --------
Nonrecurring LMA fees with respect to the Philadelphia Acquisition ............... - (271)
Total ........................................................................... $ 2,363 $ 549
======== ========
</TABLE>
Interest expense calculation utilizes the interest rate applicable to the Notes:
a yield to maturity of 12% per annum (computed on a semi-annual bond equivalent
basis), including cash interest payable at 7% per annum on the principal amount
during the first three years and cash interest payable at 12% per annum
thereafter.
(s) To reflect write-off of leasehold improvements with respect to the Existing
DC Offices.
(t) To reflect change in depreciation and amortization in connection with the
DC Acquisition, calculated as follows:
31
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 29, 1997
------------------- ------------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Amortization of FCC license of $3.75 million to be amortized over 15 years $ 250 $ 125
Amortization of net liability assumed over 15 years ........................ 6 3
Less: Depreciation previously recorded .................................... (218) (109)
------ ------
Total ..................................................................... $ 38 $ 19
====== ======
</TABLE>
The pro forma adjustments for depreciation and amortization of the purchase
price of the DC Acquisition are based upon estimates by management, which
management believes are reasonable.
(u) To adjust for nonrecurring LMA fees with respect to the Philadelphia
Acquisition.
(v) To reflect change in interest expense in connection with the DC
Acquisition, calculated as follows:
<TABLE>
<CAPTION>
FOR THE SIX
FISCAL YEAR ENDED MONTHS ENDED
DECEMBER 31, 1996 JUNE 29, 1997
------------------- --------------
<S> <C> <C>
Interest on Notes .......................................................... $ 493 $ 245
Less: Interest previously recorded ........................................ (444) (184)
------ -------
$ 49 $ 61
====== =======
</TABLE>
(w) Excluding any activities relating to the DC Acquisition in light of the
Company's intent to hold all of the assets acquired in the DC Acquisition
in Newco, a wholly owned subsidiary of the Company which would be
designated as an Unrestricted Subsidiary.
32
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JUNE 29, 1997
---------------------------------------------------
RADIO ONE DC
HISTORICAL(B) ACQUISITION PRO FORMA
--------------- ------------------ ------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents .................................... $ 8,782 $ - $ 8,782
Trade accounts receivable, net .............................. 7,475 - 7,475
Prepaid expenses and other ................................. 331 - 331
--------- ----------- ---------
Total current assets ....................................... 16,588 - 16,588
--------- ----------- ---------
Property and equipment, net .................................... 3,522 - 3,522
Intangible assets, net ....................................... 57,183 3,813 (c) 60,996
-
Other assets ................................................ 3 - 3
--------- ----------- ---------
Total assets ................................................ $ 77,296 $ 3,813 $ 81,109
========= =========== =========
LIABILITIES:
Current liabilities:
Accounts payable and accrued expenses ........................ $ 2,990 $ 63 (c) 3,053
Current portion of long-term debt ........................... - - -
--------- ----------- ---------
Total current liabilities .................................... 2,990 63 3,053
Long-term debt and deferred interest ........................... 73,252 3,750 (c) 77,002
--------- ----------- ---------
Total liabilities .......................................... 76,242 3,813 80,055
--------- ----------- ---------
SENIOR PREFERRED STOCK:
Senior Preferred Stock(a) .................................... 20,931 - 20,931
STOCKHOLDERS' EQUITY (DEFICIT):
Class A Common Stock ($.01 par value per share, 1,000
shares authorized, 138.45 shares issued and outstanding) . - - -
Class B Common Stock ($.01 par value per share, 1,000
shares authorized, 138.45 shares issued and outstanding) . - - -
Additional paid in capital .................................... - - -
Accumulated earnings (deficit) ................................. (19,877) - (19,877)
--------- ----------- ---------
Total stockholders' equity (deficit) ........................ (19,877) - (19,877)
--------- ----------- ---------
Total liabilities and stockholders'
equity (deficit) .......................................... $ 77,296 $ 3,813 $ 81,109
========= =========== =========
</TABLE>
- ----------
(a) Consists of: (i) Series A 15% Senior Cumulative Redeemable Preferred Stock,
par value $.01 per share, of which 100,000 shares will be authorized and
83,200 shares would have been issued and outstanding, assuming the
consummation of the Existing Notes Exchange as of March 30, 1997, and (ii)
Series B 15% Senior Cumulative Redeemable Preferred Stock, par value $.01
per share, of which 150,000 shares will be authorized and 121,980 shares
would have been issued and outstanding, assuming the consummation of the
Existing Notes Exchange as of March 30, 1997.
(b) See the Consolidated Financial Statements included elsewhere in this
Prospectus.
(c) To reflect the total allocation of the consideration to be paid in
connection with the DC Acquisition among intangible assets and liabilities
based upon preliminary estimated fair market values.
Intangible assets $ 3,813
Payables assumed (63)
-------
$ 3,750
=======
33
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table contains selected historical consolidated financial
information with respect to the Company. The selected historical consolidated
financial data has been derived from the consolidated financial statements of
the Company, including the Consolidated Financial Statements of the Company for
the three fiscal years ended December 31, 1996, which have been audited by
Arthur Andersen LLP, independent public accountants. The consolidated financial
data for the six months ended June 30, 1996 and June 29, 1997 have been derived
from unaudited consolidated financial statements of the Company which, in the
opinion of management, include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial condition and
results of operations of the Company. The selected historical consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and the Consolidated
Financial Statements of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(A)
------------------------------------------------------------------
DEC. 27, DEC. 26, DEC. 25, DEC. 31, DEC. 31,
1992 1993 1994 1995 1996
------------- ------------- ---------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net broadcast revenues(b) .................. $ 10,833 $ 11,638 $ 15,541 $ 21,455 $ 23,702
Station operating expenses .................. 6,036 6,972 8,506 11,736 13,927
Corporate expenses(c) ..................... 553 683 1,128 1,995 1,793
Depreciation and amortization ............... 2,299 1,756 2,027 3,912 4,262
----------- ----------- -------- --------- ---------
Operating income (loss) .................. 1,945 2,227 3,880 3,812 3,720
Interest expense(d) ........................ 1,890 1,983 2,665 5,289 7,252
Other (income) expenses, net ............... (72) - (38) (89) 77
----------- ----------- -------- --------- ---------
Net income (loss) before taxes and ex-
traordinary item 127 244 1,253 (1,388) (3,609)
Income tax expense (benefit)(e) ............ - 92 30 - -
----------- ----------- -------- --------- ---------
Net income (loss) before extraordinary
items .................................... 127 152 1,223 (1,388) (3,609)
Extraordinary loss ........................ - 138 - 468 -
----------- ----------- -------- --------- ---------
Net income (loss) ........................ $ 127 $ 14 $ 1,223 $ (1,856) $ (3,609)
=========== =========== ======== ========= =========
OTHER DATA:
Broadcast cash flow(f) ..................... $ 4,797 $ 4,666 $ 7,035 $ 9,719 $ 9,775
Broadcast cash flow margin(g) ............... 44.3% 40.1% 45.3% 45.3% 41.2%
EBITDA(h) ................................. $ 4,244 $ 3,983 $ 5,907 $ 7,724 $ 7,982
Cash interest(i) ........................... 1,909 1,946 2,356 5,103 4,815
Capital expenditures(j) ..................... 708 212 639 224 251
Ratio of earnings to fixed charges(k) ...... 1.1x 1.1x 1.5x - -
Balance Sheet Data (at period end):
Cash and cash equivalents .................. $ 2,628 $ 1,110 $ 1,417 $ 2,703 $ 1,708
Working capital(l) ........................ 4,032 1,403 1,349 3,892 771
Intangible assets, net ..................... 6,921 13,380 11,705 43,455 39,358
Total assets .............................. 13,551 20,660 20,566 55,894 51,777
Debt, including current portion and deferred
interest(m) .............................. 17,732 24,709 23,049 64,585 64,939
Total stockholders' equity (deficit) ...... (5,486) (5,498) (4,367) (11,394) (15,003)
<CAPTION>
SIX MONTHS ENDED
--------------------------
(UNAUDITED)
JUNE 30, JUNE 29,
1996 1997
------------- ------------
<S> <C> <C>
STATEMENT OF OPERATIONS:
Net broadcast revenues(b) .................. $ 10,847 $ 13,236
Station operating expenses .................. 6,805 8,592
Corporate expenses(c) ..................... 620 1,080
Depreciation and amortization ............... 2,225 2,366
--------- ---------
Operating income (loss) .................. 1,197 1,198
Interest expense(d) ........................ 3,614 4,195
Other (income) expenses, net ............... (54) (107)
--------- ---------
Net income (loss) before taxes and ex-
traordinary item (2,363) (2,890)
Income tax expense (benefit)(e) ............ - -
--------- ---------
Net income (loss) before extraordinary
items .................................... (2,363) (2,890)
Extraordinary loss ........................ - 1,985
--------- ---------
Net income (loss) ........................ $ (2,363) $ (4,875)
========= =========
OTHER DATA:
Broadcast cash flow(f) ..................... $ 4,042 $ 4,644
Broadcast cash flow margin(g) ............... 37.3% 35.1%
EBITDA(h) ................................. $ 3,422 $ 3,564
Cash interest(i) ........................... 1,706 1,480
Capital expenditures(j) ..................... 108 664
Ratio of earnings to fixed charges(k) ...... - -
Balance Sheet Data (at period end):
Cash and cash equivalents .................. $ 1,592 $ 8,782
Working capital(l) ........................ 4,799 13,597
Intangible assets, net ..................... 40,420 57,183
Total assets .............................. 52,418 77,296
Debt, including current portion and deferred
interest(m) .............................. 63,791 73,252
Total stockholders' equity (deficit) ...... (13,757) (19,877)
</TABLE>
- ----------
(a) Year-to-year comparisons are significantly affected by the Company's
acquisition of various radio stations during the periods covered. See
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" and note (j) below. Prior to the fiscal year ended
December 31, 1996, the Company's accounting reporting period was based on a
fifty-two/fifty- three week period ending on the last Sunday of the
calendar year. During 1996, the Company elected to end its fiscal year on
December 31 of each year.
(b) Net broadcast revenues are gross revenues less agency commissions. Net
broadcast revenues include historical broadcast revenues of each radio
station acquired from the date of acquisition and do not reflect the impact
of any changes to programming formats at such acquired radio stations.
(c) Corporate expenses include all expenses incurred which are not associated
with or attributable to the operations of any
34
<PAGE>
individual radio station, including compensation and benefits paid to
senior management, rent of corporate offices, general liability and keyman
life insurance, professional fees, and travel and entertainment expenses.
(d) Interest expense includes non-cash interest, such as the accretion of
principal, the amortization of discounts on debt and the amortization of
deferred financing costs.
(e) Effective January 1, 1996, the Company elected to be treated as an S
Corporation for U.S. federal and state income tax purposes and, therefore,
it generally has not been subject to income tax at the corporate level
since that time. In connection with the consummation of the Existing Notes
Exchange, the Company's S Corporation status was terminated.
(f) Broadcast cash flow means EBITDA before corporate expenses. Although
broadcast cash flow is not calculated in accordance with GAAP, it is widely
used in the broadcast industry as a measure of a radio broadcasting
company's performance. Broadcast cash flow should not be considered in
isolation from or as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data prepared in
accordance with GAAP, or as a measure of profitability or liquidity.
(g) Broadcast cash flow margin is defined as broadcast cash flow divided by net
broadcast revenues.
(h) EBITDA means operating income (loss) before depreciation and amortization
without including any activities relating to the DC Acquisition in light of
the Company's intent to hold all of the assets acquired in the DC
Acquisition in Newco, a wholly owned subsidiary of the Company which would
be designated as an Unrestricted Subsidiary. Although EBITDA is not
calculated in accordance with GAAP, it is widely used as a measure of a
company's ability to service and/or incur debt. EBITDA should not be
considered in isolation from or as a substitute for net income, cash flows
from operating activities and other income or cash flow statement data
prepared in accordance with GAAP, or as a measure of profitability or
liquidity.
(i) Cash interest is calculated as interest expense less non-cash interest,
including the accretion of principal, the amortization of discounts on debt
and the amortization of deferred financing costs, for the indicated period
without including any activities relating to the DC Acquisition in light of
the Company's intent to hold all of the assets acquired in the DC
Acquisition in Newco, a wholly owned subsidiary of the Company which would
be designated as an Unrestricted Subsidiary.
(j) Excludes capital expenditures in connection with all radio station
acquisitions by the Company which occurred during the periods presented,
including: (i) WWIN-FM and WWIN-AM acquired in January 1992 for total
consideration of approximately $4.7 million, (ii) WERQ-FM and WOLB-AM
(previously WERQ-AM) acquired in September 1993 for total consideration of
approximately $9.0 million and (iii) WKYS-FM acquired in June 1995 for
total consideration of approximately $34.4 million.
(k) For purposes of this calculation, earnings consist of net income (loss)
before income taxes, extraordinary items and fixed charges without
including any activities relating to the DC Acquisition in light of the
Company's intent to hold all of the assets acquired in the DC Acquisition
in Newco, a wholly owned subsidiary of the Company which would be
designated as an Unrestricted Subsidiary. Fixed charges consist of interest
expense, including the amortization of discounts on debt and the
amortization of deferred financing costs, and the component of rental
expense believed by management to be representative of the interest factor
thereon. Earnings were insufficient to cover fixed charges for the fiscal
years ended December 31, 1995 and 1996, and for the six months ended June
30, 1996 and June 29, 1997 by approximately $1.4 million, $3.6 million,
$2.4 million and $2.9 million, respectively.
(l) Working capital means current assets less current liabilities.
(m) Debt means long-term indebtedness, including the current portion thereof,
net of unamortized discounts on such indebtedness.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The primary source of the Company's revenue is the sale of broadcasting
time on its radio stations for advertising. The Company's significant broadcast
expenses are employee salaries and commissions, programming expenses,
advertising and promotion expenses, rental of premises for studios and rental of
transmission tower space and music license royalty fees. The Company strives to
control these expenses by centralizing certain functions such as finance and
accounting, and the overall programming management function as well as using its
multiple stations, market presence and purchasing power to negotiate favorable
rates with certain vendors and national representative selling agencies. See
"Business-Operating Strategy."
The Company's revenues are affected primarily by the advertising rates the
Company's radio stations are able to charge as well as the overall demand for
radio advertising time in a market. Advertising rates are based primarily on (i)
a radio station's audience share in the demographic groups targeted by
advertisers, as measured principally by quarterly reports (and to a lesser
extent, by monthly reports) by Arbitron, (ii) the number of radio stations in
the market competing for the same demographic groups and (iii) the supply of and
demand for radio advertising time. Advertising rates are generally highest
during morning and afternoon commuting hours. Most of the Company's revenues are
generated from local advertising, which is sold by each radio station's sales
staff. During the six months ended June 30, 1996 and June 29, 1997,
approximately 67% and 24% and 72% and 23% of the Company's net broadcast
revenues were generated from local and national advertising, respectively.
During fiscal year 1996, approximately 66% and 27% of the Company's net
broadcast revenues were generated from local and national advertising,
respectively. During fiscal year 1995, local and national advertising
represented approximately 64% and 30% of the Company's net broadcast revenues,
respectively. In the radio broadcasting industry, radio stations often utilize
trade (or barter) agreements to generate advertising time sales in exchange for
goods or services (such as travel and lodging), instead of cash. Approximately
4%, 4%, 5%, 8% and 3% of net broadcast revenues consisted of barter transactions
in the fiscal years ended December 24, 1994, December 31, 1995, December 31,
1996, and for the six months ended June 30, 1996 and June 29, 1997,
respectively. Net broadcast revenue also includes revenue from special events
(entrance fees for attendees and booth rent to vendors), transmission tower
income and the collection of an annual management fee of approximately $100,000
from Radio One of Atlanta, Inc. for various corporate services provided by the
Company. See "Certain Transactions."
The performance of an individual radio station or group of radio stations
in a particular market is customarily measured by its ability to generate net
revenues and broadcast cash flow (i.e., EBITDA plus corporate expenses),
although broadcast cash flow is not a measure utilized under generally accepted
accounting principles. Broadcast cash flow should not be considered in isolation
from, nor as a substitute for, operating income, net income, cash flow, or other
consolidated income or cash flow statement data computed in accordance with
generally accepted accounting principles, nor as a measure of the Company's
profitability or liquidity. Despite its limitations, broadcast cash flow is
widely used in the broadcasting industry as a measure of a company's operating
performance because it provides a meaningful measure of comparative radio
station performance, without regard to items such as depreciation and
amortization (which can vary depending upon accounting methods and the book
value of assets, particularly in the case of acquisitions) and corporate
expenses.
Radio One's operating results in any period may be affected by advertising
and promotion expenses that do not produce commensurate revenues in the period
in which such expenses are incurred. The Company generally incurs advertising
and promotion expenses in order to increase listenership and Arbitron ratings.
Increased advertising revenue may wholly or partially lag behind the incurrence
of such advertising and promotion expenses because Arbitron only reports
complete ratings information quarterly.
Since 1990, the Company has acquired several radio stations. Most
recently, the Company acquired a radio station in Philadelphia on May 19, 1997,
and, pursuant to an amended non-binding letter of intent, is negotiating the
acquisition of a radio station in Washington, D.C. See "The Transactions--
36
<PAGE>
Acquisitions." During the most recent three fiscal years, the Company completed
one acquisition, which was its acquisition in June 1995 of WKYS-FM, a radio
station located in Washington, DC, for total consideration of approximately
$34.4 million. The results of operations for WKYS-FM for the second half of
fiscal year 1995 and for fiscal year 1996 are included in the Consolidated
Financial Statements of the Company included elsewhere in this Prospectus. The
discussion below concerning results of operations reflects the operations of
radio stations owned and operated by Radio One during the periods presented and
therefore does not include the pro forma results related to the Acquisitions. As
a result of the acquisition of WKYS-FM in June 1995, the Company's historical
financial data prior to such time are not directly comparable to the Company's
historical financial data subsequent thereto.
RESULTS OF OPERATIONS
The following table summarizes the Company's historical consolidated
results of operations:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SIX MONTHS ENDED
---------------------------------------------------- ----------------------------
DEC. 25, DEC. 31, DEC. 31, JUNE 30, JUNE 29,
1994 1995 1996 1996 1997
---------- ------------- ----------------------- ------------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net broadcast revenues ............ $ 15,541 $ 21,455 $ 23,702 $ 10,847 $ 13,236
Station operating expenses ......... 8,506 11,736 13,927 6,805 8,592
Corporate expenses .................. 1,128 1,995 1,793 620 1,080
Depreciation and amortization ...... 2,027 3,912 4,262 2,225 2,366
-------- --------- --------- --------- ---------
Operating income (loss) ......... 3,880 3,812 3,720 1,197 1,198
Interest expense .................. 2,665 5,289 7,252 3,614 4,195
Other (income) expenses, net ...... (38) (89) 77 (54) (107)
Income tax expense .................. 30 - - - -
-------- --------- --------- --------- ---------
Net income (loss) before extraor-
dinary item 1,223 (1,388) (3,609) (2,363) (2,890)
Extraordinary loss .................. - 468 - - 1,985
-------- --------- --------- --------- ---------
Net income (loss) ............... $ 1,223 $ (1,856) $ (3,609) $ (2,363) $ (4,875)
======== ========= ========= ========= =========
OTHER DATA:
Broadcast cash flow ............... $ 7,035 $ 9,719 $ 9,775 $ 4,042 4,644
Broadcast cash flow margin ......... 45.3% 45.3% 41.2% 37.3% 35.1%
EBITDA .............................. $ 5,907 $ 7,724 $ 7,982 3,422 3,564
</TABLE>
SIX-MONTH PERIOD ENDED JUNE 29, 1997 COMPARED TO SIX-MONTH PERIOD ENDED JUNE 30,
1996
Net broadcast revenues increased to approximately $13.2 million for the six
months ended June 29, 1997 from approximately $10.8 million for the six months
ended June 30, 1996 or 22.2%. These increases in net broadcast revenues were the
result of the Philadelphia Acquisition and broadcast revenue growth in the
Washington, DC and Baltimore, Maryland markets as the Company benefited from
ratings increases at its larger radio stations as well as industry growth within
its markets.
Operating expenses excluding depreciation and amortization increased to
approximately $9.7 million for the six months ended June 29, 1997 from
approximately $7.4 million for the six months ended June 30, 1996 or 31.1%.
These increases in expenses were attributable to disproportionately higher
expenses relative to revenues at the recently acquired Philadelphia radio
station, as well as to expenses driven by the revenue growth at the Company's
radio stations and increased overhead expenses related to operating a company
with newly-created public reporting responsibility.
Operating income was unchanged at approximately $1.2 million for the six
months ended June 29, 1997 and approximately$1.2 million for the six months
ended June 30, 1996 or 7.7%. This flat performance for the year-to-date period
is attributable to the increases in broadcast revenues offset by higher
operating expenses and higher depreciation and amortization expenses as well as
start-up losses related to the Philadelphia Acquisition.
37
<PAGE>
Interest expense increased to approximately $4.2 million for the six months
ended June 29, 1997 from approximately $3.6 million for the six months ended
June 30, 1996 or 16.7%. These increases relate primarily to the May 19, 1997
issuance of the Notes and the associated repayment of the Company's indebtedness
under the Existing Credit Facility.
Other income increased to approximately $107,385 for the six months ended
June 29, 1997 from approximately $53,726 for the six months ended June 30, 1996
or 100.0%. These increases were primarily attributable to higher interest income
due to higher cash balances associated with the Company's cash flow growth and
capital raised in the Notes Offering.
Loss before provision for income taxes decreased to approximately ($2.9)
million for the six months ended June 29, 1997 from approximately ($2.4) million
for the six months ended June 30, 1996. These declines were due to the higher
interest expenses associated with the Notes Offering.
Net income decreased to approximately ($4.9) million for the six months
ended June 29, 1997 from approximately ($2.4) million for the six months ended
June 30, 1996. These declines were due to an approximately $2.0 million loss on
the early retirement of the Existing Credit Facility which was retired with
proceeds from the Notes Offering.
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995
Net broadcast revenues of the Company for the fiscal year ended December
31, 1996 increased by 10.5% to approximately $23.7 million from approximately
$21.5 million for the fiscal year ended December 31, 1995. This increase was
primarily attributable to gains in both the Company's Washington, D.C. and
Baltimore operations. Net broadcast revenue increased by 12.1% in Washington,
D.C. to approximately $14.3 million from approximately $12.7 million, due to the
impact of a full year of advertising revenue for WKYS-FM which was acquired in
June 1995, offset by an 8.2% revenue decline to approximately $8.2 million from
approximately $8.9 million for the WMMJ-FM/WOL-AM radio station combination.
Subsequent to the acquisition of WKYS-FM in 1995 and for most of 1996, high
turnover among the sales staff relating to the integration of the existing and
acquired sales staffs and a flat Washington, D.C. radio market led to lower than
expected advertising revenues. However, by July 1996, Radio One had hired three
highly experienced sales managers who contributed to the improvement in the
Company's performance, as reflected in the Company's improving revenues in the
fourth quarter of 1996. In Baltimore, net broadcast revenue increased by 6.8% to
approximately $9.4 million from approximately $8.8 million. This increase was
due primarily to a 4.9% increase to approximately $4.3 million from
approximately $4.1 million at the Company's WWIN-FM/WWIN-AM combination and an
11.9% increase to approximately $4.8 million from approximately $4.3 million at
the Company's WOLB-AM/WERQ-FM combination, as both radio station combinations
benefited from increasing ratings through much of the year.
Station operating expenses of the Company for the fiscal year ended
December 31, 1996 increased by 18.7% to approximately $13.9 million from
approximately $11.7 million for the fiscal year ended December 31, 1995. This
increase in radio station operating expenses was due primarily to a 32.8%
increase to approximately $7.9 million from approximately $6.0 million in the
Company's Washington, D.C. operations due to the acquisition of WKYS-FM, the
costs of integrating that radio station into the Company's operations and higher
marketing and promotion expenses for all three of the Company's radio stations
in the market. Additionally, in conjunction with the reorganization of the
Company's Washington, D.C. operations following the acquisition of WKYS-FM, the
Company hired three highly experienced sales managers in Washington, D.C. as
well as a prominent on-air personality for its morning program on WKYS-FM which
positively impacted the Company's revenues and ratings beginning late in the
fourth quarter of 1996. In the Company's Baltimore operations, station operating
expenses increased by 4.1% to approximately $6.0 million from approximately $5.7
million as a result of the addition of a new high-profile on-air personality for
one of the Baltimore radio station's morning shows offset by effective expense
management. The relatively smaller increase in station operating expenses in
Baltimore helped mitigate the overall impact of higher station operating
expenses in Washington, D.C.
38
<PAGE>
Broadcast cash flow of the Company for the fiscal year ended December 31,
1996 increased by 0.6% to approximately $9.8 million from approximately $9.7
million for the fiscal year ended December 31, 1995. The broadcast cash flow
margin decreased to 41.2% from 45.3% due to the factors noted above.
Corporate expenses of the Company for the fiscal year ended December 31,
1996 decreased by 10.1% to approximately $1.8 million from approximately $2.0
million for the fiscal year ended December 31, 1995. This decrease was due to a
$778,000 non-cash compensation expense incurred during the fiscal year ended
December 31, 1995 related to the grant of a stock option to Mr. Liggins to
purchase shares of the Company's Common Stock, 57.45 of which vested in fiscal
1995. This decrease was partially offset by significantly higher legal and
professional expenses during the fiscal year ended December 31, 1996, as well as
expenses associated with the potential acquisition of various radio stations.
Operating income of the Company for the fiscal year ended December 31, 1996
decreased by 2.4% to approximately $3.7 million from approximately $3.8 million
for the fiscal year ended December 31, 1995 as a result of the factors noted
above as well as an increase in depreciation and amortization expense associated
with the inclusion of WKYS-FM in Company's financial statements for the full
year.
Interest expense of the Company for the fiscal year ended December 31, 1996
increased by 37.1% to approximately $7.3 million from approximately $5.3 million
for the fiscal year ended December 31, 1995, as the higher debt levels
associated with the acquisition of WKYS-FM impacted the Company's financial
statements for a full year.
Other expenses of the Company for the fiscal year ended December 31, 1996
increased to approximately $77,000 from approximately ($89,000) for the fiscal
year ended December 31, 1995 due to higher interest income associated with
higher cash flow and higher average cash balances more than offset by a loss on
the disposal of leasehold improvements associated with the Company's scheduled
move to its new facilities in Lanham, Maryland in 1997 as well as the payment of
various corporate back taxes.
Net income declined to approximately ($3.6 million) for the fiscal year
ended December 31, 1996 from approximately ($1.9 million) for the fiscal year
ended December 31, 1995 due to lower operating income and higher interest
expense as discussed above.
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 25,
1994
Net broadcast revenues of the Company for the fiscal year ended December
31, 1995 increased 38.1% to approximately $21.5 million from approximately $15.5
million for the fiscal year ended December 25, 1994. The 38.2% revenue increase
in Washington, D.C. to approximately $12.7 million from approximately $9.2
million was due primarily to the acquisition of WKYS-FM in June 1995, while the
revenue for the WMMJ-FM/WOL-AM radio station group was flat year-to-year. The
approximate 38.4% revenue increase in Baltimore to approximately $8.8 million
from approximately $6.4 million was due to increases of approximately 32.0% to
approximately $4.1 million from approximately $3.1 million at the Company's
WWIN-FM/WWIN-AM combination and a 43.0% increase to approximately $4.3 million
from approximately $3.0 million at the Company's WOLB-AM/WERQ-FM combination, as
both radio station combinations benefited from increasing ratings throughout
much of the year.
Station operating expenses of the Company for the fiscal year ended
December 31, 1995 increased by 38.0% to approximately $11.7 million from
approximately $8.5 million for the fiscal year ended December 25, 1994. This
increase in radio station operating expenses was due primarily to an increase of
38.5% to approximately $6.0 million from approximately $4.3 million in the
Company's Washington, D.C. operations due to the acquisition of WKYS-FM, the
costs of integrating that radio station into the Company's operations and higher
programming and administrative expenses for all three of the Company's radio
stations in that market. This increase was matched by a similar increase of
37.4% to approximately $5.7 million from approximately $4.2 million in the
Company's Baltimore operations due to higher programming and administrative
costs as the Company expanded its operations and presence in the market and
increased its revenues.
Broadcast cash flow of the Company for the fiscal year ended December 31,
1995 increased by 38.2% to approximately $9.7 million from approximately $7.0
million for the fiscal year ended December 25, 1994 due primarily to the
acquisition of WKYS-FM. The broadcast cash flow margin was 45.3% for each year.
39
<PAGE>
Corporate expenses of the Company for the fiscal year ended December 31,
1995 increased 76.9% to approximately $2.0 million from approximately $1.1
million for the fiscal year ended December 25, 1994. This increase was due to a
$778,000 non-cash compensation expense during the fiscal year ended December 31,
1995, related to the grant of a stock option to Mr. Liggins to purchase shares
of the Company's Common Stock, 57.45 of which vested in fiscal 1995, which was
partially offset by effective expense management and the absence of additional
corporate staffing requirements.
Operating income of the Company for the fiscal year ended December 31, 1995
decreased by 1.8% to approximately $3.8 million from approximately $3.9 million
for the fiscal year ended December 25, 1994, as a result of factors noted above
and higher depreciation and amortization associated with the acquisition of
WKYS-FM.
Interest expense of the Company for the fiscal year ended December 31, 1995
increased by 98.5% to approximately $5.3 million from approximately $2.7 million
for the fiscal year ended December 25, 1994, as the Company incurred additional
debt associated with the acquisition of WKYS-FM in June 1995.
Other income of the Company for the fiscal year ended December 31, 1995
increased to approximately $89,000 from approximately $38,000 for the fiscal
year ended December 25, 1994 due to higher interest income associated with
higher cash flow and higher average cash balances.
Net income declined to approximately ($1.9 million) for the fiscal year
ended December 31, 1995 from approximately $1.2 million for the fiscal year
ended December 25, 1994 due to higher interest expense as well as an
extraordinary loss of approximately $468,000 due to the early retirement of debt
in conjunction with the acquisition of WKYS-FM and the related financings for
that acquisition.
LIQUIDITY AND CAPITAL RESOURCES
On June 6, 1995, the Company entered into the Existing Credit Facility with
NationsBank of Texas, N.A. (the "Bank") as lender and agent for two other
commercial banks providing the Company with a revolving line of credit of up to
$53.0 million which was used by the Company, among other things, to consummate
the acquisition of WKYS-FM and to refinance its then outstanding indebtedness.
At the closing of the acquisition of WKYS-FM, the Company borrowed $48.0 million
under the Existing Credit Facility. The Existing Credit Facility required the
Company to make monthly interest payments and the amount of the commitment steps
down quarterly, and thus quarterly principal payments were made to the extent
required by the Existing Credit Facility. The Company satisfied all debt service
requirements under the Existing Credit Facility and all of its working capital
requirements out of operating cash flow since June 6, 1995, although amendments
and/or waivers were required under the Existing Credit Facility and the
Securities Purchase Agreement at various times during 1996 and 1997 to waive
various covenant defaults including the Company's pro forma debt service ratio
covenant and leverage ratio covenant, and to amend those covenant levels as well
as to amend minimum broadcast cash flow covenant levels. Pursuant to an
amendment entered into in April 1997, the Company borrowed $850,000 under the
Existing Credit Facility to make a non-refundable prepayment of $600,000 of the
$20.0 million total consideration for the Philadelphia Acquisition and to fund
$250,000 in tenant improvements to the Lanham Offices. All of the indebtedness
outstanding under the Existing Credit Facility was repaid from the proceeds of
the Notes.
Radio One will either (i) pursuant to a commitment letter with NationsBank
of Texas, N.A. (the "Bank"), amend and restate the Existing Credit Facility to
provide for a revolving credit facility with a maximum borrowing capacity of
$7.5 million to be used for working capital, capital expenditures and other
corporate purposes (the "New Credit Facility") or (ii) terminate the Existing
Credit Facility. If entered into by the Company, the New Credit Facility would
terminate on the third anniversary of its closing, at which time any outstanding
principal balance together with all accrued and unpaid interest thereon would
become due and payable. See "Description of Certain Indebtedness-New Credit
Facility." Assuming the New Credit Facility is entered into by the Company, the
Company expects to repay any future advances under the New Credit Facility out
of the operating cash flow. The Company is currently exploring alternative
sources of financing in the event the Company elects not to enter into the New
Credit Facility. See "Description of Certain Indebtedness-New Credit Facility."
40
<PAGE>
As of the date of this Prospectus, the capital structure of the Company
consists of the Company's outstanding long-term debt and stockholders' equity.
The stockholders' equity consists of common stock, additional paid-in capital
and accumulated deficit. The Company's balance of cash and cash equivalents was
approximately $1.7 million at December 31, 1996. The Company's balance of cash
and cash equivalents was approximately $8.8 million as of June 29, 1997. The
Company's primary source of liquidity is cash provided by operations.
Net cash flow from operating activities was flat at approximately $1.1
million for the six months ended June 29, 1997 and approximately $1.1 million
for the six months ended June 30, 1996. Non-cash expenses of depreciation and
amortization increased to approximately $2.4 million for the six months ended
June 29, 1997 from approximately $2.2 million for the six months ended June 30,
1996 or 9.1%. The Company also realized an approximately $2.0 million non-cash
loss on the extinguishment of debt related to the refinancing of its Existing
Credit Facility with proceeds from the Notes Offering during the second quarter.
This non-cash loss was offset by a larger net loss for the six months ended June
29, 1997 relative to the prior year period, leading to the flat net cash flow
from operating activities from year-to-year.
Net cash flow used in investing activities was approximately $19.8 million
for the six months ended June 29, 1997 compared to approximately $107,625 for
the six months ended June 30, 1996. During the six months ended June 29, 1997,
the Company acquired radio station WPHI-FM in Philadelphia, Pennsylvania for
$20.1 million and made purchases of capital equipment totaling approximately
$664,129. During the six months ended June 30, 1996, the Company made purchases
of capital equipment totaling approximately $107,625.
Net cash flow from financing activities was approximately $25.8 million for
the six months ended June 29, 1997. During the six months ended June 29, 1997,
the Company completed the Notes Offering and raised net proceeds of
approximately $72.8 million. The Company used approximately $20.1 million of the
proceeds for an acquisition and approximately $45.6 million of the proceeds to
retire the Existing Credit Facility during the six months ended June 29, 1997.
Net cash flow from financing activities was approximately ($2.1) million for the
six months ended June 30, 1996 which was the amount of the debt repayments made
by the Company during that period. As a result of the aforementioned, cash and
cash equivalents increased by approximately $7.1 million during the six months
ended June 29, 1997 compared to an approximately $1.1 million decrease during
the six months ended June 30, 1996.
Net cash provided by the Company's operating activities for the fiscal year
ended December 31, 1996 increased by approximately $691,900 to $2.6 million from
approximately $1.9 million for the fiscal year ended December 31, 1995. This
increase was due to lower cash interest payments for the fiscal year ended
December 31, 1996 as the Company made a cash interest payment on its Existing
Notes at the end of fiscal year 1995, and due to an increase in operating
income.
Net cash provided by the Company's operating activities for the fiscal year
ended December 31, 1995 decreased by 41.8% to approximately $1.9 million from
approximately $3.3 million for the fiscal year ended December 25, 1994,
resulting from higher cash interest payments and an increase in accounts
receivable offset by an increase in operating income.
Cash used in the Company's investing activities for the fiscal years ended
December 31, 1996, December 31, 1995 and December 25, 1994, was approximately
$1.3 million, $33.9 million, and $1.2 million, respectively. The significant
increase in cash used for investment activities in fiscal 1995 was due to the
acquisition of WKYS-FM for $34.4 million in June of that year.
Cash provided by (used in) the Company's financing activities for the
fiscal years ended December 31, 1996, December 31, 1995 and December 25, 1994
was approximately $(2.4) million, $33.3 million and $(1.8) million,
respectively. The significant increase in cash provided by financing activities
for the fiscal year ended December 31, 1995 resulted primarily from a
refinancing completed in conjunction with the acquisition of WKYS-FM, net of the
purchase of certain stock warrants for approximately $6.6 million.
Capital expenditures of the Company, excluding the acquisition of radio
stations, for its fiscal years ended December 31, 1996, December 31, 1995 and
December 25, 1994 were approximately $251,000, $225,000 and $636,000,
respectively. The Company expects that capital expenditure requirements will be
41
<PAGE>
approximately $1.8 million for the fiscal year ended December 31, 1997, which it
believes will be sufficient to finance the leasehold improvements and new
equipment related to the move to the Lanham Offices for the Company's
Washington, D.C. radio stations, new digital studios for the Company's Baltimore
radio stations, as well as maintenance capital expenditures of approximately
$300,000.
The Company continuously reviews, and is currently reviewing, opportunities
to acquire additional radio stations, primarily in the top-30 African-American
markets. As of the date hereof, except in connection with the DC Acquisition,
the Company has no written or oral understandings, letters of intent or
contracts to acquire radio stations. The Company anticipates that any future
radio station acquisitions would be financed through funds generated from
operations, equity financings, permitted debt financings, debt financings
through Unrestricted Subsidiaries (as defined) or a combination thereof.
However, there can be no assurance that any such financing, if available, will
be available on favorable terms. See "Risk Factors-Leverage and Debt Service;
Refinancing Required" and "-Expansion through Acquisitions."
After giving effect to the termination of the S Corporation status of the
Company as if it had occurred on December 31, 1996, the Company would have had
an accumulated net operating loss ("NOL") carryforward for U.S. federal income
tax purposes of approximately $60,000. This accumulated NOL carryforward was
incurred prior to the fiscal year ended December 31, 1996 and excludes the net
losses for income tax purposes incurred during the fiscal year ended December
31, 1996, which were passed through to the stockholders of the Company at the
end of such period. The S Corporation status of the Company was terminated in
connection with the consummation of the Existing Notes Exchange. Generally, a
corporation may carry forward for fifteen years (including any years in which
the Company was an S corporation) an NOL incurred in any taxable year to offset
taxable income in a future year. There can be no assurance that the Company will
be able to use its accumulated NOLs in future tax years.
The Indenture imposes certain restrictions on the Company, including
restrictions on its ability to incur indebtedness, pay dividends, make
investments, sell assets and engage in certain other activities affecting the
Company's liquidity. See "Description of Exchange Notes." In addition, in the
event the Company enters into the New Credit Facility, the New Credit Facility
will contain numerous restrictions in addition to those set forth in the
Indenture. See "Description of Certain Indebtedness-New Credit Facility."
Management believes that, based on current levels of operations and
anticipated internal growth, cash flow from operations together with other
available sources of funds will be adequate for the foreseeable future to make
required payments of interest on the Company's indebtedness, to fund anticipated
capital expenditures and working capital requirements and to enable the Company
to comply with the terms of its debt agreements. The ability of the Company to
meet its debt service obligations and reduce its total debt, and the Company's
ability to refinance the Exchange Notes at or prior to their scheduled maturity
date in 2004, will depend upon the future performance of the Company which, in
turn, will be subject to general economic conditions and to financial, business
and other factors, including factors beyond the Company's control. See "Risk
Factors-Leverage and Debt Service; Refinancing Required" and "Description of
Exchange Notes."
IMPACT OF INFLATION
The Company believes that inflation has not had a material impact on its
results of operations for each of its fiscal years in the three-year period
ended December 31, 1996 or for the three month period ended March 30, 1997.
However, there can be no assurance that future inflation would not have an
adverse impact on the Company's operating results and financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
Compensation." With respect to stock options granted to employees, SFAS No. 123
permits companies to continue using the accounting method
42
<PAGE>
promulgated by Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees," to measure compensation expense or to adopt the
fair value based method prescribed by SFAS No. 123. If APB No. 25's method is
continued, pro forma disclosures are required as if SFAS No. 123 accounting
provisions were followed. Management has elected to continue to measure
compensation expenses under APB No. 25. The adoption of SFAS No. 123 had no
material impact on the Company's results of operations and did not require pro
forma disclosures in the Consolidated Financial Statements included elsewhere
in this Prospectus.
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 is effective
for financial statements for fiscal years beginning after December 15, 1995. The
adoption of SFAS No. 121 on January 1, 1996, had no material impact on the
Company's financial position or results of operations.
43
<PAGE>
BUSINESS
GENERAL
Radio One, founded in 1980, is the largest radio broadcasting company in
the United States exclusively targeting African-Americans. After giving effect
to the DC Acquisition, the Company will own and operate a total of nine radio
stations (five FM and four AM) in three of the top-15 African-American markets.
The Company seeks to expand within its existing markets and into new, primarily
top-30 African-American markets. The Company believes that the African-American
community is an attractive target market for radio broadcasters and that the
Company has a competitive advantage serving this target market due in part to
its African-American ownership and its active involvement in the
African-American community.
The Company, pursuant to a non-binding amended letter of intent, is
negotiating the acquisition of WYCB-AM, currently the top-rated Gospel radio
station in Washington, D.C. After giving effect to the DC Acquisition, the
Company will own and operate four radio stations in Washington, D.C., the third
largest African-American market with an MSA population of approximately 4.2
million in 1995 (approximately 27.4% of which was African-American), and four
radio stations in Baltimore, the eleventh largest African-American market with
an MSA population of approximately 2.5 million in 1995 (approximately 26.0% of
which was African-American). The Company also has recently entered the
Philadelphia market, the sixth largest African-American market with an MSA
population of approximately 4.9 million in 1995 (approximately 19.9% of which
was African-American), and is programming WPHI-FM with a Young Urban
Contemporary format.
The Company believes that operating radio stations targeting the
African-American population presents significant growth opportunities for the
following reasons:
o Rapid Population Growth. According to data compiled by the Census
Bureau, from 1980 to 1995, the African-American population increased
from approximately 26.7 million to 33.1 million (a 24% increase,
compared to a 16% increase in the population as a whole). Furthermore,
the African-American population is expected to exceed 40 million by
2010 (more than a 21% increase from 1995, compared to an expected
increase of 13% for the population as a whole).
o Higher Income Growth. According to data compiled by the Census Bureau,
from 1980 to 1995, the rate of increase in median household income in
1995 adjusted dollars for African-Americans was approximately 12.3%,
compared to 3.9% for the population as a whole.
o Concentrated Presence in Urban Markets. Approximately 58% of the
African-American population is located in the top-30 African-American
markets and the Company believes that the African-American community
is usually geographically concentrated in such markets. This
concentration of African-Americans may enable the Company to reach a
large portion of its target population with radio stations that may
have less powerful signals, thus potentially lowering the Company's
acquisition and operating costs.
o Fewer Signals Required. The Company believes the current industry
trend is for radio broadcasters to acquire the maximum number of radio
stations allowed in a market under FCC ownership rules (up to eight
radio stations in the largest markets with no more than five being FM
or AM), unless restricted by other regulatory authorities. However,
relative to radio broadcasters targeting a broader audience, the
Company believes it can cover the various segments of its target niche
market with fewer programming formats and therefore fewer radio
stations than the maximum allowed.
o Strong Audience Listenership and Loyalty. Based upon Arbitron reports,
the Company believes, as a group, African-Americans generally spend
more time listening to radio than non-African-American audiences. For
example, during 1996, African-Americans in the ten largest 12-plus
markets listened to radio broadcasts an average of 27.2 hours per week
compared to 22.9 hours per week for non-African-Americans in such
markets. In addition, the Company believes African-American radio
listeners exhibit a greater degree of loyalty to radio stations
targeting a
44
<PAGE>
segment of the African-American community because those radio stations
become a valuable source of entertainment and information consistent
with the community's interests and lifestyles. As a result, the
Company believes that its target demographic group provides greater
audience stability than that of other demographic groups.
o Cost Effective for Advertisers. The Company believes that advertisers
can reach the African-American community more cost effectively through
radio broadcasting than through newspapers or television because the
Company's radio broadcasts specifically target the African-American
community while newspapers and television typically target a much more
diverse audience.
TOP-30 AFRICAN-AMERICAN MARKETS IN THE UNITED STATES(A)
<TABLE>
<CAPTION>
AFRICAN- PERCENTAGE OF AFRICAN-
AMERICAN AMERICANS
POPULATION IN OF OVERALL POPULATION
RANK MARKET THE MARKET IN THE MARKET
- ------ ------------------------------------- --------------- -----------------------
<S> <C> <C> <C>
1. New York 3,723,000 22.3%
2. Chicago 1,645,000 19.5%
3. WASHINGTON, D.C. 1,149,000 27.4%
4. Los Angeles 1,130,000 9.5%
5. Detroit 1,007,000 22.6%
6. PHILADELPHIA 973,000 19.9%
7. Atlanta 919,000 26.4%
8. Houston/Galveston 781,000 18.6%
9. Miami/Ft. Lauderdale/Hollywood 716,000 20.7%
10. Dallas/Ft. Worth 647,000 14.6%
11. BALTIMORE 645,000 26.0%
12. San Francisco 602,000 9.3%
13. Memphis 481,000 41.5%
14. New Orleans 460,000 36.2%
15. Norfolk/Virginia Beach/Newport News 443,000 29.6%
16. St. Louis 439,000 17.2%
17. Cleveland 399,000 18.8%
18. Boston 283,000 7.4%
19. Richmond 282,000 30.2%
20. Charlotte/Gastonia/Rock Hill 266,000 20.5%
21. Birmingham 261,000 27.4%
22. Raleigh/Durham 244,000 24.2%
23. Milwaukee/Racine 238,000 14.5%
24. Greensboro/Winston Salem/High Point 226,000 20.0%
25. Cincinnati 218,000 11.4%
26. Kansas City 217,000 13.1%
27. Tampa/St. Petersburg/Clearwater 202,000 9.2%
28. Jacksonville 201,000 19.8%
29. Indianapolis 193,000 14.2%
30. Pittsburgh 187,000 7.8%
</TABLE>
- ----------
(a) Estimates based upon BIA Marketing Report, 1997 First Edition (as defined).
Bold text indicates markets in which the Company owns and operates a radio
station.
45
<PAGE>
Listed below is selected information relating to the Company's radio
stations and markets (including the radio station which is the subject of the DC
Acquisition):
<TABLE>
<CAPTION>
AFRICAN-AMERICAN MARKET
-----------------------------------------------
RANK BY SIZE OF TARGET
AFRICAN- TARGET AUDIENCE
MARKET AND STATION PROGRAM TARGET AMERICAN AUDIENCE SHARE REVENUE
CALL LETTERS(A) FORMAT(D) AGE GROUP POPULATION(E) SHARE(F) RANK(G) RANK(H)
- -------------------- ------------ ----------- ----------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
WASHINGTON, D.C. 3 30.9% 1 2
WKYS-FM Young UC 18-34 11.6% 4
WMMJ-FM Urban AC 25-54 12.4% 3
WOL-AM Black Talk 35-64 2.8% 8
WYCB-AM(b) Gospel 35-64 4.1% 6
BALTIMORE 11 40.3% 1 1
WERQ-FM Young UC 18-34 22.2% 1
WOLB-AM Black Talk 35-64 3.0% 9
WWIN-FM Urban AC 25-54 10.3% 3
WWIN-AM Gospel 35-64 4.8% 5
PHILADELPHIA 6 NM NM NM
WPHI-FM(c) Young UC 18-34
</TABLE>
<TABLE>
<CAPTION>
ENTIRE MARKET
-----------------------------------------------------------------------
12-PLUS TARGET
12-PLUS AUDIENCE AGE GROUP
MARKET AND STATION AUDIENCE SHARE AUDIENCE SHARE RADIO REVENUE REVENUE
CALL LETTERS(A) SHARE(I) RANK(I) RANK(J) REVENUE(K) SHARE(L) RANK(M)
- ------------------- ---------- ---------- ---------------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
WASHINGTON, D.C 11.4% N/A NM $ 187.9 9.2% N/A
WKYS-FM 4.8% 5 2 3.3% 14
WMMJ-FM 4.2% 7 4(t) 3.4% 13
WOL-AM 1.0% 21 24(t) 1.8% 18
WYCB-AM(b) 1.4% 19 17 0.7% N/A
BALTIMORE 13.3% N/A NM 86.8 12.5% N/A
WERQ-FM 7.7% 1 1 6.7% 8
WOLB-AM 0.9% 23(t) 17(t) (n) (n)
WWIN-FM 3.2% 9 8 5.8% 10
WWIN-AM 1.5% 16 15(t) (o) (o)
PHILADELPHIA 1.9% N/A NM 203.8 1.2% 18
WPHI-FM(c) 1.9% 18 NA 1.2% 18
</TABLE>
- ----------
As used in this table, "N/A" means not applicable or not available, "NM" means
not meaningful and "(t)" means tied with one or more radio stations.
(a) Actual city license may be different from the metropolitan market serviced.
Market names used in this table are Arbitron's MSAs for the markets served
by the Company.
(b) The Company anticipates this radio station will be acquired in the fourth
quarter of 1997. See "The Transactions-Acquisitions."
(c) WPHI-FM, acquired on May 19, 1997 pursuant to the Philadelphia Acquisition,
had a Modern Rock format prior to February 1997 when the Company entered
into an LMA with the then-owner to program the radio station. Therefore,
certain information provided is either not meaningful or reflects ratings
and other data under the previous format. See "The
Transactions-Acquisitions."
(d) Programming formats of the Company include: Black Talk, Urban Adult
Contemporary ("Urban AC"), Gospel and Young Urban Contemporary ("Young
UC").
(e) Based upon the BIA Market Report, 1997 (First Edition).
(f) Based upon all 12-plus African-Americans according to the Arbitron Market
Report for Fall 1996 (as defined).
(g) Rank for each radio station based upon 12-plus African-Americans according
to the Arbitron Market Report for Fall 1996. Rank for each market based
upon management's estimate after reviewing audience share ratings for
12-plus African-Americans according to the Arbitron Market Report for Fall
1996 and grouping radio stations targeting African-Americans into known
radio station clusters.
46
<PAGE>
(h) Revenue rank for each market based upon management's estimate after
reviewing gross revenues for individual radio stations that are reported in
the Hungerford Report (Dec. 1996) (as defined) and grouping radio stations
targeting African-Americans into known ownership clusters.
(i) Based upon all persons 12-plus according to the Arbitron Market Report for
Fall 1996.
(j) Based upon each radio station's rank among its African-American target age
group according to the Arbitron Market Report for Fall 1996.
(k) Gross revenues in millions of dollars. For Washington, D.C. and Baltimore,
based upon the Hungerford Report, (Dec. 1996). For Philadelphia, based upon
the Miller Kaplan Report, (Dec. 1996) (as defined), which excludes barter
transactions from its reported figures.
(l) Revenue share for individual radio stations in Washington, D.C. and
Baltimore based upon the Hungerford Report (Dec. 1996), except for WYCB-AM
which does not report to Hungerford. Revenue share for WYCB-AM represents
the radio station's net revenues as a percentage of the market radio
revenue reported by the Hungerford Report, (Dec.1996), as adjusted for
WYCB-AM's net revenues. Revenue share for the Baltimore market is based
upon the Hungerford Report (Dec. 1996). Revenue share for the Washington,
D.C. market is based upon the Hungerford Report (Dec. 1996) as adjusted for
WYCB-AM's net revenues. Revenue share for WPHI-FM and Philadelphia is based
upon the Miller Kaplan Report (Dec. 1996), which excludes barter
transactions from its reported figures.
(m) For radio stations in Washington, D.C. and Baltimore, based upon the
Hungerford Report, (Dec. 1996). For WPHI-FM, based upon the Miller Kaplan
Report, (Dec. 1996), which excludes barter transactions from its reported
figures.
(n) WERQ-FM and WOLB-AM report revenue data to Hungerford on a combined basis.
Therefore, only one revenue share and revenue rank is provided for WERQ-FM
and WOLB-AM.
(o) WWIN-FM and WWIN-AM report revenue data to Hungerford on a combined basis.
Therefore, only one revenue share and revenue rank is provided for WWIN-FM
and WWIN-AM.
OPERATING STRATEGY
In order to maximize broadcast cash flow at each of its radio stations, the
Company strives to create and operate the leading radio station group, in terms
of audience share, serving the African-American community and to effectively
convert these audience share ratings to advertising revenue while controlling
the costs associated with each radio station's operations. The success of the
Company's strategy relies on the following: (i) market research, targeted
programming and marketing; (ii) significant community involvement; (iii)
aggressive sales efforts; (iv) advertising partnerships and special events; (v)
strong management and performance-based incentives; and (vi) radio station
clustering, programming segmentation and sales bundling.
Market Research, Targeted Programming and Marketing
The Company uses market research to tailor the programming, marketing and
promotions of its radio stations to maximize audience share. To achieve these
goals, the Company uses market research to identify unserved or underserved
markets or segments of the African-American community in its current and in new
markets and to determine whether to acquire a new radio station or reprogram one
of its existing radio stations to target those markets or segments.
The Company also seeks to reinforce its targeted programming by creating a
distinct and marketable identity for each of its radio stations. To achieve this
objective, in addition to its significant community involvement discussed below,
the Company employs and promotes distinct, high-profile on-air personalities at
many of its radio stations, many of whom have strong ties to the
African-American community.
Significant Community Involvement
The Company believes its active involvement and significant business and
political relationships in the African-American community, together with its
African-American ownership, provide a competitive advantage in targeting
African-American audiences. In this way, the Company believes its proactive
involvement in the African-American communities in each of its markets greatly
improves the marketability of its radio broadcast time to advertisers who are
targeting such communities.
Management believes that a radio station's image should reflect the
lifestyle and viewpoints of the target demographic group it serves. Due to the
Company's fundamental understanding of the African-
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American community, management believes it is able to identify music and musical
styles, as well as political and social trends and issues, early in their
evolution. This understanding is then integrated into all aspects of the
Company's operations and enables it to create enhanced awareness and name
recognition in the marketplace. In addition, the Company believes its
multi-level approach to community involvement leads to increased effectiveness
in developing and updating its programming formats. Management believes its
enhanced awareness and more effective programming formats lead to greater
listenership and higher ratings over the long-term.
The Company has a history of sponsoring events that showcase its commitment
to the African-American community including:
o heightening the awareness of certain diseases and holding fundraisers
to fund the search for cures for diseases which disproportionately
impact African-Americans, such as sickle-cell anemia and leukemia;
o developing contests specifically designed to assist African-American
single mothers with day care expense;
o fundraising for the many African-American churches throughout the
country which have been the recent target of arsonists; and
o organizing seminars designed to educate African-Americans on personal
issues that include buying a home, starting a business and developing
a credit history, and providing information regarding financial
planning and health care.
Aggressive Sales Efforts
The Company has assembled an effective, highly-trained sales staff focused
on converting the Company's audience share into revenue. The Company employs a
dual sales strategy of selling stations individually where appropriate, by
targeting a certain demographic segment, or in combination by focusing on the
complementary aspects of the Company's multiple stations.
Advertising Partnerships and Special Events
The Company believes that in order to create advertiser loyalty it must
strive to be the recognized expert in marketing to the African-American consumer
in its markets. The Company believes that it has achieved this recognition by
focusing on serving the African-American consumer and by creating innovative
advertising campaigns and promotional tie-ins. The Company sponsors several
major entertainment events each year. The Stone Soul Picnic, which was developed
by the Company in 1989, is an all-day free outdoor concert which showcases
advertisers, local merchants and other organizations desiring exposure to over
100,000 people in each of Washington, D.C. and Baltimore. The People's Expo is
another major event the Company sponsors every March in Washington, D.C. and
Baltimore. This event provides entertainment, shopping and educational seminars
to the Company's listeners and others from the communities that the Company
serves. In connection with these events, advertisers buy signage, booth space
and broadcast promotions to sell cars, groceries, clothing, financial services
and other products and/or services to the African-American consumer.
Strong Management and Performance-Based Incentives
The Company focuses on hiring highly motivated and talented individuals in
each functional area of the organization who can effectively help the Company
implement its strategies of growth and value creation. The Company's management
team is comprised of a diverse group of individuals who bring strong expertise
to their respective functional areas. Furthermore, the Company looks to promote
from within and, thus, aims to build a middle management and lower-level
employee base comprised of individuals with great potential, the ability to
operate with high levels of autonomy and the appropriate team-orientation which
will enable them to grow their careers within the organization.
To enhance the quality of management in the sales and programming areas of
the Company, General Managers, Sales Managers and Program Directors have
significant portions of their compensation tied to the achievement of certain
performance goals. General Managers' compensation is based partially on
achieving cash flow benchmarks which creates an incentive for management to
focus not only
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<PAGE>
on sales growth, but also on expense control. Additionally, Sales Managers and
sales personnel have incentive packages based on sales goals, and Program
Directors and on-air talent have incentive packages focused on maximizing
overall ratings as well as ratings in specific target segments.
Radio Station Clustering, Programming Segmentation and Sales Bundling
The Company strives to build clusters of radio stations in its markets,
with each radio station targeting different demographic segments of the
African-American population. This clustering and programming segmentation
strategy allows the Company to achieve greater penetration into each segment of
its target market. The Company is then able to offer advertisers multiple
audiences and to bundle the radio stations for advertising sales purposes when
advantageous.
The Company believes there are several potential benefits that result from
operating multiple radio stations within the same market. First, each additional
radio station in a market provides the Company with a larger percentage of the
prime advertising time available for sale within that market. Second, the more
signals programmed by the Company, the greater the market share the Company can
achieve in its target demographic groups through the use of segmented
programming. Third, the Company is often able to consolidate sales, promotional,
technical support and corporate functions to produce substantial cost savings.
Finally, the purchase of additional radio stations in an existing market allows
the Company to take advantage of its market expertise and existing relationships
with advertisers.
ACQUISITION STRATEGY
Radio One's primary acquisition strategy is to acquire and turn around
under performing radio stations in the top-30 African-American markets. The
Company considers acquisitions in existing markets where expanded coverage is
desirable and considers acquisitions in new markets where the Company believes
it is advantageous to establish a presence. In analyzing potential acquisition
candidates, the Company generally considers (i) whether the radio station has a
signal adequate to reach a large percentage of the African-American community in
a market, (ii) whether the Company can reformat or improve the radio station's
programming in order to profitably serve the African-American community, (iii)
whether the radio station affords the Company the opportunity to segment program
formats within a market in which the Company already maintains a presence, (iv)
whether the Company can increase broadcast revenues of the radio station through
aggressive marketing, sales and promotions, (v) the price and terms of the
purchase, (vi) the level of performance that can be expected from the radio
station under the Company's management and (vii) the number of competitive radio
stations in the market.
The Company believes that large segments of the African-American population
in its target markets are often concentrated in certain geographic sections of
such markets. The Company further believes that this geographic concentration
may provide it with an opportunity to acquire less expensive radio stations with
less powerful signals without materially diminishing the Company's coverage of
the African-American community. As a result, the Company believes it can have a
competitive advantage in securing a substantial share of the radio revenue at a
potentially lower acquisition cost per listener than radio stations targeting
other demographic groups.
The Company does not apply a fixed formula to determine the purchase price
of radio stations and does not focus solely on multiples of broadcast cash flow.
Rather the Company seeks to acquire radio stations consistent with its
acquisition and operating strategies. The Company will continue to evaluate
potential acquisitions in the top-30 African-American markets.
STATION OPERATIONS
The following is a general description of each of the Company's markets and
its radio stations in each market. As noted, the data provided in the tables
below includes information during periods the radio stations listed were not
owned or operated by the Company.
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Washington, D.C.
The Washington, D.C. market is estimated to be the eighth largest radio
market in terms of population and had 1996 radio advertising revenues totaling
an estimated $187.9 million. In 1995, Washington, D.C. had the third largest
African-American population in the United States with an MSA population of
approximately 4.2 million (approximately 27.4% of which was
African-American).The Company believes it owns the strongest franchise (in terms
of audience share and number of radio stations) of African-American targeted
radio stations in the Washington, D.C. market with two of the four FM radio
stations and, after giving effect to the DC Acquisition, two of the three AM
radio stations that target African-Americans.
<TABLE>
<CAPTION>
1994(D) 1995(D) 1996(D) FALL 1996(D)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
WKYS-FM(a)
Audience share (12-plus) ......... 3.8% 3.8% 4.5% 4.8%
Audience share rank (12-plus) ...... 10 9 (t) 6 (t) 5
Audience share (18-34) ............ 5.6% 5.8% 7.5% 8.8%
Audience share rank (18-34) ......... 6 6 2 2
Revenue share ..................... 5.1% 3.8% 3.3% N/A
Revenue rank ........................ 8 14 14 N/A
WMMJ-FM(b)
Audience share (12-plus) ............ 4.3% 3.7% 4.5% 4.2%
Audience share rank (12-plus) ...... 7 11 (t) 6 (t) 7
Audience share (25-54) ............ 5.3% 4.6% 5.4% 5.1%
Audience share rank (25-54) ......... 4 (t) 8 3 (t) 4 (t)
Revenue share ..................... 3.8% 3.7% 3.4% N/A
Revenue rank ........................ 14 15 13 N/A
WOL-AM(b)
Audience share (12-plus) ............ 1.7% 1.7% 1.0% 1.0%
Audience share rank (12-plus) ...... 18 19 23 (t) 21 (t)
Audience share (35-64) ............ 2.3% 2.3% 1.1% 1.0%
Audience share rank (35-64) ......... 16 (t) 14 (t) 23 24 (t)
Revenue share ..................... 2.1% 2.0% 1.8% N/A
Revenue rank ........................ 19 18 18 N/A
WOL-AM and WMMJ-FM
(combined)(b)
Audience share (12-plus) ......... 6.0% 5.4% 5.5% 5.2%
Audience share (25-54) ............ 6.9% 6.4% 6.2% 5.8%
Revenue share ..................... 5.9% 5.6% 5.3% N/A
Revenue rank ........................ 7 7 8 N/A
WYCB-AM(c)
Audience share (12-plus) ............ 1.2% 1.6% 1.3% 1.4%
Audience share rank (12-plus) ...... 21 20 20 19
Audience share (35-64) ............ 1.3% 1.7% 1.5% 1.6%
Audience share rank (35-64) ......... 22 19 18 17
Revenue share ..................... N/A N/A 0.7% N/A
Revenue rank ........................ N/A N/A N/A N/A
</TABLE>
- ----------
As used in this table, "N/A" means not applicable or not available and "(t)"
means tied with one or more radio stations.
(a) WKYS-FM was acquired by the Company on June 6, 1995.
(b) WOL-AM and WMMJ-FM advertising time is sold in combination.
(c) The Company intends to acquire WYCB-AM in the fourth quarter of 1997. See
"The Transactions-Acquisitions."
(d) Audience share and audience share rank data is based on Arbitron four book
averages for the years indicated and the Arbitron Market Report for Fall
1996. Revenue share and rank data are based upon the Radio Revenue Report
of Hungerford for December 1996, 1995 and 1994, except for WYCB-AM which
does not report to Hungerford. Revenue share for WYCB-AM represents the
radio station's net revenues as a percentage of the market radio revenue
reported by the Hungerford Report, (Dec. 1996), as adjusted for WYCB-AM's
net revenues.
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WOL-AM. The Company's first radio station, WOL-AM, was purchased in 1980
for approximately $900,000. WOL-AM was a music station with declining revenue
share and audience share that the Company converted to one of the country's
first all-talk radio stations targeting African-Americans. The Company's
Chairperson, Ms. Catherine L. Hughes, who hosted WOL-AM's daily four-hour
morning show from 1983 to 1995, created a valuable niche for the radio station
as "The Voice of Washington's Black Community." The Company believes that WOL-AM
is a vital communications platform for the community, political and business
leaders in its market. WOL-AM's ratings have historically fluctuated between a
1% and 2% audience share in the 12-plus market.
WMMJ-FM. The Company's second radio station in Washington, D.C., WMMJ-FM,
was purchased in 1987 for approximately $7.5 million. At the time, WMMJ-FM was
being programmed in a general market adult contemporary format, which led it to
garner a 1.2% audience share of the 12-plus market. However, given its
relatively low signal strength (the radio station was a Class A with 3,000 watts
of power; it has since been upgraded to 6,000 watts) and low ratings, it was
generating minimal revenues and little or no broadcast cash flow. After
extensive research by the Company, WMMJ-FM was the first FM radio station on the
East Coast to introduce an Urban Adult Contemporary ("Urban AC") programming
format. This format focuses on African-Americans in the 25 to 54 age group and
provides adult-oriented Urban Contemporary music from the 1960s, 1970s, 1980s
and 1990s. The Urban AC format was almost immediately successful, and today
WMMJ-FM, with a 4.2% audience share in the 12-plus market, is a consistent top
five radio station among all 25 to 54-year-olds in Washington, D.C. with a
long-standing and loyal listener base.
WKYS-FM. The Company's third radio station in Washington, D.C., WKYS-FM,
was purchased in June 1995 for approximately $34.4 million. WKYS-FM is a Class B
Young Urban Contemporary radio station targeting 18 to 34-year-old
African-American adults. From 1978 to 1989, WKYS-FM was Washington, D.C.'s
perennial Urban Contemporary leader and was frequently the market's number one
radio station overall. However, in 1987, WPGC-FM (now owned by CBS
Corporation("CBS")) changed its format from Adult Contemporary to CHR/Urban and
in Spring of 1989, replaced WKYS-FM as the number one urban radio station in
terms of audience share. From 1986 to the Fall of 1994, WKYS-FM's overall
ratings rank fell from number one to number twelve with a 3.3% audience share of
the 12-plus market, while WPGC-FM moved from near the bottom to number one with
a 9.0%audience share of the 12-plus market. In 1995, WPGC-FM was the market's
number one billing radio station with over $20.0 million in revenues. By 1995,
the former owner of WKYS-FM had abandoned the 18 to 34-year- old demographic
group and begun to target 25 to 54-year-olds, making it a direct competitor to
Radio One's WMMJ-FM instead of CBS's WPGC-FM. When the Company purchased WKYS-FM
in June 1995, it repositioned its programming away from WMMJ-FM and back towards
18 to 34-year-olds and WPGC-FM. Since June 1995, the Company has been able to
dramatically increase WKYS-FM's overall 12-plus market audience share rank to
number five with a 4.8% audience share, and to number two among 18 to
34-year-olds with an 8.8% audience share of that market. During this same period
of time, WPGC-FM has remained number one in the 12-plus market and 18 to
34-year-olds ratings, but its audience share has fallen dramatically from a 9.0%
to a 6.1% audience share of the 12-plus market and from a 14.4% to a 10.2%
audience share among 18 to 34-year-olds.
WYCB-AM. The Company is currently negotiating the acquisition of WYCB-AM,
Washington D.C.'s top-rated Gospel radio station, pursuant to a non-binding
amended letter of intent. See "The Transactions-Acquisitions." The Company
believes the acquisition of WYCB-AM, with its Gospel programming format, would
provide the Company with access to another segment of the African-American
community in Washington, D.C., and complement its existing radio station group.
Baltimore, Maryland
The Baltimore market is the 19th largest radio market in terms of
population and had 1996 radio advertising revenues totaling an estimated $86.8
million. In 1995, Baltimore had the eleventh largest African-American population
in the United States with an MSA population of approximately 2.5 million
(approximately 26.0% of which was African-American). The Company believes
Baltimore is "under radioed" with only 15 viable FM radio stations (according to
Duncan's Radio Market Guide (as de-
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<PAGE>
fined)), in part because of its close proximity to Washington, D.C., making
Baltimore a particularly attractive market. The Company believes it owns the
strongest franchise of African-American targeted radio stations in the Baltimore
market with two of the three FM radio stations and two of the four AM radio
stations which target African-Americans.
<TABLE>
<CAPTION>
1994(C) 1995(C) 1996(C) FALL 1996(C)
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
WERQ-FM(a)
Audience share (12-plus) ............ 5.6% 5.2% 6.4% 7.7%
Audience share rank (12-plus) ...... 6 7 4 1
Audience share (18-34) ............ 8.3% 8.6% 10.7% 13.3%
Audience share rank (18-34) ......... 3 2 2 1
WOLB-AM(a)
Audience share (12-plus) ............ 0.4% 0.9% 0.6% 0.9%
Audience share rank (12-plus) ...... 32(t) 23 (t) 28 (t) 23 (t)
Audience share (35-64) ............ 0.6% 1.1% 0.9% 1.6%
Audience share rank (35-64) ...... 26 (t) 19 (t) 23 17 (t)
WERQ-FM and WOLB-AM (Combined)(a)
Audience share (12-plus) ............ 6.0% 6.1% 7.0% 8.6%
Audience share (25-54) ............ 4.3% 4.9% 5.7% 7.4%
Revenue share ..................... 5.2% 6.7% 6.7% N/A
Revenue rank ........................ 8 8 8 N/A
WWIN-FM(b)
Audience share (12-plus) ............ 3.3% 4.0% 3.6% 3.2%
Audience share rank (12-plus) ...... 11 10 10 9
Audience share (25-54) ............ 4.5% 5.5% 4.9% 4.2%
Audience share rank (25-54) ...... 7 5 7 (t) 8
WWIN-AM(b)
Audience share (12-plus) ......... 1.0% 1.1% 1.1% 1.5%
Audience share rank (12-plus) ...... 21 18 (t) 20 (t) 16
Audience share (35-64) ............ 1.2% 1.1% 1.4% 1.8%
Audience share rank (35-64) ...... 19 (t) 19 (t) 18 15(t)
WWIN-FM and WWIN-AM (Combined)(b)
Audience share (12-plus) ............ 4.3% 5.1% 4.7% 4.7%
Audience share (25-54) ............ 5.6% 6.6% 6.0% 5.7%
Revenue share ..................... 5.1% 5.7% 5.8% N/A
Revenue rank ........................ 9 10 10 N/A
</TABLE>
- ----------
As used in this table, "N/A" means not applicable or not available and "(t)"
means tied with one or more radio stations.
(a) Based upon the Hungerford Report, (Dec. 1996). WERQ-FM and WOLB-FM jointly
report revenue data to Hungerford.
(b) Based upon the Hungerford Report, (Dec. 1996). WWIN-FM and WWIN-AM jointly
report revenue data to Hungerford.
(c) Audience share and audience share rank data are based on Arbitron four book
averages for the years indicated and the Arbitron Market Report for Fall
1996. Revenue share and rank data are based on the Radio Revenue Report by
Hungerford for December 1996, 1995 and 1994.
WWIN-FM and WWIN-AM. In January 1992, the Company made its first
acquisition outside of the Washington, D.C. market with the purchase of two
Baltimore radio stations, WWIN-FM and WWIN- AM, for approximately $4.7 million.
At the time, these two radio stations were Black Adult Contemporary and Gospel
radio stations, respectively. Combined, the two Baltimore radio stations had
approxi-
52
<PAGE>
mately $2.5 million in revenue and approximately $400,000 in broadcast cash
flow. During Radio One's first full year of ownership, through aggressive
selling efforts and expense control, revenues increased to approximately $3.5
million, and broadcast cash flow increased to approximately $1.0 million.
Additionally, at the time of the acquisition, WWIN-FM was a weak second to
WXYV-FM, the dominant Urban Contemporary radio station in the market, with less
than one-third of that radio station's market share. Today, WWIN-FM is a leading
urban radio station, second only to the Company's WERQ-FM, among 25 to
54-year-olds in the Baltimore market (in terms of audience share) and has
revenues approaching those of WXYV-FM, while WWIN-AM continues to occupy an
attractive niche on the AM frequency with its Gospel programming format.
WERQ-FM and WOLB-AM. In September 1993, the Company made another
acquisition in the Baltimore market with the purchase of WERQ-FM and WERQ-AM for
approximately $9.0 million. WERQ-FM, which has a full-powered signal, was, at
the time of its acquisition, a CHR/Urban radio station, while WERQ-AM was a
satellite-fed, all-news radio station. Combined, these radio stations were
losing approximately $600,000 per year. The Company proceeded to convert the
format of WERQ-FM to a more focused young Urban Contemporary format targeted at
18 to 34-year-old African-Americans, while WERQ-AM was changed to WOLB-AM and
simulcast with the Company's Black Talk radio station in Washington, D.C.,
WOL-AM. These moves, in conjunction with more aggressive sales efforts and
savings from radio station clustering, increased revenues by approximately $1.0
million and eliminated the operating loss in these radio stations' first full
year of ownership by Radio One. Over time, WERQ-FM's audience share increased
dramatically, and today, it is the number one radio station in the 12-plus
market, with over twice the audience share of its primary competition, WXYV-FM.
Philadelphia, Pennsylvania
The Philadelphia market is the fifth largest radio market in terms of MSA
population and had 1996 radio advertising revenues totaling an estimated $203.8
million. In 1995, Philadelphia had the sixth largest African-American population
in the United States with an MSA population of approximately 4.9 million
(approximately 19.9% of which was African-American).
WPHI-FM. On February 8, 1997, the Company entered into an LMA with the
then-current owner of WPHI-FM, and the radio station's programming format
changed from Modern Rock to young Urban Contemporary targeting 18 to 34-year-old
African-Americans like WKYS-FM, one of the Company's radio stations in
Washington, D.C., and WERQ-FM, one of the Company's radio stations in Baltimore.
On May 19, 1997, the Company acquired WPHI-FM, providing the Company with an
opportunity to apply its operating strategy in another top-30 African-American
market. Although WPHI-FM is a lower powered radio station, the Company believes
it adequately reaches at least 90% of the African-Americans in Philadelphia. The
Company believes WPHI-FM fit the Company's acquisition model of finding lower
powered and lower priced radio stations that will adequately cover a target
African-American population due to the relatively high concentration in certain
geographic sections of a market.
ADVERTISING REVENUES
Substantially all of the Company's revenues are generated from the sale of
local and national advertising for broadcast on its radio stations. Additional
broadcasting revenue is generated from network compensation payments and other
miscellaneous transactions. Local sales are made by the sales staffs located in
Washington, D.C., Baltimore and Philadelphia. National sales are made by firms
specializing in radio advertising sales on the national level, in exchange for a
commission from the Company that is based on a percentage of the Company's gross
revenue from the advertising obtained. Approximately 66% and 64% of the
Company's net broadcasting revenues for the fiscal year ended December 31, 1996
and for the three months ended March 30, 1997 were generated from the sale of
local advertising and 27% and 25%, respectively, from sales to national
advertisers.
The Company believes that advertisers can reach the African-American
community more cost- effectively through radio broadcasting than through
newspapers or television. Advertising rates charged by radio stations are based
primarily on (i) a radio station's audience share within the demographic
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<PAGE>
groups targeted by the advertisers, (ii) the number of radio stations in the
market competing for the same demographic groups and (iii) the supply and demand
for radio advertising time. Advertising rates are generally highest during the
morning and afternoon commuting hours.
A radio station's listenership is reflected in ratings surveys that
estimate the number of listeners tuned to a radio station and the time they
spend listening to that radio station. Each radio station's ratings are used by
its advertisers and advertising representatives to consider advertising with the
radio station, and are used by the Company to chart audience growth, set
advertising rates and adjust programming. The radio broadcast industry's
principal ratings are the Arbitron ratings. Arbitron publishes monthly and
quarterly ratings surveys for significant domestic radio markets. These surveys
are the Company's primary source of ratings data with respect to its radio
stations. See "Market and Industry Data."
COMPETITION
Radio broadcasting is a highly competitive business. Each of the Company's
radio stations competes for audience share and advertising revenue directly with
other radio stations, as well as with other media such as billboards, newspapers
and television. There are well-capitalized firms competing in the same
geographic markets as the Company, many of which have greater financial
resources.
The financial success of each of the Company's radio stations depends, to a
significant degree, upon its audience ratings, its share of the overall radio
advertising revenue within a specific market and the economic health of that
market. The audience ratings and advertising revenue of the Company's individual
radio stations are subject to change, and any adverse change in a particular
market could have a material adverse effect on the total revenue and broadcast
cash flow of the Company. The Company's radio stations compete for audience
share and advertising revenue directly with other FM and AM radio stations and
with other media within their respective markets. While the Company already
competes with other radio stations with comparable programming formats in each
of its markets, if another radio station in the market were to convert its
programming format to a format similar to one of the Company's radio stations,
if a new radio station were to adopt a competitive format or if an existing
competitor were to strengthen its operations, the Company's radio stations could
suffer a reduction in ratings and/or advertising revenue and could require
increased promotion and other expenses. In addition, certain of the Company's
radio stations compete, and in the future other radio stations of the Company
may compete, with duopolies or other combinations of radio stations operated by
a single operator.
Radio broadcasting is also increasingly subject to competition from new
media technologies that are being developed or introduced, such as the delivery
of audio programming by cable television systems or the introduction of digital
audio broadcasting ("DAB"). DAB may provide a medium for the delivery by
satellite or terrestrial means of multiple audio programming formats to local
and national audiences. The Company cannot predict the effect, if any, that any
such new technologies may have on the radio broadcasting industry. See "Risk
Factors-Competition."
An important element of the Company's growth strategy involves the
acquisition of additional radio stations. Following the passage of the
Telecommunications Act of 1996, the Antitrust Division of the Department of
Justice has become more aggressive in reviewing proposed acquisitions of radio
stations and radio station networks which otherwise complied with the FCC's
ownership limitations, particularly in instances where the proposed acquiror
already owns one or more radio stations in a particular market and the
acquisition involves another radio station in the same market. Recently, the
Antitrust Division has obtained consent decrees requiring an acquiror to dispose
of at least one radio station in a particular market where the acquisition
(which would otherwise comply with the FCC's ownership limitations) would have
resulted in a concentration of market share by the acquiror. In that case, it is
unclear whether the post-acquisition concentration of combined market share or
combined advertising revenues of the acquiror was the factor which caused the
Antitrust Division to require divestiture. Additionally, any acquisitions are
potentially subject to review by the Federal Trade Commission.
See "Risk Factors-Antitrust Matters."
54
<PAGE>
EMPLOYEES
The Company employs approximately 225 people, approximately 60 of whom are
part-time employees. The Company's employees are not unionized. The Company has
not experienced any work stoppages and believes its relations with its employees
are satisfactory.
Each radio station has its own on-air personalities and clerical staff.
However, in an effort to control broadcast and corporate expenses, Radio One
centralizes certain radio station functions by market location. For example, the
Company employs one General Manager for each of its markets who is responsible
for all of the Company's radio stations located in such markets and the
Company's Vice President of Programming oversees programming for all of the
Company's radio stations.
FEDERAL REGULATION OF RADIO BROADCASTING
The radio broadcasting industry is subject to extensive and changing
regulation over, among other things, programming, technical operations and
business and employment practices. The Federal Communications Commission
regulates radio broadcast stations pursuant to the Communications Act of 1934,
as amended. The Communications Act permits the operation of radio broadcast
stations only in accordance with a license issued by the FCC upon a finding that
the grant of a license would serve the public interest, convenience and
necessity. The Communications Act provides for the FCC to exercise its licensing
authority to provide a fair, efficient and equitable distribution of broadcast
service throughout the United States. Among other things, the FCC assigns
frequency bands for radio broadcasting; determines the particular frequencies,
locations and operating power of radio broadcast stations; issues, renews,
revokes and modifies radio broadcast station licenses; regulates transmitting
equipment used by radio broadcast stations; adopts and implements regulations
and policies that directly or indirectly affect the ownership, operation,
program content and employment and business practices of radio broadcast
stations; and has the power to impose penalties, including monetary forfeitures,
for violations of its rules and the Communications Act.
The Communications Act prohibits the sale or assignment of an FCC license,
or other transfer of control of an FCC licensee, without the prior approval of
the FCC. In determining whether to grant requests for consents to assignments or
transfers, and in determining whether to grant or renew a radio broadcast
license, the FCC considers a number of factors pertaining to the licensee (and
any proposed licensee), including restrictions on foreign ownership, compliance
with FCC media ownership rules, licensee "character" and compliance with the
Anti-Drug Abuse Act of 1988.
The following is a brief summary of certain provisions of the
Communications Act and specific FCC rules and policies. This summary does not
purport to be complete and is qualified in its entirety by the text of the
Communications Act, the FCC's rules, and the public notices and rulings of the
FCC. A potential investor should refer to these FCC rules and policies for
further information concerning the nature and extent of federal regulation of
radio broadcast stations. A licensee's failure to observe these or other FCC
rules and policies may result in the imposition of various sanctions, including
admonishment, fines, the grant of "short" (less than the full eight-year)
renewal terms, grant of a license with conditions or, for particularly egregious
violations, the denial of a license renewal application, the revocation of FCC
license or the denial of FCC consent to acquire additional broadcast properties.
The Congress and the FCC have had under consideration, and may in the future
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could, directly or indirectly, affect the operation, ownership
and profitability of Radio One's radio stations, result in the loss of audience
share and advertising revenues for Radio One's radio broadcast stations or
affect its ability to acquire additional radio broadcast stations or finance
such acquisitions. Such matters may include changes to the license authorization
and renewal process; proposals to impose spectrum use or other fees on FCC
licensees; auction of new broadcast licenses; changes to the FCC's equal
employment opportunity regulations and other matters relating to involvement of
minorities and women in the broadcasting industry; proposals to change rules
relating to political broadcasting and other changes regarding program content;
proposals to restrict or prohibit the advertising of beer, wine and other
alcoholic beverages; technical and frequency allocation matters, including those
relative to the implementation of digital audio broadcasting on both a satellite
and terrestrial basis; changes in broadcast cross-interest, multiple own-
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ership, foreign ownership, cross-ownership and ownership attribution policies;
changes to technical broadcast requirements; proposals to allow telephone
companies to deliver audio and video programming to homes in their service
areas; and proposals to alter provisions of the tax laws affecting broadcast
operations and acquisitions.
The Company cannot predict whether or not any such changes might be adopted
nor can it predict what other matters might be considered in the future, nor can
it judge in advance what impact, if any, the implementation of any of these
proposals or changes might have on its business.
FCC Licenses. The Communications Act provides that a broadcast station
license may be granted to any applicant if the public interest, convenience and
necessity will be served thereby, subject to certain limitations. In making
licensing determinations, the FCC considers an applicant's legal, technical,
financial and other qualifications. The FCC grants radio broadcast station
licenses for specific periods of time, and, upon application, may renew them for
additional terms. Under the Communications Act, radio broadcast station licenses
may be granted for a maximum term of eight years.
Generally, the FCC renews radio broadcast licenses without a hearing upon a
finding that: (i) the radio station has served the public interest, convenience
and necessity, (ii) there have been no serious violations by the licensee of the
Communications Act or FCC rules and regulations, and (iii) there have been no
other violations of the Communications Act or FCC rules and regulations which,
taken together, indicate a pattern of abuse. After considering these factors,
the FCC may grant the license renewal application with or without conditions,
including renewal for a lesser term, or hold an evidentiary hearing. In
addition, the Communications Act authorizes the filing of petitions to deny a
license renewal during specific periods of time after a renewal application has
been filed. Interested parties, including members of the public, may use such
petitions to raise issues concerning a renewal applicant's qualifications. If a
substantial and material question of fact concerning a renewal or other
application is raised by the FCC or other interested parties, or if for any
reason the FCC cannot determine that grant of the renewal application would
serve the public interest, convenience and necessity, the FCC will hold an
evidentiary hearing on the application. If as a result of an evidentiary hearing
the FCC determines that the licensee has failed to meet the requirements
specified above and that no mitigating factors justify the imposition of a
lesser sanction, then the FCC may deny a license renewal application. Only after
a license renewal application is denied will the FCC accept and consider
competing applications for the vacated frequency. Also, during certain periods
when a renewal application is pending, the transferability of the applicant's
license may be restricted. Historically, the company's management has not
experienced any material difficulty in renewing any licenses for radio stations
under its control. A license renewal application for radio station WOL-AM,
Washington, D.C., remains pending. No petitions to deny the application and no
competing applications for the broadcast frequency were filed. However, action
on the renewal application has apparently been delayed due to the processing by
the FCC of a pending complaint against WOL-AM alleging that programming material
broadcast on the radio station was indecent and obscene. It is unlikely that
such a complaint would result in a denial of the renewal application. Rather, it
is most likely that the renewal application will be granted and that the
complaint will be resolved by the FCC with a minor sanction, if any, against
WOL-AM. If a sanction is imposed, the Company expects that WOL-AM would receive
at most a small fine. The term of the licenses for WOL-AM and associated
broadcast auxiliary radio stations was to expire on October 1, 1995. However,
pursuant to Section 307 of the Communications Act (i) Radio One's timely filing
of a license renewal application for the license for WOL-AM has automatically
extended the license term until the FCC takes action on the renewal application;
and (ii) the license term for each of the broadcast auxiliary licenses used in
conjunction with WOL-AM is concurrent with the license for WOL-AM. If, as the
Company expects, the WOL-AM license renewal application is renewed without a
sanction greater than a monetary fine, such renewal of the license and broadcast
auxiliary licenses would be for a license term ending no earlier than October 1,
2003. There can be no assurance, however, that each of Radio One's licenses will
necessarily be renewed or, if renewed, be renewed for a full license term or be
renewed without conditions.
The FCC classifies each AM and FM radio station. An AM radio station
operates on either a clear channel, regional channel or local channel. A clear
channel is one on which AM radio stations are assigned to serve wide areas,
particularly at night. Clear channel AM radio stations are classified as
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either: (i) Class A radio stations, which operate unlimited time and are
designed to render primary and secondary service over an extended area, or (ii)
Class B radio stations, which operate unlimited time and are designed to render
service only over a primary service area. Class D radio stations, which operate
either daytime, or unlimited time with low nighttime power, may operate on the
same frequencies as clear channel radio stations. A regional channel is one on
which Class B and Class D AM radio stations may operate and serve primarily a
principal center of population and the rural areas contiguous to it. A local
channel is one on which AM radio stations operate unlimited time and serve
primarily a community and the suburban and rural areas immediately contiguous to
it. A Class C AM radio station operates on a local channel and is designed to
render service only over a primary service area that may be reduced as a
consequence of interference.
The minimum and maximum facilities requirements for an FM radio station are
determined by its class. Possible FM class designations depend upon the
geographic zone in which the transmitter of the FM radio station is located. In
general, commercial FM radio stations are classified as follows, in order of
increasing power and antenna height: Class A, B1, C3, B, C2, C1 or C radio
stations.
The following table sets forth with respect to each of the Company's radio
stations: (i) the market, (ii) the radio station call letters, (iii) the year of
acquisition, (iv) the FCC license classification, (v) the effective radiated
power ("ERP"), if an FM radio station, or the power, if an AM radio station,
(vi) the antenna height above average terrain ("HAAT"), if an FM radio station,
or the above insulator measurement ("AI"), if an AM radio station, (vii) the
operating frequency and (viii) the date on which the radio station's FCC license
expires.
<TABLE>
<CAPTION>
ERP (FM) HAAT (FM)
STATION YEAR OF FCC POWER (AM) AI (AM) EXPIRATION
MARKET(A) CALL LETTERS ACQUISITION CLASS IN WATTS(B) IN METERS(C) FREQUENCY DATE OF LICENSE
- ------------------ -------------- ------------- ------- ------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Washington, D.C. WOL-AM 1980 C 1,000 52.1 1450 kHz 10/1/1995(d)
WMMJ-FM 1987 A 2,900(e) 146.0 102.3 MHz 10/1/2003
WKYS-FM 1995 B 24,000(f) 215.0 93.9 MHz 10/1/2003
WYCB-AM (g) C 1,000 50.9 1340 kHz 10/1/2003
Baltimore WWIN-AM 1992 C 1,000 61.0 1400 kHz 10/1/2003
WWIN-FM 1992 A 3,000 91.0 95.9 MHz 10/1/2003
WOLB-AM 1993 D 1,000 85.4 1010 kHz 10/1/2003
WERQ-FM 1993 B 37,000 174.0 92.3 MHz 10/1/2003
Philadelphia WPHI-FM (h) A 340(i) 305.0 103.9 MHz 8/1/1998
</TABLE>
- ----------
(a) A broadcast station's market may be different from its community of
license.
(b) The coverage of an AM radio station is chiefly a function of the power of
the radio station's transmitter, less dissipative power losses and any
directional antenna adjustments. For FM radio stations, signal coverage
area is chiefly a function of the ERP of the radio station's transmitter
and the HAAT of the radio station's antenna.
(c) The height of an AM radio station's antenna is measured by reference to AI
and the height of an FM radio station's antenna is measured by reference to
HAAT.
(d) The license renewal application for WOL-AM is pending as discussed above.
(e) WMMJ-FM uses a directional antenna and it operates at a power equivalent to
6,000 watts at 100 meters.
(f) WKYS-FM and WERQ-FM operate at powers equivalent to 50,000 watts at 150
meters. WERQ-FM uses a directional antenna.
(g) The Company anticipates that it will acquire this radio station in the
fourth quarter of 1997. See "The Transactions-Acquisitions."
(h) WPHI-FM operates at a power equivalent to 3,000 watts at 100 meters.
Ownership Matters. The Communications Act requires prior approval of the
FCC for the assignment of a broadcast license or the transfer of control of a
corporation or other entity holding a license. In determining whether to
approve an assignment of a radio broadcast license or a transfer of control of
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<PAGE>
a broadcast licensee, the FCC considers, among other things, the financial and
legal qualifications of the prospective assignee or transferee, including
compliance with FCC restrictions on non-U.S. citizen or entity ownership and
control, compliance with FCC rules limiting the common ownership of certain
"attributable" interests in broadcast and newspaper properties, the history of
compliance with FCC operating rules, and the "character" qualifications of the
transferee or assignee and the individuals or entities holding "attributable"
interests in them. Applications to the FCC for assignments and transfers are
subject to petitions to deny by interested parties.
Under the Communications Act, a broadcast license may not be granted to or
held by any corporation that has more than one-fifth of its capital stock owned
or voted by non-U.S. citizens or entities or their representatives, by foreign
governments or their representatives, or by non-U.S. corporations. Furthermore,
the Communications Act provides that no FCC broadcast license may be granted to
any corporation directly or indirectly controlled by any other corporation of
which more than one-fourth of its capital stock is owned of record or voted by
non-U.S. citizens if the FCC finds the public interest will be served by the
refusal of such license. These restrictions apply in modified form to other
forms of business organizations, including partnerships, and limited liability
companies.
The FCC generally applies its other broadcast ownership limits to
"attributable" interests held by an individual, corporation, partnership or
other association or entity, including limited liability companies. In the case
of a corporation holding broadcast licenses, the interest of officers, directors
and those who, directly or indirectly have the right to vote five percent or
more of the stock of a licensee corporation are generally deemed attributable
interests, as are positions as an officer or director of a corporate parent of a
broadcast licensee. The FCC treats all partnership interests as attributable,
except for those limited partnership interests that are "insulated" from
"material involvement" in the media- related activities of the partnership under
FCC policies. The FCC currently treats limited liability companies like limited
partnerships for purposes of attribution. Stock interests held by insurance
companies, mutual funds, bank trust departments and certain other passive
investors that hold stock for investment purposes only become attributable with
the ownership of ten percent or more of the stock of the corporation holding
broadcast licenses. To assess whether a voting stock interest in a direct or an
indirect parent corporation of a broadcast licensee is attributable, the FCC
uses a "multiplier" analysis in which non-controlling voting stock interests are
deemed proportionally reduced at each non-controlling link in a
multi-corporation ownership chain. For a person or entity with an attributable
interest in a radio broadcast station, a time brokerage agreement with another
radio station in the same market creates an attributable interest in the
brokered radio station as well as for purposes of the FCC's local radio station
ownership rules, if the agreement affects more than 15% of the brokered radio
station's weekly broadcast hours. See "-Local Marketing Agreements."
Debt instruments, non-voting stock, options and warrants for voting stock
that have not yet been exercised, insulated limited partnership interests where
the limited partner is not "materially involved" in the media-related activities
of the partnership, and minority voting stock interests in corporations where
there is a single holder of more than 50% of the outstanding voting stock whose
vote is sufficient to affirmatively direct the affairs of the corporation,
generally do not subject their holders to attribution. The FCC's rules also
specify other exceptions to these general principles for attribution. The FCC is
currently evaluating whether to: (i) raise the benchmark for voting stock from
five to ten percent, (ii) raise the benchmark for passive investors from ten to
twenty percent, (iii) continue the single 50% stockholder exception, and/or (iv)
attribute non-voting stock or perhaps non-voting stock interests when combined
with other rights such as voting shares or contractual relationships.
The Communications Act and FCC rules generally restrict ownership operation
or control of, or the common holding of attributable interests in, (i) radio
broadcast stations above certain limits servicing the same local market, (ii) a
radio broadcast station and a television broadcast station servicing the same
local market, and (iii) a radio broadcast station and a daily newspaper serving
the same local market. These rules include specific signal contour overlap
standards to determine compliance. Under these "cross-ownership" rules, the
Company, absent waivers, would not be permitted to acquire an attributable
interest in any daily newspaper or television broadcast station (other than a
low-powered television station) in a local market where it then owned any radio
broadcast station, or where its stockholders,
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<PAGE>
officers or directors had an attributable interest. The FCC's rules provide for
the liberal grant of a waiver of the rule prohibiting common ownership of radio
and television stations in the same geographic market in the top 25 television
markets if certain conditions are satisfied, and the FCC will consider waivers
in other markets under more restrictive standards. The FCC is reviewing its ban
on the common ownership of a radio station and a television station or newspaper
including extending the policy of liberal waivers of common ownership of radio
and television stations to the top 50 television markets.
Although current FCC nationwide radio broadcast ownership rules allow one
entity to own, control or hold attributable interests in an unlimited number of
FM radio stations and AM radio stations nationwide, the FCC's rules limit the
number of radio broadcast stations in local markets in which a single entity may
own an attributable interest as follows:
o In a radio market with 45 or more commercial radio stations, a party
may own, operate, or control up to 8 commercial radio stations, not
more than 5 of which are in the same service (AM or FM).
o In a radio market with between 30 and 44 (inclusive) commercial radio
stations, a party may own, operate, or control up to 7 commercial
radio stations, not more than 4 of which are in the same service (AM
or FM).
o In a radio market with between 15 and 29 (inclusive) commercial radio
stations, a party may own, operate, or control up to 6 commercial
radio stations, not more than 4 of which are in the same service (AM
or FM).
o In a radio market with 14 or fewer commercial radio stations, a party
may own, operate, or control up to 5 commercial radio stations, not
more than 3 of which are in the same service (AM or FM), except that a
party may not own, operate, or control more than 50 percent of the
radio stations in such market.
Because of these multiple and cross-ownership rules, if a stockholder of
Radio One holds an "attributable" interest in Radio One, such stockholder,
officer or director may violate the FCC's rules if such person or entity also
holds or acquires an attributable interest in other television or radio
stations, or in daily newspapers, depending on the number and location of those
radio stations and the location of those television broadcast stations or daily
newspapers. If an attributable stockholder, officer or director of Radio One
violates any of these ownership rules, the Company may be unable to obtain from
the FCC one or more authorizations needed to conduct its radio station business
and may be unable to obtain FCC consents for certain future acquisitions. As
long as one person or entity holds more than 50% of the voting power of the
Common Stock of the Company where the vote of such person or entity is
sufficient to affirmatively direct the affairs of the Company, another
stockholder, unless serving as an officer and/or director, generally would not
hold an attributable interest in Radio One. As of March 15, 1997, Ms. Hughes
owned approximately 54.2% of the total voting power of the Common Stock of the
Company. However, if the Warrants are exercised, Ms. Hughes ownership is reduced
to approximately 26.3% and no one person or entity would hold sufficient voting
power to direct the affairs of the Company.
In addition, the FCC has a "cross-interest" policy that under certain
circumstances could prohibit a person or entity with an attributable interest in
a broadcast station, daily newspaper or cable system from having a "meaningful"
non-attributable interest in another broadcast station or daily newspaper in the
same local market. "Meaningful" interests could include, among other things,
significant equity interests (including non-voting stock, voting stock, limited
partnership and limited liability company interests) and key management
positions. The FCC has issued a further notice of proposed rulemaking in a
long-pending proceeding under which the FCC is considering whether and how to
modify this policy.
Programming and Operation. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1980's, the FCC gradually has
relaxed or eliminated many of the more formalized procedures it developed to
promote the broadcast of certain types of programming responsive to the needs of
a radio station's community. Nevertheless, a broadcast licensee continues to be
required to
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<PAGE>
present programming in response to community problems, needs and interests and
to maintain certain records demonstrating its responsiveness. The FCC will
consider complaints from listeners about a broadcast station's programming when
it evaluates the licensee's renewal application, but listeners' complaints also
may be filed and considered at any time. Stations also must follow various FCC
rules that regulate, among other things, political advertising, the broadcast of
obscene or indecent programming, sponsorship identification, the broadcast of
contests and lotteries and technical operation (including limits on human
exposure to radio frequency radiation). From time to time, complaints may be
filed against the Company's radio stations alleging violations of these or other
rules. One complaint is pending against the Company alleging indecent and
obscene broadcasts on radio station WOL-AM during 1993. The Company believes
that this complaint will not result in either monetary forfeitures of a material
nature or any other regulatory action which might have a materially adverse
effect on the Company's radio stations or FCC licenses.
In addition, licensees must develop and implement programs designed to
promote equal employment opportunities and must submit reports to the FCC on
these matters annually and in connection with the licensee's renewal
application. The FCC rules also prohibit a broadcast licensee from simulcasting
more than 25% of its programming on another radio station in the same broadcast
service (that is, AM/AM or FM/FM). The simulcasting restriction applies if the
licensee owns both radio broadcast stations or owns one and programs the other
through a local marketing agreement, provided that the contours of the radio
stations overlap in a certain manner. Failure to observe these or other rules
and policies can result in the imposition of various sanctions, including fines
or conditions, the grant of "short" (less than the maximum eight year) renewal
terms or, for particularly egregious violations, the denial of a license renewal
application or the revocation of a license.
Local Marketing Agreements. Often radio stations enter into LMAs or time
brokerage agreements. These agreements take various forms. Separately owned and
licensed radio stations may agree to function cooperatively in programming,
advertising sales and other matters, subject to compliance with the antitrust
laws and the FCC's rules and policies, including the requirement that the
licensee of each radio station maintain independent control over the programming
and other operations of its own radio station. One type of time brokerage
agreement is a programming agreement between two separately owned radio stations
that serve a common service area whereby the licensee of one radio station
programs substantial portions of the broadcast day of the other licensee's radio
station (subject to ultimate editorial and other controls being exercised by the
radio station licensee) and sells advertising time during these program
segments. The FCC has held that such agreements do not violate the
Communications Act as long as the licensee of the radio broadcast station that
is being substantially programmed by another entity (i) remains completely
responsible for, and maintains control over, the operation of its radio station,
and (ii) otherwise ensures the radio station's compliance with applicable FCC
rules and policies.
A radio broadcast station that brokers time on another radio broadcast
station or engages in a time brokerage agreement with a radio broadcast station
in the same market will be considered to have an attributable ownership interest
in the brokered radio station for purposes of the FCC's local ownership rules,
if the time brokerage arrangement covers more than 15% of the brokered weekly
broadcast hours. As a result, a radio broadcast station may not enter into a
time brokerage agreement that allows it to program more than 15% of the
broadcast time, on a weekly basis, of another local radio broadcast station that
it could not own under the FCC's local multiple ownership rules. The FCC is
considering whether it should treat as attributable multiple business
arrangements among local radio stations such as joint sales accompanied by debt
financing. Also, as described above, FCC rules prohibit a radio broadcast
licensee from simulcasting more than 25% of its programming on another radio
broadcast station in the same broadcast service (that is, AM/AM or FM/FM) where
the two radio stations serve substantially the same geographic area, whether the
licensee owns both radio stations or owns one radio station and programs the
other through a time brokerage agreement. Thus far, the FCC has not considered
what relevance, if any, a time brokerage agreement may have upon its evaluation
of a licensee's performance at renewal time. On February 8, 1997, the Company
entered into an LMA with the then-owner of WPHI-FM in Philadelphia. The LMA
allowed the Company to program WPHI-FM 24 hours a day,
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seven days a week, and continued in effect until the consummation of the
Philadelphia Acquisition on May 19, 1997. Radio One may enter into additional
LMAs in the future.
In 1985, the FCC adopted rules regarding human exposure to levels of radio
frequency ("RF") radiation. These rules require applicants for renewal of
broadcast licenses or modification of existing licenses to inform the FCC at the
time of filing such applications whether an existing broadcast facility would
expose people to RF radiation in excess of certain guidelines. The FCC adopted
more restrictive radiation limits which are to become effective September 1,
1997.
Digital Audio Broadcasting. The FCC recently has allocated spectrum to a
new technology, digital audio broadcasting, to deliver satellite-based audio
programming to a national or regional audience and issued regulations for a DAB
service on March 3, 1997. DAB may provide a medium for the delivery by satellite
or terrestrial means of multiple new audio programming formats with compact disc
quality sound to local and national audiences. It is not known at this time
whether this technology also may be used in the future by existing radio
broadcast stations either on existing or alternate broadcasting frequencies. In
addition, applicants who applied to the FCC for authority to offer multiple
channels of digital, satellite-delivered S-Band aural services that could
compete with conventional terrestrial radio broadcasting participated in an
auction of the spectrum reserved for DAB held in April 1997. Two licenses were
awarded through the auction pursuant to which the licensees will be permitted to
sell advertising and lease channels. The FCC's rules require that the service
begin by 2001 and be fully operational by 2003. These satellite radio services
use technology that may permit higher sound quality than is possible with
conventional AM and FM terrestrial radio broadcasting. Recently, the FCC
proposed to establish a new Wireless Communications Service ("WCS") in the
2305-2320 and 2345-2360 MHZ bands (the "WCS Spectrum"). The FCC also proposed to
award one or more licenses for the WCS Spectrum by competitive bidding using
multiple round electronic auction procedures which occurred in April 1997.
Licensees would be permitted to provide any fixed, mobile, radio location
services, or digital satellite radio service using the WCS Spectrum.
Implementation of DAB would provide an additional audio programming service that
could compete with the Company's radio stations for listeners, but the effect
upon the Company cannot be predicted.
SUBSIDIARIES AND RELATED ENTITIES
The FCC licenses for each of the radio stations operated by Radio One are
held by Radio One Licenses, Inc. a Delaware corporation and a wholly-owned
subsidiary of the Company ("License Company"). License Company holds no other
material assets. The Company does not have any subsidiaries other than License
Company but it may have other subsidiaries in the future.
TRADEMARKS AND PATENTS
Radio One owns numerous domestic trademark registrations, a few pending
trademark applications and a registered copyright related to the business of the
Company's radio stations. Radio One does not own any patents or patent
applications. The Company's management does not believe that any of Radio One's
trademarks, or its copyright, are material to the Company's business or
operations.
PROPERTIES AND FACILITIES
In addition to Radio One's principal executive offices, the types of
properties required to support each of the Company's radio stations include
offices, studios, transmitter sites and antenna sites. The Company owns and
leases transmitter and antenna sites in the Baltimore market, and owns and
leases transmitter and antenna sites for its radio stations in the Washington,
D.C. market and for WPHI-FM.
Radio One leases its current principal executive offices which are located
in the office building located at 5900 Princess Garden Parkway, Lanham, Maryland
(the "Lanham Offices"). The Company expects to move the studios for the
Company's Washington, D.C. radio stations within such offices later this year.
The Lanham Offices are leased from National Life Insurance Company, a Vermont
corporation, pursuant to a lease agreement (the "Lanham Lease"). The Lanham
Lease has a term of fifteen years with lease payments of approximated $198,000
per annum at lease commencement, increasing to
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approximately $390,000 per annum by lease expiration, payable in equal monthly
installments. It is anticipated the Company will spend an estimated $1.3 million
in tenant improvements and new equipment in connection with taking possession of
the Lanham Offices in May 1997 in order to adequately equip the space with
office and studio amenities to be used by the Company. The Company has an
option, which has been exercised, to purchase the office building located at
5900 Princess Garden Parkway, Lanham, Maryland (the "Lanham Building") in which
the Lanham Offices are located. If the average monthly building rents for the
Lanham Building for July and August 1997 equal or exceed a stated minimum gross
rent amount, the closing of the Company's purchase of the Lanham Building will
occur on September 30, 1997. If the minimum gross rent amount is not met for
such period, the Company may waive the minimum gross rent condition and proceed
to close the purchase of the Lanham Building or elect to postpone the closing,
on a month-to-month basis, until the average monthly building rents for a
two-month period equal or exceed the minimum gross rent amount. If the minimum
gross rent condition has not been met and therefore the closing has not occurred
on or prior to July 31, 1998, or if, prior to receipt of notice that the gross
rent condition has been met, the Company delivers written notice that it shall
not proceed to closing on or before such date, the Company shall have no further
obligation to purchase the Lanham Building and the seller shall pay to the
Company an amount, not to exceed $240,000, equal to the Company's expenditures
for tenant improvements to the Lanham Building. The Company may assign its right
to purchase the Lanham Building to Mr. Liggins or an entity controlled by Mr.
Liggins and has agreed to provide to the holders of the Senior Preferred Stock
an opportunity to purchase an interest in the Lanham Building in the event the
Company or its assignee consummates the purchase of the Lanham Building. See
"Certain Transactions-Office Leases."
Radio One leases office space and studio facilities for its Baltimore,
Maryland radio stations, which are located at 100 St. Paul Street, Baltimore,
Maryland (the "Baltimore Lease") from Chalrep Limited Partnership, a Maryland
limited partnership controlled by Ms. Hughes and Mr. Liggins ("Chalrep"). The
Baltimore Lease has a term of ten years expiring October 31, 2003, with an
option to extend the term an additional five years under certain conditions. The
Baltimore Lease provides for lease payments of $96,000 per annum during the
first five years and $120,000 per annum during years six through ten. The lease
payments under the Baltimore Lease are payable in equal monthly installments.
Under the Baltimore Lease, the Company is also responsible for a share of the
real estate taxes, operating costs and administrative expenses allocable to the
Company pursuant to a formula contained in the Baltimore Lease. See "Certain
Transactions-Office Leases."
The Company owns substantially all of its other equipment, consisting
principally of transmitting antennae, transmitters, studio equipment and office
equipment. The towers, antennae and other transmission equipment used by the
Company's radio stations are generally in good condition, although opportunities
to upgrade facilities are periodically reviewed.
The Company believes that its facilities for its radio stations in
Washington, D.C., Baltimore, Maryland and Philadelphia, Pennsylvania are
suitable and of adequate size for its current and intended purposes.
LEGAL PROCEEDINGS
There are no legal proceedings pending or threatened to which the Company
is a party or to which any of its properties are subject, other than routine
litigation incidental to its business which either is covered by insurance or is
not expected to have a material adverse effect on the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company, as well as additional
information with respect to those persons, are set forth in the table below. All
directors serve for the term for which they are elected or until their
successors are duly elected and qualified or until death, retirement,
resignation or removal. The Company anticipates entering into employment
agreements with each of the executive officers of the Company as described
below. The executive officers and directors of Radio One are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- ----- -----------------------------------------------------
<S> <C> <C>
Catherine L. Hughes(a) ......... 50 Chairperson of the Board and Director
Alfred C. Liggins, III(a) ...... 32 Chief Executive Officer, President and Director
Scott R. Royster ............... 33 Executive Vice President and Chief Financial Officer
Terry L. Jones(b) ............... 50 Director
Brian W. McNeill(b) ............ 41 Director
P. Richard Zitelman(b) ......... 42 Director
</TABLE>
- ----------
(a) Mr. Alfred C. Liggins, III is the son of Ms. Catherine L. Hughes.
(b) Member of the Compensation Committee.
Ms. Hughes has been Chairperson of the Board, Secretary and a Director of
Radio One since 1980, and was Chief Executive Officer of Radio One from 1980 to
1997. She was one of the founders of Radio One's predecessor in 1980. Since
1980, Ms. Hughes has worked in various capacities for the Company including
President, General Manager, General Sales Manager and talk show host. She began
her career in radio as the General Sales Manager of WHUR-FM, the Howard
University-owned, urban-contemporary radio station.
Mr. Liggins has been Chief Executive Officer since 1997, and President,
Treasurer and a Director of Radio One since 1989. Mr. Liggins joined the
Company in 1985 as an Account Manager at WOL-AM. In 1987 he was promoted to
General Sales Manager and promoted again in 1988 to General Manager overseeing
the Company's Washington, D.C. operations. In 1989, Mr. Liggins became
President of Radio One and engineered the Company's expansion into other
markets. Mr. Liggins is a 1995 graduate of the Wharton School of
Business/Executive M.B.A. Program.
Mr. Royster has been Executive Vice President of the Company since 1997 and
Chief Financial Officer of the Company since 1996. Prior to joining the Company,
he served as an independent consultant to Radio One. From 1995 to 1996, Mr.
Royster was a principal at TSG Capital Group, LLC, a private equity investment
firm located in Stamford, Connecticut, which has been an investor in the Company
since 1987. Mr. Royster has also served as an associate and later a principal at
Capital Resource Partners from 1992 to 1995, a private capital investment firm
in Boston, Massachusetts, and as an analyst at Chemical Banking Corporation (now
Chase Banking Corporation) and a Senior Analyst at Chemical Venture Partners
(now Chase Venture Partners) from 1987 to 1990. Mr. Royster is a 1987 graduate
of Duke University and a 1992 graduate of Harvard Business School.
Mr. Jones has been a director of Radio One since 1995. Since 1990, Mr.
Jones has been President of Syndicated Communications, Inc. ("Syncom I"), a
communications venture capital investment company, and its wholly owned
subsidiary, Syncom. He joined Syncom I in 1978 as a Vice President. Mr. Jones
serves in various capacities, including director, president, general partner
and vice president, for various other entities affiliated with Syncom I. He
also serves on the board of directors of the National Association of Investment
Companies, Delta Capital Corporation, Sun Delta Capital Access Center and the
Southern African Enterprise Development Fund. Mr. Jones earned his B.S. degree
from Trinity College, his M.S. from George Washington University and his M.B.A.
from Harvard Business School.
Mr. McNeill has been a director of Radio One since 1995. Since 1986, Mr.
McNeill has been a General Partner of Burr, Egan, Deleage & Co., a major
private equity firm which specializes in investments in the communications and
technology industries. He has served as a director in many private
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radio and television broadcasting companies such as Tichenor Media Systems,
OmniAmerica Group, Panache Broadcasting and Shockley Communications. From 1979
to 1986, he worked at the Bank of Boston where he started and managed that
institution's broadcast lending group. Mr. McNeill is a graduate of Holy Cross
College and has earned an M.B.A. from the Amos Tuck School at Dartmouth
College.
Mr. Zitelman has been a director of Radio One since 1995. Since 1985, Mr.
Zitelman has been the President and sole principal of the Zitelman Group, Inc.,
a consulting firm. Since 1984, Mr. Zitelman has been involved in the ownership
and financial oversight of various radio stations. Mr. Zitelman is currently a
principal and Chief Financial Officer of Spring Broadcasting, L.L.C. which owns
and operates nine radio stations in four markets. From 1985 to 1994, Mr.
Zitelman was a principal of Media Capital, Inc., which invested in, operated
and later sold various radio stations. Mr. Zitelman is a certified public
accountant and earned his B.S. from the Wharton School of Business at the
University of Pennsylvania.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has formed an Audit Committee of the board of directors of
Radio One, and all of the directors serving on such Audit Committee are
directors who are not employees of the Company.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation of Directors
Non-officer directors of the Company are reimbursed for all out-of-pocket
expenses related to meetings attended. Non-officer directors receive no
additional compensation for their services as directors of the Company, except
for Mr. Zitelman, whose consulting firm bills the Company for the time he spends
attending board meetings at his standard hourly consulting rate. Mr. Zitelman,
through his consulting firm, received a fee for consulting services rendered in
connection with the Philadelphia Acquisition. See "Certain Transactions-Other
Affiliated Transactions." Officers of the Company who serve as directors do not
receive compensation for their services as directors other than the compensation
they receive as officers of the Company.
Executive Compensation
The following information relates to compensation of the Company's Chief
Executive Officer and each of its other executive officers (the "Named
Executives") during the fiscal year ended December 31, 1996. The following
information does not reflect any compensation awarded to, earned by or paid to
the Named Executives subsequent to December 31, 1996, except as may otherwise be
indicated.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------
OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ----------------------------------- ------ --------------- --------- -------------
<S> <C> <C> <C> <C>
Catherine L. Hughes ............... 1996 $ 150,000 $ 31,447 $ 18,321
Chairperson of the Board
and Secretary
Alfred C. Liggins, III ............ 1996 150,000 - 19,486
Chief Executive Officer,
President and Treasurer
Scott R. Royster .................. 1996 55,577(a) - -
Executive Vice President and Chief
Financial Officer
</TABLE>
(a) Mr. Royster provided consulting services for the Company in July 1996 and
joined the Company as an employee in August 1996. Disclosed compensation
represents consulting fees received by Mr. Royster and the portion of his
$125,000 annual salary paid during 1996.
EMPLOYMENT AGREEMENTS
Ms. Catherine L. Hughes is the Company's Chairperson of the Board. For the
fiscal year ended December 31, 1996, the Company paid Ms. Hughes an annual
salary of $150,000 and a bonus of $31,447 and reimbursed her in the aggregate
amount of $18,321 for various expenses incurred by Ms. Hughes, which represents
additional compensation. The Company anticipates entering into an employment
agreement with Ms. Hughes the terms of which would provide for Ms. Hughes to
serve as the Company's Chairperson of the Board with an annual base compensation
of $225,000, subject to an annual increase and an annual bonus at the discretion
of the Company's board of directors. The Company currently compensates Ms.
Hughes in accordance with such terms.
Mr. Alfred C. Liggins, III is the Company's Chief Executive Officer and
President. For the fiscal year ended December 31, 1996, the Company paid Mr.
Liggins an annual salary of $150,000 and reimbursed him in the aggregate amount
of $19,486 for various expenses incurred by Mr. Liggins, which represents
additional compensation. The Company anticipates entering into an employment
agreement with Mr. Liggins the terms of which would provide for Mr. Liggins to
serve as the Company's Chief Executive Officer and President with an annual base
compensation of $225,000, subject to an annual increase and an annual bonus at
the discretion of the Company's board of directors. The Company currently
compensates Mr. Liggins in accordance with such terms. The Company and Mr.
Liggins are currently negotiating the terms of an equity incentive plan for Mr.
Liggins based upon certain performance criteria.
Mr. Scott R. Royster is the Company's Executive Vice President and Chief
Financial Officer. For the fiscal year ended December 31, 1996, the Company paid
Mr. Royster $48,077 of his annual salary of $125,000 and $7,500 in consulting
fees. The Company anticipates entering into a three-year employment agreement
with Mr. Royster pursuant to which Mr. Royster will continue to serve as the
Company's Chief Financial Officer and will receive an annual base compensation
of $165,000, subject to an annual increase and an annual bonus at the discretion
of the Company's board of directors. The Company currently compensates Mr.
Royster in accordance with the terms of such anticipated employment agreement.
401(K) PLAN
The Company has adopted and maintains a defined contribution plan that is
qualified pursuant to Sections 401(a) and 401(k) of the Code. All regular
employees who have been employed by the Company for at least 90 days are
eligible to participate in the plan. For each employee who elects to participate
in the plan and makes a contribution thereto, the Company may make a
discretionary matching contribution and/or a discretionary profit sharing
contribution on an annual basis.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information immediately following
consummation of the Transactions which occurred on May 19, 1997 regarding the
Company's capital stock, including (a) the beneficial ownership of the Common
Stock and the Senior Preferred Stock and (b) the beneficial ownership of the
Common Stock and Senior Preferred Stock by (i) each person beneficially owning
more than 5% of the outstanding shares of Common Stock or the Senior Preferred
Stock, (ii) each of Radio One's directors, (iii) each of the Named Executives in
the table under "Management-Compensation of Directors and Executive
Officers-Summary Compensation Table," and (iv) all of Radio One's directors and
executive officers as a group. See "Description of Capital Stock."
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF SENIOR
BENEFICIALLY OWNED, PREFERRED
WITHOUT SHARES OF COMMON STOCK STOCK BENEFICIALLY OWNED
GIVING EFFECT TO EXERCISE BENEFICIALLY OWNED, AFTER THE NOTES OFFERING
OF THE GIVING EFFECT TO EXERCISE AND THE
WARRANTS(A) OF THE WARRANTS(A) EXISTING NOTES EXCHANGE
------------------------- ------------------------- ------------------------
PERCENT OF PERCENT OF PERCENT OF
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
SHARES(B) OUTSTANDING SHARES(B) OUTSTANDING SHARES OUTSTANDING
----------- ------------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Catherine L. Hughes(c)(d) ............... 75.00 54.2% 75.00 26.3% - -
Alfred C. Liggins, III(c)(d) ............ 62.45 45.1% 62.45 21.9% - -
Terry L. Jones(e)(f) ..................... - - 36.12 12.7% 13,595.69 6.5%
Brian W. McNeill(g)(f) .................. - - 29.52 10.3% 72,139.57 34.5
ALTA Subordinated Debt Partners III,
L.P(h)(i) .............................. - - 29.52 10.3% 72,139.57 34.5
Alliance Enterprise Corporation(h)(j) ... - - 18.70 6.6% 9,126.55 4.4
BancBoston Investments Inc.(h)(k) ...... - - 20.15 7.1% 49,249.44 23.5
Capital Dimensions Venture Fund,
Inc.(h)(l) .............................. - - 15.24 5.3% 37,258.14 17.8
Fulcrum Venture Capital Corporation(h)(m) - - 15.61 5.5% 9,650.09 4.6
Syncom Capital Corporation(h)(n) ......... - - 36.12 12.7% 13,595.69 6.5
All Directors and Executive Officers of
Radio One as a group(o) ............... 137.45 99.3% 137.45 48.1% - -
</TABLE>
- ----------
(a) The "Warrants" refer to the amended and restated warrants to purchase
147.04 shares of Common Stock issued by the Company on May 19, 1997. The
information as to beneficial ownership is based on statements furnished to
Radio One by the beneficial owners. As used in this table, "beneficial
ownership" means the sole or shared power to vote or direct the voting of a
security, or the sole or shared investment power with respect to a security
(i.e., the power to dispose of, or direct the disposition of, a security).
Other than with respect to the Warrants, a person is deemed as of any date
to have "beneficial ownership" of any security that such person has the
right to acquire within 60 days of such date. For purposes of computing the
percentage of outstanding shares held by each person named above, other
than with respect to the Warrants, any security that such person has the
right to acquire within 60 days of the date of the calculation is deemed to
be outstanding, but is not deemed to be outstanding for purposes of
computing the percentage ownership of any other person. The Company and Mr.
Liggins are currently negotiating the terms of an equity incentive plan for
Mr. Liggins based upon certain performance criteria.
(b) The shares of Common Stock are subject to a voting agreement with respect
to the election of Radio One's directors (which is included in the
Warrantholders' Agreement). See "Description of Capital Stock."
(c) The business address for such persons is c/o Radio One, 5900 Princess
Garden Parkway, 7th Floor, Lanham, Maryland 20706.
(d) Ms. Hughes and Mr. Liggins may be deemed to share beneficial ownership of
shares of capital stock owned by each other by virtue of the fact that Ms.
Hughes is Mr. Liggins' mother. Each of Ms. Hughes and Mr. Liggins disclaims
such beneficial ownership.
(e) Represents immediately exercisable Warrants to purchase 36.12 shares of
Common Stock held by Syncom. Mr. Jones is the President of Syncom and his
address is c/o Syncom Capital Corporation, 8401 Colesville Road, Suite 300,
Silver Spring, MD 20910. Mr. Jones may be deemed to share beneficial
ownership of shares of Common Stock issuable to Syncom upon exercise of the
Warrants by virtue of his affiliation with Syncom. Mr. Jones disclaims
beneficial ownership in such shares.
(f) Mr. Jones may be deemed to share beneficial ownership of shares of Senior
Preferred Stock to be owned of record by Syncom by virtue of his
affiliation with Syncom. Mr. Jones disclaims any beneficial ownership of
such shares of Senior Preferred Stock. Mr. McNeill may be deemed to share
beneficial ownership of Senior Preferred Stock to be owned of record
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<PAGE>
by Alta subsequent to the consummation of the Existing Notes Exchange by
virtue of his affiliation with Alta. Mr. McNeill disclaims any beneficial
ownership of such shares.
(g) Represents immediately exercisable Warrants to purchase 29.52 shares of
Common Stock held by Alta Subordinated Debt Partners III, L.P. Mr. McNeill
is a general partner of Alta Subordinated Debt Partners III, L.P. and his
address is c/o Alta Subordinated Debt Partners III, L.P., c/o Burr, Egan,
Deleage & Co., One Post Office Square, Boston, MA 02109. Mr. McNeill may be
deemed to share beneficial ownership of shares of Common Stock issuable to
Alta Subordinated Debt Partners III, L.P. upon exercise of the Warrants by
virtue of his affiliation with Alta Subordinated Debt Partners III, L.P.
Mr. McNeill disclaims any beneficial ownership of such shares.
(h) The Warrants are subject to the terms of a Standstill Agreement dated as of
May 19, 1997 among Radio One, the subsidiaries of Radio One, NationsBank of
Texas, N.A., the Trustee, and the other parties named therein (the
"Standstill Agreement") which provides, among other things, that for so
long as the New Credit Facility, if any, or the Exchange Notes are
outstanding, the Warrants are collectively only exercisable for up to (but
not including) 50% of the Common Stock. Although the Warrants are currently
exercisable, the holders of a majority of the outstanding shares of Senior
Preferred Stock must exercise their Warrants if any are to be exercised
prior to the eighth anniversary of the Issue Date.
(i) Represents immediately exercisable Warrants to acquire 29.52 shares of
Common Stock. The principal address of Alta Subordinated Debt Partners III,
L.P. is c/o Burr, Egan, Deleage & Co., One Post Office Square, Boston, MA
02109.
(j) Represents immediately exercisable Warrants to acquire 18.70 shares of
Common Stock. The principal address of Alliance Enterprise Corporation is
12655 N. Central Expressway, Suite 700, Dallas, TX 75243.
(k) Represents immediately exercisable Warrants to acquire 20.15 shares of
Common Stock. The principal address of BancBoston Investments, Inc. is 100
Federal Street, 32nd Floor, Boston, MA 02110.
(l) Represents immediately exercisable Warrants to acquire 15.24 shares of
Common Stock. The principal address of Capital Dimensions Venture Fund,
Inc. is 2 Appletree Square, Suite 335-T, Minneapolis, MN 55425.
(m) Represents immediately exercisable Warrants to acquire 15.61 shares of
Common Stock. The principal address of Fulcrum Venture Capital Corporation
is 300 Corporate Point, Suite 380, Culver City, CA 90230.
(n) Represents immediately exercisable Warrants to acquire 36.12 shares of
Common Stock. The principal address of Syncom Capital Corporation is 8401
Colesville Road, Suite 300, Silver Spring, MD 20910.
(o) The shares of Common Stock set forth on this line do not include any shares
of Common Stock or Senior Preferred Stock which Mr. Jones and Mr. McNeill
may be deemed to beneficially own. See footnotes (e), (f) and (g), above.
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<PAGE>
CERTAIN TRANSACTIONS
RADIO ONE OF ATLANTA, INC.
Mr. Liggins, who is the Chief Executive Officer and President of the
Company, is also the President of Radio One of Atlanta, Inc., which owns and
operates one radio station in Atlanta and owns a minority interest in Dogwood.
Dogwood holds an FCC construction permit to establish another radio station in
the Atlanta area. Mr. Liggins has voting control of ROA, subject to certain
conditions, and owns approximately 47% of the outstanding capital stock of ROA.
See "Risk Factors-Potential Conflicts of Interest."
The Company has entered into a management agreement with ROA whereby the
Company provides accounting, financial and strategic planning, other general
management services and general programming support services to ROA and Dogwood.
In exchange for such corporate services, the Company is paid an annual retainer
of approximately $100,000 and is reimbursed for all of its out-of-pocket
expenses incurred in connection with the performance of such corporate services.
The Company believes that the compensation paid to the Company under such
management agreement and the other material terms thereof are not materially
different than if the agreement were with an unaffiliated third party.
In addition, Mr. Liggins received a lump sum fee of $50,000 from ROA in
April 1997 as compensation for services he personally provided to ROA. Mr.
Liggins has not previously received any compensation from ROA or Dogwood. The
Company's Vice President of Programming, Steve Hegwood, is also employed by ROA
and is paid a salary for programming ROA's radio station in addition to the
salary he receives from the Company. Mr. Hegwood utilized certain resources and
the services of certain employees of the Company in performance of his services
for ROA.
OFFICE LEASES
Lanham, Maryland
The Company's principal executive offices for its Washington, D.C. radio
stations are located in the office building located at 5900 Princess Garden
Parkway, Lanham, Maryland, and the studios for the Company's Washington, D.C.
radio stations will be moved within such offices later this year. The Company
leases these offices from National Life Insurance Company, a Vermont corporation
(the "Landlord"). The Landlord has granted the Company, and the Company has
exercised, an option to purchase the Lanham Building for $3.75 million, less a
credit of up to $288,000 (related to the tenant improvements the Company is
making to the Lanham Offices, and the rent payments the Company is making for
the Lanham Offices) and subject to an increase attributable to the Company's pro
rata share of the costs paid by the Landlord in connection with entering into
each lease of a portion of the Lanham Building. If the average monthly building
rents for the Lanham Building for July and August 1997 equal or exceed a stated
minimum gross rent amount, the closing of the Company's purchase of the Lanham
Building will occur on September 30, 1997. If the minimum gross rent amount is
not met for such period, the Company may waive the minimum gross rent condition
and proceed to close the purchase of the Lanham Building or elect to postpone
the closing, on a month-to-month basis, until average monthly building rents for
a two-month period equal or exceed the minimum gross rent amount. If the minimum
gross rent condition has not been met and therefore the closing has not occurred
on or prior to July 31, 1998, or if, prior to receipt of notice that the gross
rent condition has been met, the Company delivers written notice that it shall
not proceed to closing on or before such date, the Company shall have no further
obligation to purchase the Lanham Building and the seller shall pay to the
Company an amount, not to exceed $240,000, equal to the Company's expenditures
for tenant improvements to the Lanham Building. The Company expects to assign
its right to purchase the Lanham Building to Mr. Liggins in order to preserve
the Company's borrowing capacity. The holders of the Senior Preferred Stock will
be provided with an opportunity to purchase an interest in the Lanham Building
at the closing, if any, of the purchase of the Lanham Building. Mr. Liggins will
be assigned the Lanham Lease by the Landlord at the closing, if any, of the
purchase of the Lanham Building and the Company shall continue to make lease
payments to Mr. Liggins (or such assignee). In addition, if the closing of the
purchase of the Lanham Building occurs, Mr. Liggins (or his assignee) will be
required to pay the Company consideration, in
68
<PAGE>
some form, in an amount equal to an aggregate of $288,000. Such consideration
could take the form of a reduction in the Company's lease payment obligations in
respect of the Lanham Offices, the transfer of an interest in the Lanham
Building to the Company or some other form. The Company's management believes
that the terms of the Lanham Lease are not materially different than if the
agreement were with an unaffiliated third party with no option to purchase the
underlying property. See "Business-Properties."
Baltimore, Maryland
Radio One leases office space located at 100 St. Paul Street, Baltimore,
Maryland from Chalrep, a limited partnership controlled by Ms. Hughes and Mr.
Liggins. The Company's management believes that the terms of this lease are not
materially different than if the agreement were with an unaffiliated third
party. See "Business-Properties."
NEWCO II ACQUISITION
In August of 1997, a new corporation ("Newco II") which was formed at the
direction of Mr. Liggins, entered into a binding letter of intent with respect
to the acquisition of certain radio stations in the State of Michigan (the
"Newco II Acquisition"). Under the letter of intent, Newco II agreed to pay
$34,000,000 in cash, $2,000,000 of which will be deposited in escrow upon the
execution of a definitive acquisition agreement and will be available to the
sellers as liquidated damages if Newco II breaches its obligations thereunder.
The Newco II Acquisition is contingent upon certain matters, including the
execution of a definitive agreement and the receipt of final approval from the
FCC for the transfer of the FCC licenses. Although Mr. Liggins may cause Newco
II to become a wholly owned subsidiary of the Company or assign its rights under
such letter of intent to the Company, there can be no assurance that Newco II
will assign its rights under such letter of intent to the Company, or that Newco
II will become a subsidiary of the Company, and if Newco II does become a
subsidiary of the Company, there can be no assurance that Newco II would not be
designated as an Unrestricted Subsidiary.
OTHER AFFILIATED TRANSACTIONS
The Zitelman Group, Inc. received a fee of $50,000 for consulting services
rendered in connection with the Philadelphia Acquisition. The Zitelman Group,
Inc. is wholly owned by Mr. Zitelman, who serves as a member of the Company's
board of directors and is a member of the Company's Compensation Committee. The
Zitelman Group, Inc. also receives consulting fees for the time Mr. Zitelman
spends attending the Company's board meetings and providing other consulting
services to the Company, at his standard hourly consulting rate.
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<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes offered hereby will be issued as a separate series of
Notes pursuant to the Indenture dated as of May 15, 1997, among the Company,
Radio One Licenses, Inc. and United States Trust Company of New York, as trustee
(the "Trustee"). The following is a summary of certain provisions of the
Indenture and the Exchange Notes, a copy of which Indenture and the form of
Exchange Notes may be obtained from the Company The following summary of certain
provisions of the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Indenture, including the definitions of certain terms therein and those terms
made a part thereof by the Trust Indenture Act of 1939, as amended. Definitions
of certain capitalized terms used in the following summary are set forth under
"-Certain Definitions."
GENERAL
The Notes are and the Exchange Notes will be, senior subordinated,
unsecured obligations of the Company, limited to $85,478,000 aggregate principal
amount, and will mature on May 15, 2004. The Senior Subordinated Notes will bear
cash interest from May 19, 1997 to and including May 15, 2000 at a rate per
annum of 7% on the aggregate principal amount of the Senior Subordinated Notes,
and after May 15, 2000 until maturity at a rate per annum of 12% on the
aggregate principal amount of the Senior Subordinated Notes. Interest will be
payable semi-annually on May 15 and November 15 of each year, commencing
November 15, 1997, to the holders of record at the close of business on the
preceding May 1 or November 1, as the case may be. The Senior Subordinated Notes
will bear interest on overdue principal and premium, if any, and, to the extent
permitted by law, overdue interest at the rate per annum shown on the front
cover of this Prospectus plus 2%. Interest on the Senior Subordinated Notes will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
The Exchange Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple thereof. No
service charge will be made for any registration of transfer or exchange of
Exchange Notes, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Exchange Notes will not
be redeemable at the option of the Company prior to May 15, 2001. Thereafter,
the Exchange Notes will be subject to redemption, at the option of the Company,
in whole or in part, at any time and from time to time upon not less than 30 nor
more than 60 days' notice mailed to each Holder's registered address. The
Exchange Notes will be subject to redemption in amounts of $1,000 or an integral
multiple of $1,000 at the following Redemption Prices (expressed as percentages
of principal amount) plus accrued and unpaid interest, if any, to but excluding
the Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date to receive interest due on an Interest Payment Date that is
on or prior to the Redemption Date), if redeemed during the 12-month period
beginning on May 15 of each of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------------ -----------------
<S> <C>
2001 ...... 106%
2002 ...... 104%
2003 ...... 100%
</TABLE>
In addition, the Company may redeem in the aggregate up to 25% of the
original principal amount of Senior Subordinated Notes at any time and from time
to time prior to May 15, 2000 at a Redemption Price equal to 112% of the
Accreted Value of the Senior Subordinated Notes plus accrued and unpaid interest
to the Redemption Date out of the net proceeds of one or more Public Equity
Offerings; provided, that at least $64,109,000 in aggregate principal amount of
Senior Subordinated Notes remains outstanding immediately after the occurrence
of any such redemption and that any such redemption occurs within 180 days
following the closing of each such Public Equity Offering.
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<PAGE>
In the case of any partial redemption, selection of the Senior Subordinated
Notes for redemption will be made by the Trustee on a pro rata basis, by lot or
by such other method as the Trustee in its sole discretion shall deem to be fair
and appropriate, although no Senior Subordinated Note of $1,000 in original
principal amount or less shall be redeemed in part. If any Exchange Note is to
be redeemed in part only, the notice of redemption relating to such Exchange
Note shall state the portion of the principal amount thereof to be redeemed. A
new Exchange Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original Exchange Note. On and after the Redemption Date, interest will cease to
accrue on Exchange Notes or portions of Exchange Notes called for redemption.
GUARANTEES
The obligations of the Company pursuant to the Exchange Notes, including
the repurchase obligation resulting from a Change of Control, will be fully and
unconditionally guaranteed, jointly and severally, on an unsecured senior
subordinated basis, by the License Subsidiary and each of the other Subsidiary
Guarantors pursuant to the Subsidiary Guarantees. Notwithstanding the foregoing,
each Subsidiary Guarantee will be limited to an amount not to exceed the maximum
amount that can be guaranteed by the applicable Subsidiary Guarantor without
rendering the Subsidiary Guarantee, as it relates to such Subsidiary Guarantor,
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally. If a
Subsidiary Guarantee were to be rendered voidable, it could be subordinated by a
court to all other indebtedness (including guarantees and other contingent
liabilities) of the applicable Subsidiary Guarantor, and, depending on the
amount of such indebtedness, a Subsidiary Guarantor's liability on its
Subsidiary Guarantee could be reduced to zero. See "Risk Factors-Fraudulent
Transfer Statutes."
Pursuant to the Indenture, a Subsidiary Guarantor may consolidate with,
merge with or into, or transfer all or substantially all its assets to any other
Person to the extent described below under "-Limitation on Merger, Consolidation
and Sale of Assets;" provided, however, that if such other Person is not the
Company, such Subsidiary Guarantor's obligations under its Subsidiary Guarantee
must be expressly assumed by such other Person. However, upon the sale or other
disposition (including by way of consolidation or merger) of a Subsidiary
Guarantor or the sale or disposition of all or substantially all the assets of a
Subsidiary Guarantor (in each case other than to an Affiliate of the Company)
permitted by the Indenture, such Subsidiary Guarantor will be released and
relieved from all its obligations under its Subsidiary Guarantee. See
"-Limitation on Merger, Consolidation and Sale of Assets."
SUBORDINATION
The Exchange Notes will, to the extent set forth in the Indenture, be
subordinate in right of payment to the prior payment in full in cash or Cash
Equivalents of all Senior Debt. Upon any payment or distribution of assets to
creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors, marshaling of assets or any bankruptcy,
insolvency or similar proceedings of the Company, the holders of Senior Debt
will first be entitled to receive payment in full of such Senior Debt in cash or
Cash Equivalents before the Holders of the Exchange Notes will be entitled to
receive any payment in respect of the principal of (and premium, if any) or
interest on the Exchange Notes. In the event that, notwithstanding the
foregoing, the Trustee or the Holder of any Exchange Note receives any payment
or distribution of assets of the Company of any kind or character before all the
Senior Debt is paid in full in cash or Cash Equivalents, then such payment or
distribution will be required to be paid over or delivered forthwith to the
trustee in bankruptcy or other Person making payment or distribution of assets
of the Company for application to the payment of all Senior Debt remaining
unpaid, to the extent necessary to pay the Senior Debt in full in cash or Cash
Equivalents.
In the event that any of the Exchange Notes are declared due and payable
prior to their stated maturity, the holders of Senior Debt shall be entitled to
receive payment in full in cash or Cash Equivalents of all Senior Debt before
the holders of the Exchange Notes shall be entitled to receive any payment on
account of the principal of (or premium, if any) or interest on the Exchange
Notes or on account of the purchase or redemption or other acquisition of the
Exchange Notes.
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The Company may not make any payments on account of the Exchange Notes or
on account of the purchase, redemption or other acquisition of Exchange Notes
following the maturity (on the due date, upon acceleration or otherwise) of any
Senior Debt until such Senior Debt is paid in full in cash or Cash Equivalents.
The Company also may not make any payments on the account of the Exchange Notes
or on account of the purchase or redemption or other acquisition of Exchange
Notes if there shall have occurred and be continuing a default in the payment of
Senior Debt (a "Payment Default"). In addition, if any default (other than a
Payment Default) with respect to any Designated Senior Debt permitting the
holders thereof (or a percentage thereof or a trustee on behalf thereof) to
accelerate the maturity thereof (a "Nonmonetary Default") has occurred and is
continuing and the Company and the Trustee have received written notice thereof
from the representatives of holders of such Designated Senior Debt, then the
Company may not make any payments (other than payments previously made pursuant
to the provisions described under "-Defeasance") on account of the Exchange
Notes or on account of the purchase or redemption or other acquisition of
Exchange Notes for a period (a "blockage period") commencing on the date the
Company and the Trustee receive such written notice and ending on the earlier of
(x) 179 days after such date and (y) the date, if any, on which the Designated
Senior Debt to which such default relates is discharged or such default is
waived or otherwise cured. In any event, not more than one blockage period may
be commenced during any period of 360 consecutive days and there shall be a
period of at least 181 consecutive days in each period of 360 consecutive days
when no blockage period is in effect. No Nonmonetary Default that existed or was
continuing on the date of the commencement of any blockage period with respect
to the Designated Senior Debt initiating such blockage period will be, or can
be, made the basis for the commencement of a subsequent blockage period, unless
such default has been cured or waived for a period of not less then 180
consecutive days. In the event that, notwithstanding the foregoing, the Company
makes any payment to the Trustee or the Holder of any Exchange Note prohibited
by these subordination provisions, then such payment will be required to be paid
over and delivered forthwith to the holders of the Senior Debt remaining unpaid,
to the extent necessary to pay in full in cash or cash equivalents all the
Senior Debt.
Each Subsidiary Guarantee will, to the extent set forth in the Indenture,
be subordinated in right of payment to the prior payment in full in cash or cash
equivalents of all Senior Debt of such Subsidiary Guarantor and will be subject
to the rights of holders of Designated Senior Debt of such Subsidiary Guarantor
to initiate blockage periods upon terms substantially comparable to the
subordination of the Exchange Notes to all Senior Debt of the Company.
Consistent with the subordination of the Subsidiary Guarantees, the Indenture
will provide that for purposes of any applicable fraudulent transfer or similar
laws, indebtedness under the Credit Agreement will be deemed to have been
incurred prior to the incurrence by any Subsidiary Guarantor of its liabilities
under its Subsidiary Guarantee. See "Risk Factors-Fraudulent Transfer Statutes."
By reason of such subordination, in the event of insolvency, certain
creditors of the Company or a Subsidiary Guarantor who are not holders of Senior
Debt may recover less, ratably, than holders of Senior Debt and may recover
more, ratably, than the Holders of the Exchange Notes.
The subordination provisions described above will cease to be applicable to
the Exchange Notes and the Subsidiary Guarantees upon any defeasance or covenant
defeasance of the Exchange Notes as described under "-Defeasance".
The Company and the Subsidiary Guarantors expect to incur additional
Indebtedness constituting Senior Debt. The Indenture does not prohibit or limit
the incurrence of additional Senior Debt, provided that the incurrence of such
Senior Debt is otherwise permitted thereunder including under the limitations
described under "Certain Covenants-Limitation on Incurrence of Indebtedness and
Issuance of Preferred Stock".
The Company may from time to time create Unrestricted Subsidiaries (as
defined), the indebtedness of which would be effectively senior to the Exchange
Notes. The Indenture does not prohibit or limit the incurrence of indebtedness
of an Unrestricted Subsidiary provided that such indebtedness constitutes
Unrestricted Subsidiary Indebtedness.
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BOOK-ENTRY, DELIVERY AND FORM
The Exchange Notes will initially be issued in the form of one Global Note,
except as described below. The Global Note will be deposited promptly after the
Expiration Date with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in the name of Cede & Co., a nominee of the
Depositary. Except as set forth below, the Global Note may be transferred, in
whole and not in part, only to the Depositary or another nominee of the
Depositary. Investors may hold their beneficial interests in the Global Note
directly through the Depositary if they have an account with the Depositary or
indirectly through organizations which have accounts with the Depositary.
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934 (the "Exchange Act"). The Depositary was created to hold securities
of institutions that have accounts with the Depositary ("participants") and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. The Depositary's participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. Access to the Depositary's book-entry system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, whether
directly or indirectly.
Upon the issuance of the Global Note, the Depositary will credit, on its
book-entry registration and transfer system, the principal amount of the
Exchange Notes represented by such Global Note to the accounts of participants.
Ownership of beneficial interests in the Global Note will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests in the Global Notes will be shown on, and the transfer
of those ownership interests will be effected only through, records maintained
by the Depositary (with respect to participants' interests) and such
participants (with respect to the owners of beneficial interests in the Global
Note other than participants). The laws of some jurisdictions may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the Global Note.
So long as the Depositary, or its nominee, is the registered holder and
owner of the Global Note, the Depositary or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related Exchange Notes
for all purposes of such Exchange Notes and the Indenture. Except as set forth
below, owners of beneficial interests in the Global Note will not be entitled to
have the Exchange Notes represented by the Global Note registered in their
names, will not receive or be entitled to receive physical delivery of
certificated Exchange Notes in definitive form and will not be considered to be
the owners of any Exchange Notes under the Global Note. The Company understands
that under existing industry practice, in the event an owner of a beneficial
interest in the Global Note desires to take any action that the Depositary, as
the holder of the Global Note, is to take, the Depositary would authorize the
participants to take such action, and that the participants would authorize
beneficial owners owning through such participants to take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
Payment of principal of and interest on Exchange Notes represented by the
Global Note registered in the name of and held by the Depositary or its nominee
will be made to the Depositary or its nominee, as the case may be, as the
registered owner and holder of the Global Note.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal of or interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depositary or its nominee. The Company also expects
that payments by participants to owners of beneficials interests in the Global
Note held through such participants will be governed by standing instructions
and customary practices and will be the responsibility of such participants. The
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Company will not have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the Global Note for any Exchange Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between the Depositary and
its participants or the relationship between such participants and the owners of
beneficial interests in the Global Note owning through such participants.
Unless and until it is exchanged in whole or in part for certificated
Exchange Notes in definitive form, the Global Note may not be transferred except
as a whole by the Depositary to a nominee of such Depositary or by a nominee of
such Depositary to such Depositary or another nominee of such Depositary.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depositary, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depositary or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Certificated Securities
The Exchange Notes represented by the Global Note are exchangeable for
certificated Exchange Notes in definitive form of like tenor as such Exchange
Notes ("Certificated Securities") in denominations of U.S. $1,000 and integral
multiples thereof if (i) the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary for the Global Note or if at any
time the Depositary ceases to be a clearing agency registered under the Exchange
Act, (ii) the Company in its discretion at any time determines not to have all
of the Exchange Notes evidenced by the Global Note or (iii) a default entitling
the holders of the Exchange Notes to accelerate the maturity thereof has
occurred and is continuing. Any Exchange Note that is exchangeable pursuant to
the preceding sentence is exchangeable for Certificated Securities issuable in
authorized denominations and registered in such names as the Depositary shall
direct. Subject to the foregoing, the Global Note is not exchangeable, except
for a Global Note of the same aggregate denomination to be registered in the
name of the Depositary or its its nominee.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary or any participant or indirect participant in identifying the
beneficial owners of the Exchange Notes, and the Company and the Trustee may
conclusively rely on, and shall be protected in relying on, instructions from
the Depositary for all purposes (including with respect to the registration and
delivery, and their respective principal amounts, of the Exchange Notes to be
issued).
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from such sources that the
Company believes to be reliable. The Company will have no responsibility for the
performance by the Depositary or its participants of their respective
obligations as described hereunder or under the rules and procedures governing
their respective operations.
SAME-DAY PAYMENT
The Indenture will require that payments in respect of Exchange Notes
(including principal, premium and interest) be made by mailing a check to each
holder's registered address; provided, however, that payments shall be made,
upon request, by wire transfer of immediately available funds to U.S. dollar
accounts in a bank in the United States specified by holders of Exchange Notes
in an aggregate principal amount of $1 million or more and payments to the
Depositary shall be made by wire transfer of immediately available funds.
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CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Certain Asset Sales. The Company will not, and will not
permit any of its Restricted Subsidiaries to:
(i) sell, lease, transfer, convey or otherwise dispose of any assets
(including by way of a sale-and-leaseback) other than in the ordinary
course of business, or
(ii) issue or sell Equity Interests of any of its Restricted
Subsidiaries,
in each case, whether in a single transaction or a series of related
transactions, to any Person (other than (x) an issuance, sale, lease, conveyance
or disposal by a Restricted Subsidiary to the Company or one of its Wholly Owned
Restricted Subsidiaries, (y) an Asset Swap permitted by the covenant described
under "-Limitation on Asset Swaps" or (z) the sale of the Equity Interests of
any Unrestricted Subsidiary) (each of the foregoing, an "Asset Sale"), unless:
(x) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value of the assets or Equity Interests sold or otherwise
disposed of;
(y) at least 80% of such consideration is in the form of cash and Cash
Equivalents; and
(z) if such Asset Sale includes Equity Interests of any Restricted
Subsidiary, 100% of the Equity Interests of such Restricted Subsidiary
owned by the Company or any other Restricted Subsidiary are sold or
otherwise disposed of in such Asset Sale.
Following any Asset Sale, the Company may elect to apply all or a portion
of the Net Proceeds from such Asset Sale, within 360 days of such Asset Sale,
(a) to permanently reduce or satisfy any Senior Debt (and, in the event that
such Senior Debt is extended under a revolving credit or similar facility, to
permanently reduce the aggregate commitments thereunder as then in effect) or
(b) to acquire Broadcast Assets. Pending the final application of any such Net
Proceeds, the Company may temporarily reduce Senior Debt or invest such Net
Proceeds in Permitted Investments or to reduce loans outstanding under any
revolving credit facility of the Company or any Restricted Subsidiary. Any Net
Proceeds from an Asset Sale not applied to the reduction of Senior Debt or to
the acquisition of Broadcast Assets as provided in the first sentence of this
paragraph, upon expiration of such 360-day period will be deemed to constitute
"Excess Proceeds."
Whenever aggregate Excess Proceeds realized since the Issue Date minus the
aggregate purchase price of Notes which have been the subject of any previous
Offer to Purchase ("Net Excess Proceeds") exceeds $5.0 million the Company will
commence an Offer to Purchase within 30 days after the date on which the Net
Excess Proceeds exceeded $5.0 million. Such Offer to Purchase shall be for a
principal amount of Senior Subordinated Notes then outstanding having an
aggregate purchase price equal to such Net Excess Proceeds in accordance with
the procedures set forth in the Indenture.
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Proceeds in
accordance with this covenant except to the extent that the aggregate Net
Proceeds from all Asset Sales which are not applied in accordance with this
covenant exceeds $1.0 million.
For the purpose of this covenant, the following are deemed to be cash: (x)
the assumption of Senior Debt of the Company or any Restricted Subsidiary and
the release of the Company or such Restricted Subsidiary from all liability on
such Senior Debt in connection with such Asset Sale (other than customary
indemnification provisions relating thereto which do not involve the repayment
of funded indebtedness) and (y) securities received by the Company or any
Restricted Subsidiary from the transferee that are promptly converted by the
Company or such Restricted Subsidiary into cash.
Limitation on Asset Swaps. The Company will not, and will not permit any
Restricted Subsidiary to, engage in any Asset Swaps, unless:
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(i) at the time of entering into the agreement to swap assets and
immediately after giving effect to the proposed Asset Swap, no Default or
Event of Default shall have occurred and be continuing;
(ii) at the time of entering into the agreement to swap assets and
after giving pro forma effect to the proposed Asset Swap as if such Asset
Swap had occurred at the beginning of the applicable four-quarter period,
the Company would be permitted to incur at least $1.00 of additional
Indebtedness under the Debt to EBITDA Ratio test described below under
"-Limitation on Incurrence of Indebtedness and Issuance of Preferred
Stock";
(iii) after giving pro forma effect to the proposed Asset Swap as if
such Asset Swap had occurred at the beginning of the four most recent full
fiscal quarters ending immediately prior to the date of the proposed Asset
Swap, the ratio of (A) EBITDA of the Company and its Restricted
Subsidiaries on a consolidated basis for such four-quarter period to (B)
the Consolidated Cash Interest Expense of the Company and its Restricted
Subsidiaries for such four-quarter period exceeds 1.2 to 1.0; and
(iv) the respective Fair Market Values of the assets being purchased
and sold by the Company or any of its Restricted Subsidiaries are
substantially the same at the time of entering into the agreement to swap
assets.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, the Company would not be
permitted to incur at least $1.00 of additional Indebtedness under the Debt to
EBITDA Ratio test described below under "-Limitation on Incurrence of
Indebtedness and Issuance of Preferred Stock", or (3) the aggregate amount of
such Restricted Payment and all other Restricted Payments since the Issue Date
would exceed the sum of:
(A) an amount equal to the Company's EBITDA cumulated from April 1,
1997 to the end of the Company's most recently ended full fiscal quarter,
taken as a single accounting period, minus 1.4 times the sum of (i) the
Company's Consolidated Interest Expense from April 1, 1997 to the end of
the Company's most recently ended full fiscal quarter, taken as a single
accounting period, plus (ii) all dividends or other distributions paid or
made by the Company or any Restricted Subsidiary on any Disqualified Stock
of the Company or any of its Subsidiaries during such period;
(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Equity Interests (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company and other than an issuance or sale to an employee
stock ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees);
(C) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness
of the Company convertible or exchangeable for Equity Interests (other than
Disqualified Stock) of the Company (less the amount of any cash, or the
fair value of any property distributed by the Company upon such conversion
or exchange other than Equity Interests not constituting Disqualified
Stock); and
(D) an amount equal to the sum of (i) the net reduction in Investments
in Unrestricted Subsidiaries resulting from dividends, repayments of loans
or advances or other transfers of assets, in each case to the Company or
any Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the
portion (proportionate to the Company's equity interest in such Subsidiary)
of the fair market value of the net assets of an Unrestricted Subsidiary at
the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, that the foregoing sum shall
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not exceed, in the case of any Unrestricted Subsidiary, the amount of
Investments previously made (and treated as a Restricted Payment) by the
Company or any Restricted Subsidiary in such Unrestricted Subsidiary.
(b) Notwithstanding the provisions of the foregoing paragraph (a), the
foregoing paragraph (a) shall not prohibit:
(i) any Restricted Payment made out of the proceeds of the
substantially concurrent sale of, and any acquisition of any Equity
Interest of the Company made by exchange for, Equity Interests of the
Company (other than Disqualified Stock and Capital Stock issued or sold to
a Subsidiary of the Company or an employee stock ownership plan or to a
trust established by the Company or any of its Subsidiaries for the benefit
of their employees); provided, that (A) such Restricted Payment shall be
excluded in the calculation of the amount of Restricted Payments and (B)
the Net Cash Proceeds from such sale shall be excluded from the calculation
of amounts under clause (3)(B) of paragraph (a) above;
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Debt made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be Incurred pursuant to
the covenant described under "-Limitation on Incurrence of Indebtedness and
Issuance of Preferred Stock"; provided, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value shall
be excluded in the calculation of the amount of Restricted Payments;
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, that (A) at the time of payment of such
dividend, no Default shall have occurred and be continuing (or result
therefrom), and (B) such dividend shall be included in the calculation of
the amount of Restricted Payments from and after such time;
(iv) loans to members of management of the Company or any Restricted
Subsidiary the proceeds of which are used for a concurrent purchase of
Equity Interests of the Company or a capital contribution to the Company
(provided that the proceeds from such purchase of Equity Interests or
capital contribution shall be excluded from the calculation of amounts
under clause (3)(B) of paragraph (a) above); provided, that such loans
shall be included in the calculation of the amount of Restricted Payments
from and after such time;
(v) any principal payment on, or purchase, redemption, defeasance or
other acquisition or retirement for value of, any Indebtedness that is
subordinated by its terms to the Senior Subordinated Notes out of Excess
Proceeds available for general corporate purposes after consummation of all
required purchases of Senior Subordinated Notes pursuant to an Offer to
Purchase, provided, that the amount of such payments shall be excluded in
the calculation of the amount of Restricted Payments from and after such
time; and
(vi) repurchases of Equity Interests of the Company from any employee
of the Company (other than a Principal Shareholder) whose employment with
the Company has ceased; provided, that the aggregate amount of such
repurchases shall not exceed $500,000 in any year; provided further, that
the amount of such payments shall be included in the calculation of the
amount of Restricted Payments from and after such time.
Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock.
The Company will not, and will not permit any of its Restricted Subsidiaries to,
Incur any Indebtedness (including Acquired Debt) or issue any preferred stock,
except that the Company may:
(i) issue preferred stock that is not Disqualified Stock at any time,
and
(ii) Incur Indebtedness or issue Disqualified Stock if the Debt to
EBITDA Ratio of the Company and its Restricted Subsidiaries at the time of
Incurrence of such Indebtedness or issuance of such Disqualified Stock,
after giving pro forma effect thereto, does not exceed 7.0 to 1.0; provided
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that any such Indebtedness (other than Senior Debt) Incurred by the Company
shall, at the time of Incurrence, have a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of the Notes.
The foregoing limitations will not apply to the Incurrence of any of the
following:
(a) Indebtedness consisting of Senior Bank Debt; provided, that the
aggregate principal amount outstanding at any time under this clause (a) does
not exceed $10 million;
(b) Existing Indebtedness;
(c) Indebtedness represented by the Senior Subordinated Notes and the
Subsidiary Guarantees;
(d) Refinancing Indebtedness, provided, that
(1) the principal amount of such Refinancing Indebtedness shall
not exceed the principal amount of Indebtedness or amount of
Disqualified Stock so extended, refinanced, renewed, replaced,
substituted, defeased or refunded (plus the amount of expenses
incurred and premiums paid in connection therewith),
(2) with respect to Refinancing Indebtedness of any Indebtedness
other than Senior Debt or Disqualified Stock, the Refinancing
Indebtedness shall have a Weighted Average Life to Maturity equal to
or greater than the Weighted Average Life to Maturity of the
Indebtedness being extended, refinanced, renewed, replaced,
substituted, defeased or refunded, and
(3) with respect to Refinancing Indebtedness of Indebtedness
other than Senior Debt or any Disqualified Stock incurred by: (i) the
Company, such Refinancing Indebtedness shall rank no more senior, and
shall be at least as subordinated, in right of payment to the Senior
Subordinated Notes as the Indebtedness being extended, refinanced,
replaced, renewed, substituted, defeased or refunded; and (ii) a
Subsidiary Guarantor, such Refinancing Indebtedness shall rank no more
senior, and shall be at least as subordinated, in right of payment to
the Subsidiary Guarantee of such Subsidiary Guarantor as the
Indebtedness being extended, refinanced, replaced, renewed,
substituted, defeased or refunded;
(e) intercompany Indebtedness between the Company and any of its Wholly
Owned Restricted Subsidiaries;
(f) Hedging Obligations, including interest rate swap obligations, that are
incurred in the ordinary course of business for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness which
Indebtedness is permitted by the terms of the Indenture to be outstanding;
(g) guarantees by the Company and the Subsidiary Guarantors of any
Indebtedness of the Company or any Restricted Subsidiary permitted under this
covenant;
(h) Indebtedness of the Company or any Restricted Subsidiary consisting of
indemnification, adjustment of purchase price or similar obligations, in each
case incurred in connection with the disposition of any assets of the Company or
any Restricted Subsidiary; and
(i) Indebtedness of the Company or any of its Restricted Subsidiaries (in
addition to Indebtedness permitted by clauses (b) - (h) of this section) in an
aggregate principal amount at any time outstanding that, together with any
Indebtedness incurred pursuant to clause (a) of this section, does not exceed $5
million.
Limitation on Restricted Subsidiary Equity Interests. The Company will not
permit any Restricted Subsidiary to issue any Equity Interests, except for (i)
Equity Interests issued to and held by the Company or a Wholly Owned Restricted
Subsidiary, and (ii) Equity Interests issued by a Person prior to the time (A)
such Person becomes a Restricted Subsidiary, (B) such Person merges with or into
a Restricted Subsidiary or (C) a Restricted Subsidiary merges with or into such
Person; provided that such Equity Interests were not issued or incurred by such
Person in anticipation of the type of transaction contemplated by subclause (A),
(B) or (C).
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Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(i) (a) pay dividends or make any other distributions to the Company
or any other Restricted Subsidiary (1) on its Equity Interests or (2) with
respect to any other interest or participation in, or measured by, its
profits, or (b) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary,
(ii) make loans or advances to the Company or any other Restricted
Subsidiary, or
(iii) transfer any of its properties or assets to the Company or any
other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of:
(A) any Existing Indebtedness;
(B) applicable law;
(C) any instrument governing Indebtedness or Equity Interests of a
Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), provided that (1) such restriction is not applicable to any
other Person or the properties or assets of any other Person, and (2) the
consolidated net income (loss) of such acquired Person for any period prior
to such acquisition shall not be taken into account in determining whether
such acquisition was permitted by the terms of the Indenture;
(D) by reason of customary nonassignment provisions in leases entered
into in the ordinary course of business and consistent with past practices;
(E) Purchase Money Indebtedness for property acquired in the ordinary
course of business that only impose restrictions on the property so
acquired;
(F) Refinancing Indebtedness permitted under the Indenture, provided
that the restrictions contained in the agreements governing such
Refinancing Indebtedness are no more restrictive in the aggregate than
those contained in the agreements governing the Indebtedness being
refinanced immediately prior to such refinancing;
(G) the Credit Agreement;
(H) agreements relating to the financing of the acquisition of real or
tangible personal property acquired after the date of the Indenture,
provided, that such encumbrance or restriction relates only to the property
which is acquired and, in the case of any encumbrance or restriction that
constitutes a Lien, such Lien constitutes a Purchase Money Lien; or
(I) any restriction or encumbrance contained in contracts for sale of
assets in respect of the assets being sold pursuant to such contract.
Transactions with Affiliates. The Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate of the
Company or any Restricted Subsidiary (each of the foregoing, an "Affiliate
Transaction"), unless:
(i) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with a non-Affiliated Person;
(ii) such Affiliate Transaction is approved by a majority of the
disinterested members of the Company's Board of Directors; and
(iii) the Company delivers to the Trustee:
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(a) with respect to any Affiliate Transaction involving aggregate payments
in excess of $1.0 million, an Officers' Certificate certifying that such
Affiliate Transaction complies with clauses (i) and (ii) above; and
(b) with respect to any Affiliate Transaction (or series of related
transactions) with an aggregate value in excess of $5.0 million, an opinion from
a nationally recognized investment bank to the effect that the transaction is
fair to the Company or the Restricted Subsidiary, as the case may be, from a
financial point of view; provided that none of the following shall constitute an
Affiliate Transaction:
(A) employment arrangements (including customary benefits thereunder)
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practice of the
Company or such Restricted Subsidiary;
(B) transactions solely between or among the Company and its Wholly
Owned Restricted Subsidiaries or solely between or among Wholly Owned
Restricted Subsidiaries;
(C) transactions permitted by the provisions of the Indenture
described above under "-Limitation on Restricted Payments;"
(D) any agreement as in effect on the Issue Date or any amendment
thereto or any transaction contemplated thereby (including pursuant to any
amendment thereto) and any replacement agreement thereto so long as any
such amendment or replacement agreement is not more disadvantageous to the
holders of Senior Subordinated Notes in any material respect than the
original agreement as in effect on the Issue Date;
(E) the existence of, or the performance by the Company or any of its
Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement (including any registration rights agreement or
purchase agreement related thereto) to which it is a party on the Issue
Date;
(F) services provided to any Unrestricted Subsidiary of the Company
for fees approved by the Board of Directors; and
(G) the issuance, sale or other disposition of any Equity Interest
(other than Disqualified Stock) of the Company, including any
equity-related agreements relating thereto such as registration rights and
voting agreements so long as such agreements do not result in such Equity
Interests being Disqualified Stock.
Limitation on Senior Subordinated Debt. The Company will not Incur (i) any
Indebtedness that is subordinate or junior in ranking in right of payment by its
terms to any Senior Debt of the Company and senior in right of payment by its
terms to the Senior Subordinated Notes or (ii) any Secured Debt that is not
Senior Debt unless contemporaneously therewith effective provision is made to
secure the Senior Subordinated Notes equally and ratably with such Secured Debt
for so long as such Secured Debt is secured by a Lien.
The Company will not permit any Subsidiary Guarantor to Incur (i) any
Indebtedness that is subordinated or junior in ranking in right of payment to
its Senior Debt and senior in right of payment to its Subsidiary Guarantee or
(ii) any Secured Debt that is not Senior Debt unless contemporaneously therewith
effective provision is made to secure its Subsidiary Guarantee equally and
ratably with such Secured Debt for so long as such Secured Debt is secured by a
Lien.
SEC Reports. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall file with the SEC and provide the Trustee and Noteholders with such annual
reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation
subject to such Sections, such information, documents and other reports to be so
filed and provided at the times specified for the filing of such information,
documents and reports under such Sections.
Ratings for Senior Subordinated Notes. The Company shall use its reasonable
best efforts to obtain by June 30, 1998 the publication of ratings for the
Senior Subordinated Notes from Moody's Investors
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Service, Inc. and from Standard and Poor's Ratings Group (or any successor to
either of them) or, in the event that either of such entities at such time no
longer publishes ratings for long-term debt securities, then any other
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act).
Change of Control. Upon the occurrence of a Change of Control, the Company
will be required to commence an Offer to Purchase all Senior Subordinated Notes
then outstanding in accordance with the procedures set forth in the Indenture.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with an Offer to Purchase Senior Subordinated Notes pursuant to
this covenant. To the extent the provisions of any securities laws or
regulations conflict with the provisions of this covenant, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this covenant by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of Indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to incur additional Indebtedness are contained in the
covenants described under "-Certain Covenants-Limitation on Incurrence of
Indebtedness and Issuance of Preferred Stock."
Such restrictions can only be waived with the consent of the holders of a
majority in principal amount of the Senior Subordinated Notes then outstanding.
Except for the limitations contained in such covenants, however, the Indenture
will not contain any covenants or provisions that may afford holders of the
Senior Subordinated Notes protection in the event of a highly leveraged
transaction.
Future indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be repurchased upon a Change of Control. Moreover,
the exercise by the holders of their right to require the Company to commence an
Offer to Purchase the Senior Subordinated Notes could cause a default under such
indebtedness, even if the Change of Control itself does not, due to the
financial effect of such Offer to Purchase on the Company. Finally, the
Company's ability to pay cash to the holders of Senior Subordinated Notes
following the occurrence of a Change of Control may be limited by the Company's
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make an Offer to Purchase the Senior
Subordinated Notes. The provisions under the Indenture relative to the Company's
obligation to make an Offer to Purchase the Senior Subordinated Notes as a
result of a Change of Control may be waived or modified with the written consent
of the holders of a majority in principal amount of the Senior Subordinated
Notes.
Future Subsidiary Guarantors. The Company will (i) cause each Person which,
after the Issue Date, becomes a Wholly Owned Restricted Subsidiary of the
Company to execute and deliver a supplemental indenture and thereby become a
Subsidiary Guarantor bound by the Subsidiary Guarantee of the Senior
Subordinated Notes in the form set forth in the Indenture (without such
Subsidiary Guarantor being required to execute and deliver its Subsidiary
Guarantee endorsed on the Senior Subordinated Notes) and (ii) deliver to the
Trustee an Opinion of Counsel, in form and substance reasonably satisfactory to
the Trustee, that the Subsidiary Guarantee of such Subsidiary Guarantor is a
valid and legally binding obligation of such Subsidiary Guarantor.
The Subsidiary Guarantors will, jointly and severally, unconditionally
guarantee the due and punctual payment of the principal, premium, if any, and
interest on the Senior Subordinated Notes on an unsecured senior subordinated
basis pursuant to the Subsidiary Guarantees as described under "-Subordination".
See "Risk Factors-Fraudulent Transfer Statutes." All Subsidiary Guarantors may
be released from their obligations under the Subsidiary Guarantees as described
under "-Defeasance", and any Subsidiary Guarantor may be released from its
obligations under its Subsidiary Guarantee as described under "-Limitation on
Merger, Consolidation and Sale of Assets."
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LIMITATION ON MERGER, CONSOLIDATION AND SALE OF ASSETS
(a) The Company may not consolidate or merge with or into (whether or not
the Company is the Surviving Person), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions, to another Person, unless:
(i) the Surviving Person is a corporation organized or existing under
the laws of the United States, any state thereof or the District of
Columbia;
(ii) the Surviving Person (if other than the Company) assumes all the
obligations of the Company under the Notes and the Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee;
(iii) at the time of and immediately after such Disposition, no
Default shall have occurred and be continuing;
(iv) the Surviving Person will, at the time of such Disposition and
after giving pro forma effect thereto, be permitted to incur at least $1.00
of additional Indebtedness pursuant to the Debt to EBITDA Ratio test
described under "-Certain Covenants-Limitation on Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(v) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the
Indenture.
(b) In the event of a sale of all or substantially all of the assets of any
Subsidiary Guarantor or all of the Equity Interests of any Subsidiary Guarantor,
by way of merger, consolidation or otherwise, then the Surviving Person of any
such merger or consolidation, or such Subsidiary Guarantor, if all of its Equity
Interests are sold, shall be released and relieved of any and all obligations
under the Subsidiary Guarantee of such Subsidiary Guarantor if:
(1) the Person surviving such merger or consolidation or
acquiring the Equity Interests of such Subsidiary Guarantor is
not a Restricted Subsidiary of the Company;
(2) the Net Proceeds from such sale are applied as described
under "-Certain Covenants-Limitation on Certain Asset Sales"; and
(3) such Subsidiary Guarantor is released from its
guarantees of other Indebtedness of the Company or any Restricted
Subsidiary.
(c) Except as provided in the preceding sentence, no Subsidiary Guarantor
may consolidate or merge with or into (whether or not such Person is Affiliated
with such Subsidiary Guarantor and whether or not the Guarantor is the Surviving
Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets in one or more related transactions, to another
Person unless:
(1) the Surviving Person is the Company or one of its Wholly
Owned Restricted Subsidiaries;
(2) the Surviving Person is a corporation organized or
existing under the laws of the United States, any state thereof
or the District of Columbia;
(3) the Surviving Person (if other than the Subsidiary
Guarantor) assumes all the obligations of the Subsidiary
Guarantor under the Senior Subordinated Notes and the Indenture
pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; and
(4) at the time of and immediately after such Disposition,
no Default shall have occurred and be continuing.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for the definition of all other Terms used in the
Indenture.
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"Accreted Value" means, as of any date (the "Specified Date"), the amount
provided below for each $1,000 principal amount of Senior Subordinated Notes:
(i) if the Specified Date occurs on one of the following dates (each, a
"Semi-Annual Accrual Date"), the Accreted Value will equal the amount set forth
below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE
------------------------- ---------------
<S> <C>
November 15, 1997 ...... $ 894.69
May 15, 1998 ............ 913.37
November 15, 1998 ...... 933.17
May 15, 1999 ............ 954.17
November 15, 1999 ...... 976.42
May 15, 2000 ............ 1,000.00
</TABLE>
(ii) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of (a) the original issue price
for each $1,000 principal amount of Senior Subordinated Notes and (b) an
amount equal to the product of (1) the Accreted Value for the first
Semi-Annual Accrual Date less such original issue price, multiplied by (2)
a fraction, the numerator of which is the number of days from the Issue
Date to the Specified Date, using a 360-day year of 12 30-day months, and
the denominator of which is the number of days elapsed from the Issue Date
to the first Semi-Annual Accrual Date, using a 360-day year of twelve
30-day months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted Value for
the Semi-Annual Accrual Date immediately preceding such Specified Date and
(b) an amount equal to the product of (1) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the Accreted Value for
the immediately preceding Semi-Annual Accrual Date multiplied by (2) a
fraction, the numerator of which is the number of days from the immediately
preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day
year of 12 30-day months, and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
"Acquired Debt" means, with respect to any specified Person, Indebtedness
of any other Person existing at the time such other Person merges with or into,
or becomes a Subsidiary of, such specified Person, including Indebtedness
incurred in connection with, or in contemplation of, such other Person merging
with or into, or becoming a Subsidiary of, such specified Person.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control of" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with") any Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Asset Swap" means the execution of a definitive agreement, subject only to
FCC approval and other customary closing conditions, that the Company in good
faith believes will be satisfied, for a substantially concurrent purchase and
sale, or exchange, of Broadcast Assets between the Company or any of its Wholly
Owned Restricted Subsidiaries and another Person or group of Affiliated Persons;
provided that any amendment to or waiver of any closing condition which
individually or in the aggregate is material to the Asset Swap shall be deemed
to be a new Asset Swap.
"Broadcast Assets" means assets used or useful in the ownership or
operation of an AM or FM radio station.
"Broadcast License" means an authorization issued by the FCC for the
operation of an AM or FM radio station.
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"Capital Lease Obligation" means, at any time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on the balance sheet in accordance
with GAAP.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of less than one year
from the date of acquisition, (iii) certificates of deposit and eurodollar time
deposits with maturities of less than one year from the date of acquisition,
bankers' acceptances with maturities of less than one year and overnight bank
deposits, in each case with any lender party to the Credit Agreement or with any
domestic commercial bank having capital and surplus in excess of $500,000,000
and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with
a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) entered into with any financial institution
meeting the qualifications specified in clause (iii) immediately above, (v)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. or Standard & Poor's Ratings Services and in each case maturing
within nine months after the date of acquisition and (vi) interests in money
market mutual funds which invest solely in assets or securities of the type
described in clauses (i)-(v) immediately above.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the Company's assets to any
Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act) (other than any or all of the Principal Shareholders or their Related
Parties);
(ii) the adoption of a plan relating to the liquidation or dissolution
of the Company;
(iii) prior to the first Public Equity Offering of the Company, either
(x) the Principal Shareholders and their Related Parties cease to be the
beneficial owner of at least 35% of the voting power of the voting stock of
the Company or (y) any Person or group (as such term is used in Section
13(d)(3) of the Exchange Act) other than the Warrantholders acquires,
directly or indirectly, 35% or more of the voting power of the voting stock
of the Company by way of merger, consolidation or otherwise;
(iv) following the first Public Equity Offering of the Company, any
Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act) (other than one or more of the Principal Shareholders and their
Related Parties) acquires, directly or indirectly, 35% or more of the
voting power of the voting stock of the Company by way of merger or
consolidation or otherwise; provided that such acquisition will not
constitute a "Change of Control" (x) in the case of a Person or group
consisting of the Warrantholders, if and for so long as the Principal
Shareholders and Related Parties, individually or collectively, own at
least 30% of the voting power of the voting stock of the Company and have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of the Company,
or (y) in the case of any Person or group not including any Warrantholder,
unless or until such Person or group owns, directly or indirectly, more of
the voting power of the voting stock of the Company than the Principal
Shareholders and their Related Parties; or
(v) the Continuing Directors cease for any reason (other than as a
result and during the continuance of a default under the Warrant Agreement
entitling the Warrantholders to appoint directors) to constitute a majority
of the directors of the Company then in office.
For purposes of this definition, any transfer of an Equity Interest of an
entity that was formed for the purpose of acquiring voting stock of the Company
shall be deemed to be a transfer of such portion of such voting stock as
corresponds to the portion of the equity of such entity that has been so
transferred.
"Consolidated Cash Interest Expense" means, with respect to any period, the
amount of Consolidated Interest Expense for such period to the extent it
represents cash disbursements for such purpose by the Company and its Restricted
Subsidiaries during such period.
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"Consolidated Interest Expense" means, without duplication, with respect to
any period, the sum of (a) the interest expense and all capitalized interest of
the Company and its Restricted Subsidiaries for such period, on a consolidated
basis, including, without limitation, (i) amortization of debt discount, (ii)
the net cost under interest rate contracts (including amortization of debt
discount), (iii) the interest portion of any deferred payment obligation and
(iv) accrued interest, plus (b) the interest component of any Capital Lease
Obligation paid or accrued or scheduled to be paid or accrued by the Company
during such period, determined on a consolidated basis in accordance with GAAP
provided, however, that any dividends with respect to the Senior Preferred Stock
shall not be considered for purposes of this definition.
"Continuing Director" means any member of the Board of Directors of the
Company who (i) is a member of that Board of Directors on the Issue Date or (ii)
was nominated for election by either (a) one or more of the Principal
Shareholders (or a Related Party thereof) or (b) the Board of Directors a
majority of whom were directors at the Issue Date or whose election or
nomination for election was previously approved by one or more of the Principal
Shareholders or such directors.
"Credit Agreement" means the credit agreement to be entered into by the
Company as described in this Prospectus, as such agreement may be amended from
time to time.
"Debt to EBITDA Ratio" means, with respect to any date, the ratio of (a)
the aggregate principal amount of all outstanding Indebtedness of the Company
(excluding Hedging Obligations, including interest rate swap obligations, that
are incurred in the ordinary course of business for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Indebtedness which
Indebtedness is permitted by the terms of the Indenture to be outstanding) and
its Restricted Subsidiaries as of such date on a consolidated basis, plus the
aggregate liquidation preference or redemption amount of all outstanding
Disqualified Stock of the Company and its Restricted Subsidiaries as of such
date (excluding any such Disqualified Stock held by the Company of a Wholly
Owned Restricted Subsidiary), to (b) EBITDA of the Company and its Restricted
Subsidiaries on a consolidated basis for the four most recent full fiscal
quarters ending immediately prior to such date, determined on a pro forma basis
after giving effect to each acquisition or disposition of assets made by the
Company and its Restricted Subsidiaries from the beginning of such four-quarter
period through such date as if such acquisition or disposition had occurred at
the beginning of such four-quarter period.
"Default" means any event that is, or after the giving of notice or passage
of time or both would be, an Event of Default.
"Designated Senior Debt" means (i) the Senior Bank Debt and (ii) any Senior
Debt of the Company and the Subsidiary Guarantors permitted under the Indenture,
the principal amount (or accreted value in the case of Indebtedness issued at a
discount) of which is $10 million or more at the time of designation by the
Company (or otherwise available under a committed facility) or a Subsidiary
Guarantor, as the case may be, in a written instrument delivered to the Trustee.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease conveyance or
other disposition of all or substantially all of such Person's assets.
"Disqualified Stock" means any Equity Interest that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof (other than upon a Change of Control of the
Company in circumstances where the holders of the Senior Subordinated Notes
would have similar rights), in whole or in part on or prior to one year after
the stated maturity of the Senior Subordinated Notes. The amount of Disqualified
Stock shall be the greater of the liquidation preference or mandatory or
optional redemption price thereof.
"EBITDA" of a specified Person means, for any period, the consolidated net
income of such specified Person and its Restricted Subsidiaries for such period:
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(i) plus (without duplication and to the extent involved in computing
such consolidated net income) (a) interest expense, (b) provision for taxes
on income or profits and (c) depreciation and amortization and other
non-cash items (including amortization of goodwill and other intangibles
and barter expenses); and
(ii) minus (without duplication and to the extent involved in
computing such consolidated net income) (a) any gains (or plus losses),
together with any related provision for taxes on such gains or losses,
realized in connection with any sale of assets (including, without
limitation, dispositions pursuant to sale and leaseback transactions), (b)
any non-cash or extraordinary gains (or plus losses), together with any
related provision for taxes on such extraordinary gains or losses, (c) the
amount of any cash payments related to non-cash charges that were added
back in determining EBITDA in any prior period and (d) barter revenues;
provided, however, that:
(i) the net income of any other Person that is accounted for by the
equity method of accounting shall be included only to the extent of the
amount of dividends or distributions paid in cash to such specified Person
whose EBITDA is being determined or a Wholly Owned Restricted Subsidiary
thereof;
(ii) the net income of any other Person that is a Restricted
Subsidiary (other than a Wholly Owned Restricted Subsidiary) or is an
Unrestricted Subsidiary shall be included only to the extent of the amount
of dividends or distributions paid in cash to such specified Person whose
EBITDA is being determined or a Wholly Owned Restricted Subsidiary thereof;
provided, that for purposes of the covenant described under "Certain
Covenants-Limitation on Restricted Payments" only, any such dividend or
distribution shall be excluded to the extent it has already been included
under clause (a)(3)(D) thereof;
(iii) the net income (loss) of any other Person acquired after the
Issue Date in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded (to the extent otherwise
included); and
(iv) gains or losses from sales of assets other than sales of assets
acquired and held for resale in the ordinary course of business shall be
excluded (to the extent otherwise included).
All of the foregoing will be determined in accordance with GAAP.
"Equity Interests" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any preferred
stock, but excluding any debt securities convertible into such equity, and
including, in the case of a partnership, partnership interests (whether general
or limited) and any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, such partnership.
"Existing Indebtedness" means any outstanding Indebtedness of the Company
and its Restricted Subsidiaries as of the Issue Date, including the Senior
Subordinated Notes.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy. All determinations in the covenants of Fair Market
Value shall be made by the Board of Directors of the Company and shall be
evidenced by a resolution of such Board set forth in an Officers' Certificate
delivered to the Trustee, upon which the Trustee may conclusively rely.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and
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regulations of the SEC governing the inclusion of financial statements
(including pro forma financial statements) in periodic reports required to be
filed pursuant to Section 13 of the Exchange Act, including opinions and
pronouncements in staff accounting bulletins and similar written statements from
the accounting staff of the SEC.
"Hedging Obligations" means, with respect to any Person, the Obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, and (ii) other agreements or
arrangements designed to protect such Persons against fluctuations in interest
rates.
"Immediate Family Member" means, with respect to any individual, such
individual's spouse (past or current), descendants (natural or adoptive, of the
whole or half blood) of the parents of such individual, such individual's
grandparents and parents (natural or adoptive), and the grandparents, parents
and descendants of parents (natural or adoptive, of the whole or half blood) of
such individual's spouse (past or current).
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, that any Indebtedness or Equity Interests of a Person existing at
the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary. The term "Incurrence" when used as a noun
shall have a correlative meaning. The accretion of principal of a non-interest
bearing or other discount security shall not be deemed the Incurrence of
Indebtedness.
"Indebtedness" means, with respect to any Person, whether or not
contingent, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (other than current trade
liabilities incurred in the ordinary course of business and payable in
accordance with customary practices) or which is evidenced by a note, bond,
debenture or similar instrument, (ii) all Capital Lease Obligations of such
Person, (iii) all obligations of such Person in respect of letters of credit or
bankers' acceptances issued or created for the account of such Person, (iv) all
Hedging Obligations of such Person, (v) all liabilities of the type referred to
in clause (i), (ii) or (iii) immediately above which are secured by any Lien on
any property owned by such Person even if such Person has not assumed or
otherwise become liable for the payment thereof to the extent of the value of
the property subject to such Lien, and (vi) to the extent not otherwise
included, any guarantee by such Person of any other Person's indebtedness or
other obligations described in clauses (i) through (v) above; provided, however,
in no event shall Senior Preferred Stock (including any and all accrued
dividends thereon) be considered "Indebtedness."
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Equity Interests, Indebtedness or
other similar instruments issued by such Person. For purposes of the definition
of "Unrestricted Subsidiary", the definition of "Restricted Payment" and the
covenant described under "-Certain Covenants-Limitation on Restricted Payments",
(i) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of any Subsidiary of the Company at the time that such Subsidiary is designated
an Unrestricted Subsidiary; provided, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Issue Date" means the date of initial issuance of the Senior Subordinated
Notes pursuant to the Indenture.
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"License Subsidiary" means Radio One Licenses, Inc., a Delaware corporation
and a wholly owned subsidiary of the Company.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in any asset and any filing of, or agreement to give, any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Cash Proceeds," with respect to any issuance or sale of Equity
Interests, means the cash proceeds of such issuance or sale net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Net Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate cash proceeds received by such Person in respect of such Asset Sale,
which amount is equal to the excess, if any, of:
(i) the cash received by such Person (including any cash payments
received by way of deferred payment pursuant to, or monetization of, a note
or installment receivable or otherwise, but only as and when received) in
connection with such Asset Sale, over
(ii) the sum of
(a) the amount of any Indebtedness including any premium thereon
and fees and expenses associated therewith which is required to be
repaid by such Person in connection with such Asset Sale, plus
(b) the out-of-pocket expenses (1) incurred by such Person in
connection with such Asset Sale, and (2) if such Person is a
Restricted Subsidiary, incurred in connection with the transfer of
such amount to the parent company or entity of such Person, plus
(c) provision for taxes, including income taxes, attributable to
the Asset Sale or attributable to required prepayments or repayments
of Indebtedness with the proceeds of such Asset Sale, plus
(d) a reasonable reserve for the after-tax costs of any
indemnification payments (fixed or contingent) attributable to the
seller's indemnities to the purchaser in respect of such Asset Sale
undertaken by the Company or any of its Restricted Subsidiaries in
connection with such Asset Sale.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offer to Purchase" means a written offer (an "Offer") sent by the Company
to each Holder at his address appearing in the Note Register on the date of the
Offer offering to purchase in cash up to the principal amount of Senior
Subordinated Notes specified in such Offer at a purchase price equal to 101% of
the Accreted Value of the Senior Subordinated Notes plus accrued and unpaid
interest, if any. Unless otherwise required by applicable law, the Offer shall
specify an expiration date ("Expiration Date") of the Offer to Purchase which
shall be, subject to any contrary requirements of applicable law, not less than
30 days nor more than 60 days after the date of such Offer and a settlement date
("Purchase Date") for purchase of Senior Subordinated Notes within five Business
Days after the Expiration Date. The Company shall notify the Trustee at least 15
Business Days (or such shorter period as is acceptable to the Trustee) prior to
the mailing of the Offer of the Company's obligation to make an Offer to
Purchase, and the Offer shall be sent by first class mail by the Company or, at
the Company's request and expense, by the Trustee in the name and at the expense
of the Company. The Offer shall contain information concerning the business of
the Company and its Subsidiaries which the Company in good faith believes will
enable such Holders to make an informed decision with respect to the Offer to
Purchase (which at a minimum will include (i) the most recent annual and
quarterly financial statements
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and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the documents required to be filed with the Trustee
pursuant to the Indenture (which requirements may be satisfied by delivery of
such documents together with the Offer), (ii) a description of material
developments in the Company's business subsequent to the date of the latest of
such financial statements referred to in clause (i) (including a description of
the events requiring the Company to make the Offer to Purchase), (iii) if
applicable, appropriate pro forma financial information concerning the Offer to
Purchase and the events requiring the Company to make the Offer to Purchase and
(iv) any other information required by applicable law to be included therein.
The Offer shall contain all instructions and materials necessary to enable such
Holders to tender Senior Subordinated Notes pursuant to the Offer to Purchase.
The Offer shall also state:
(1) the Section of the Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate Accreted Value of the outstanding Senior
Subordinated Notes offered to be purchased by the Company (the
"Purchase Amount") and the aggregate principal amount of the
outstanding Senior Subordinated Notes offered to be purchased by the
Company pursuant to the Offer to Purchase (including, if less than
100% of the principal amount, the manner by which such has been
determined pursuant to the Section hereof requiring the Offer to
Purchase);
(4) the purchase price to be paid by the Company (the "Purchase
Price") for each $1,000 aggregate principal amount of Senior
Subordinated Notes accepted for payment (as specified pursuant to the
Indenture);
(5) that the Holder may tender all or any portion of the Senior
Subordinated Notes registered in the name of such Holder and that any
portion of a Senior Subordinated Note tendered must be tendered in an
integral multiple of $1,000 principal amount;
(6) the place or places where Senior Subordinated Notes are to be
surrendered for tender pursuant to the Offer to Purchase;
(7) that interest on any Senior Subordinated Note not tendered or
tendered but not purchased by the Company pursuant to the Offer to
Purchase will continue to accrue;
(8) that on the Purchase Date the Purchase Price will become due
and payable upon each Senior Subordinated Note being accepted for
payment pursuant to the Offer to Purchase and that interest thereon
shall cease to accrue on and after the Purchase Date;
(9) that each Holder electing to tender a Senior Subordinated
Note pursuant to the Offer to Purchase will be required to surrender
such Senior Subordinated Note at the place or places specified in the
Offer prior to the close of business on the Expiration Date (such
Senior Subordinated Note being, if the Company or the Trustee so
requires, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Trustee duly
executed by, the Holder thereof or his attorney duly authorized in
writing);
(10) that Holders will be entitled to withdraw all or any portion
of Senior Subordinated Notes tendered if the Company (or the Paying
Agent) receives, not later than the close of business on the
Expiration Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the
Senior Subordinated Note that the Holder tendered, the certificate
number of the Senior Subordinated Note that the Holder tendered and a
statement that such Holder is withdrawing all or a portion of his
tender;
(11) that (a) if Senior Subordinated Notes in an aggregate
Accreted Value less than or equal to the Purchase Amount are duly
tendered and not withdrawn pursuant to the Offer to Purchase, the
Company shall purchase all such Senior Subordinated Notes and (b) if
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Senior Subordinated Notes in an aggregate Accreted Value in excess of
the Purchase Amount are tendered and not withdrawn pursuant to the
Offer to Purchase, the Company shall purchase Senior Subordinated
Notes having an aggregate Accreted Value equal to the Purchase Amount
on a pro rata basis (with such adjustments as may be deemed
appropriate so that only Senior Subordinated Notes in denominations of
$1,000 principal amount or integral multiples thereof shall be
purchased); and
(12) that in the case of any Holder whose Senior Subordinated
Note is purchased only in part, the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Senior
Subordinated Note without service charge, a new Senior Subordinated
Note or Senior Subordinated Notes, of any authorized denomination as
requested by such Holder, in an aggregate amount equal to and in
exchange for the unpurchased portion of the Senior Subordinated Note
so tendered.
Any Offer to Purchase will be governed by and effected in accordance with
the Offer for such Offer to Purchase.
"Permitted Investment" means:
(i) any Investment in the Company or any Wholly Owned Restricted
Subsidiary;
(ii) any Investment in Cash Equivalents;
(iii) any Investment in a Person if, as a result of such Investment,
(a) such Person becomes a Wholly Owned Restricted Subsidiary of the
Company, or (b) such Person either (1) is merged, consolidated or
amalgamated with or into the Company or one of its Wholly Owned Restricted
Subsidiaries and the Company or such Wholly Owned Restricted Subsidiary is
the Surviving Person or the Surviving Person becomes a Wholly Owned
Restricted Subsidiary, or (2) transfers or conveys all or substantially all
of its assets to, or is liquidated into, the Company or one of its Wholly
Owned Restricted Subsidiaries;
(iv) any Investment in accounts and notes receivable acquired in the
ordinary course of business;
(v) notes from employees issued to the Company representing payment of
the exercise price of options to purchase capital stock of the Company; and
(vi) Investments in Unrestricted Subsidiaries represented by Equity
Interests (other than Disqualified Stock) or assets and property acquired
in exchange for Equity Interests (other than Disqualified Stock) of the
Company.
Any Investment in an Unrestricted Subsidiary shall not be a Permitted
Investment unless permitted pursuant to any of clauses (i) through (vi) above.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof or any
other entity.
"Principal Shareholders" means Catherine L. Hughes and Alfred C. Liggins,
III and their respective estates, executors and heirs.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Purchase Money Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in connection with the purchase of property or
assets for the business of the Company and its Restricted Subsidiaries.
"Purchase Money Lien" means any Lien securing solely Purchase Money
Indebtedness.
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"Refinancing Indebtedness" means (i) Indebtedness of the Company or any
Restricted Subsidiary incurred or given in exchange for, or the proceeds of
which are used to extend, refinance, renew, replace, substitute, defease or
refund, any other Indebtedness or Disqualified Stock permitted by the terms of
the Indenture, and (ii) Indebtedness of any Restricted Subsidiary incurred or
given in exchange for, or the proceeds of which are used to extend, refinance,
renew, replace, substitute, defease or refund, any other Indebtedness or
Disqualified Stock of the Company or any Restricted Subsidiary in accordance
with the terms of the Indenture.
"Related Party" with respect to any Principal Shareholder means (i) any 80%
(or more) owned Subsidiary or Immediate Family Member (in the case of an
individual) of such Principal Shareholder or (ii) any Person, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Principal Shareholder or an
Immediate Family Member, or (iii) any Person employed by the Company in a
management capacity as of the Issue Date.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Equity Interests (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Equity Interests (other than distributions payable
solely in its Equity Interests (other than Disqualified Stock) and dividends or
distributions payable solely to the Company or a Restricted Subsidiary, and
other than pro rata dividends or other distributions made by a Subsidiary that
is not a Wholly Owned Restricted Subsidiary to minority stockholders (or owners
of an equivalent interest in the case of a Subsidiary that is an entity other
than a corporation)), (ii) the purchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company held by any Person
or of any Equity Interests of a Restricted Subsidiary held by any Affiliate of
the Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Equity Interests (other than its Equity Interests of the
Company that is not Disqualified Stock), (iii) the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment of any
Subordinated Debt (other than the purchase, repurchase or other acquisition of
Subordinated Debt purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition) or (iv) the making of any Investment in any
Person (other than a Permitted Investment).
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Secured Debt" means any Indebtedness of the Company secured by a Lien.
"Senior Bank Debt" means the Indebtedness Incurred pursuant to the Credit
Agreement and any other agreement that replaces the Credit Agreement or
otherwise refunds or refinances any or all of the indebtedness thereunder.
"Senior Debt" means:
(i) with respect to the Company, the principal of and interest
(including post-petition interest whether or not allowed as a claim) on,
and all other amounts owing in respect of Indebtedness permitted to be
incurred by the Company under the terms of the Indenture, including the
Credit Agreement, (including but not limited to reasonable fees and
expenses of counsel and all other charges, fees and expenses incurred in
connection with such Indebtedness), whether presently outstanding or
hereafter created, incurred or assumed, unless the instrument creating or
evidencing such Indebtedness or pursuant to which such Indebtedness is
outstanding expressly provides that such Indebtedness is on a parity with
or subordinated in right of payment to the Senior Subordinated Notes; and
(ii) with respect to any Subsidiary Guarantor, the principal of and
interest (including post- petition interest whether or not allowed as a
claim) on, and all other amounts owing in respect of Indebtedness permitted
to be incurred by such Subsidiary Guarantor under the terms of the
Indenture, including the Credit Agreement, (including but not limited to
reasonable fees and expenses of counsel and all other charges, fees and
expenses incurred in connection with such Indebtedness),
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whether presently outstanding or hereafter created, incurred or assumed,
unless the instrument creating or evidencing such Indebtedness or pursuant
to which such Indebtedness is outstanding expressly provides that such
Indebtedness is on a parity with or subordinated in right of payment to the
Subsidiary Guarantee of such Subsidiary Guarantor.
Notwithstanding the foregoing, Senior Debt shall not include (A) any
Indebtedness consisting of Disqualified Stock, (B) any liability for federal,
state, local, or other taxes, (C) any Indebtedness among or between the Company,
any Restricted Subsidiary or any of their Affiliates, (D) any trade payables and
any Indebtedness to trade creditors (other than amounts accrued thereon)
incurred for the purchase of goods or materials, or for services obtained, in
the ordinary course of business or any Obligations to trade creditors in respect
of any such Indebtedness, or (E) any Indebtedness that is incurred in violation
of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Subordinated Debt" means any Indebtedness of the Company or a Subsidiary
Guarantor if the instrument creating or evidencing such Indebtedness or pursuant
to which such Indebtedness is outstanding expressly provides that such
Indebtedness is (i) if incurred by the Company, subordinated in right of payment
to the Senior Subordinated Notes, or (ii) if incurred by a Subsidiary Guarantor,
subordinated in right of payment to the Subsidiary Guarantee of such Subsidiary
Guarantor.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of all Voting Equity Interests entitled (without regard to the occurrence
of any contingency) to vote in the election of directors, managers or trustees
or other governing body thereof is at the time owned or controlled by such
Person (regardless of whether such Equity Interests are owned directly or
through one or more other Subsidiaries of such Person or a combination thereof).
"Subsidiary Guarantees" means the guarantees of the Senior Subordinated
Notes by the Subsidiary Guarantors.
"Subsidiary Guarantors" means License Subsidiary and each other Subsidiary
of the Company that executes and delivers the Indenture as contemplated by the
covenant described under "-Certain Covenants-Future Subsidiary Guarantors."
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be an Unrestricted Subsidiary (as designated by
the Board of Directors of the Company, as provided below) and (ii) any direct or
indirect Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the
Company may designate any Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary if all of
the following conditions apply: (a) neither the Company nor any of its
Restricted Subsidiaries provides credit support for any Indebtedness of such
Subsidiary (including any undertaking, agreement or instrument evidencing such
Indebtedness) other than capital contributions or other Restricted Payments
permitted under the covenant "Limitation on Restricted Payments," (b) such
Subsidiary is not liable, directly or indirectly, with respect to any
Indebtedness other than Unrestricted Subsidiary Indebtedness, (c) such
Unrestricted Subsidiary is not a party to any agreement, contract, arrangement
or understanding at such time with the Company or any Restricted Subsidiary of
the Company except for transactions with affiliates permitted by the terms of
the Indenture unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company (the "Third Party Value") or, in the event such
condition is not satisfied, an amount equal to the value of the portion of such
agreement, contract, arrangement or understanding to such Subsidiary in excess
of the Third Party Value shall be deemed a Restricted Payment, and (d) such
Unrestricted Subsidiary does not own any Equity Interest in or In-
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debtedness of any Subsidiary of the Company that has not theretofore been and is
not simultaneously being designated an Unrestricted Subsidiary. Any such
designation by the Board of Directors of the Company shall be evidenced to the
Trustee by filing with the Trustee of a board resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complies with the foregoing conditions. The Board of Directors of the Company
may designate any Unrestricted Subsidiary as a Restricted Subsidiary; provided,
however, that (i) immediately after giving effect to such designation, the
Company could incur $1.00 of additional Indebtedness pursuant to the
restrictions under the "-Certain Covenants-Limitation on Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant and (ii) all Indebtedness
of such Unrestricted Subsidiary shall be deemed to be incurred on the date such
Subsidiary is designated a Restricted Subsidiary.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary means
Indebtedness of such Unrestricted Subsidiary (other than a guarantee of
Indebtedness of the Company or any Restricted Subsidiary which is non-recourse
to the Company and its Restricted Subsidiaries) (i) as to which neither the
Company nor any Restricted Subsidiary is directly or indirectly liable (by
virtue of the Company or any such Restricted Subsidiary being the primary
obligor on, guarantor of, or otherwise liable in any respect to, such
Indebtedness) and (ii) which, upon the occurrence of a default with respect
thereto, does not result in, or permit any holder of any Indebtedness of the
Company or any Restricted Subsidiary to declare, a default on such Indebtedness
of the Company or any Restricted Subsidiary or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Equity Interest" of a Person means all classes of Equity Interest
or other interests (including partnership interests) of such Person then
outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof.
"Warrant Agreement" means the Warrantholders' Agreement dated as of June 6,
1995, as amended from time to time, among the Company, the Principal
Shareholders, Jerry Moore and the Warrantholders.
"Warrantholders" means the holders of warrants issued pursuant to the
Warrant Agreement and, in the case of any such holders, shares of Common Stock
issued in exchange therefor.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, by (b)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all of
the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company or a
Surviving Person of any Disposition involving the Company, as the case may be.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure to
pay (whether or not prohibited by the subordination provisions of the Indenture)
principal of (or premium, if any, on) any Senior Subordinated Note when due; (b)
failure to pay (whether or not prohibited by the subordination provisions of the
Indenture) any interest on any Senior Subordinated Note when due, continued for
30 days; (c) failure to redeem or purchase (whether or not prohibited by the
subordination provisions of the Indenture) any Senior Subordinated Note when
required pursuant to the Indenture, including in connection with any Offer to
Purchase as described under "-Certain Covenants-Change of Control" and
"-Limitation on Certain Asset Sales;" (d) failure to comply with the provisions
described under
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"--Limitation on Merger, Consolidation and Sale of Assets;" (e) failure to
perform any other covenant or agreement of the Company or the Subsidiary
Guarantors under the Indenture, the Senior Subordinated Notes or the Subsidiary
Guarantees continued for 30 days after written notice to the Company by the
Trustee or Holders of at least 25% in aggregate principal amount of Senior
Subordinated Notes then outstanding; (f) default under the terms of any
instrument evidencing or securing Indebtedness for money borrowed by the Company
or any Restricted Subsidiary having an outstanding principal amount of $5.0
million individually or in the aggregate which default results in the
acceleration of the payment of such Indebtedness or constitutes the failure to
pay such Indebtedness when due at final maturity and such non-payment shall have
continued for 30 days; (g) the rendering of a final judgment or judgments (not
subject to appeal) against the Company or any Restricted Subsidiary in an amount
in excess of $5.0 million which remains undischarged or unstayed for a period of
60 days after the later of (A) entry of such final judgment or decree and (B)
the date on which the right to appeal has expired; (h) certain events of
bankruptcy, insolvency or reorganization affecting the Company or any Restricted
Subsidiary and (i) a Subsidiary Guarantee of a significant Subsidiary of the
Company ceases to be in full force and effect (other than in accordance with the
terms of such Subsidiary Guarantee) or a Subsidiary Guarantor denies or
disaffirms its obligation under its Subsidiary Guarantee.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Senior Subordinated Notes
may declare the Accreted Value of and accrued but unpaid interest, if any, on
all the Senior Subordinated Notes to be due and payable (collectively, the
"Default Amount"). Upon such a declaration, the Default Amount shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the Default Amount on all the Senior Subordinated Notes will ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any holders of the Senior Subordinated Notes.
Under certain circumstances, the holders of a majority in principal amount of
the outstanding Senior Subordinated Notes may rescind any such acceleration with
respect to the Senior Subordinated Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Senior
Subordinated Notes unless such holders have offered to the Trustee reasonable
indemnity or security against any loss, liability or expense. Except to enforce
the right to receive payment of principal, premium (if any) or interest when
due, no holder of a Senior Subordinated Note may pursue any remedy with respect
to the Indenture or the Senior Subordinated Notes unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
holders of at least 25% in principal amount of the outstanding Senior
Subordinated Notes have requested the Trustee to pursue the remedy, (iii) such
holders have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee has not complied with such request
within 60 days after the receipt thereof and the offer of security or indemnity
and (v) the holders of a majority in principal amount of the outstanding Senior
Subordinated Notes have not given the Trustee a direction inconsistent with such
request within such 60-day period. Subject to certain restrictions, the holders
of a majority in principal amount of the outstanding Senior Subordinated Notes
are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust or
power conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other holder of a Senior
Subordinated Note or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Senior
Subordinated Notes notice of the Default within 90 days after it occurs. Except
in the case of a Default in the payment of principal or interest on any Senior
Subordinated Note, the Trustee may withhold notice if and so long as a committee
of its trust officers determines that withholding notice is not opposed to the
interest of the holders of the Senior Subordinated Notes. In addition, the
Company is required to deliver to the Trustee, within 120 days after the end of
each fiscal year, a certificate indicating whether the signers thereof know of
any Default that occurred during the previous year. The Company also is required
to deliver to the Trustee, within 30
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days after the occurrence thereof, written notice of any event which would
constitute certain Defaults, their status and what action the Company is taking
or proposes to take in respect thereof.
GOVERNING LAW
The Indenture, the Senior Subordinated Notes and the Subsidiary Guarantees
are governed by the laws of the State of New York.
DEFEASANCE
The Company at any time may terminate all its obligations under the Senior
Subordinated Notes and the Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Senior Subordinated Notes, to replace
mutilated, destroyed, lost or stolen Senior Subordinated Notes and to maintain a
registrar and paying agent in respect of the Senior Subordinated Notes. The
Company at any time may terminate its obligations under the covenants described
under "-Certain Covenants", the operation of the cross acceleration provision,
the bankruptcy provisions with respect to Restricted Subsidiaries, the judgment
default provision and the Subsidiary Guarantee provisions described under Events
of Default and the limitations contained in clause (a) (iv) and (c) under
"Limitation on Merger, Consolidation and Sale of Assets" above ("covenant
defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Senior Subordinated Notes may not be
accelerated because of an Event of Default with respect thereto. If the Company
exercises its covenant defeasance option, payment of the Senior Subordinated
Notes may not be accelerated because of an Event of Default specified in clause
(c), (f), (g), (h) (with respect only to Restricted Subsidiaries) or (i) under
"Events of Default" above or because of the failure of the Company to comply
with clause (a) (iv) or (c) under "Limitation on Merger, Consolidation and Sale
of Assets" above. If the Company exercises its legal defeasance option or its
covenant defeasance option, each Subsidiary Guarantor will be released from all
of its obligations with respect to its Subsidiary Guaranty and the Security
Agreements.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Senior
Subordinated Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Senior Subordinated Notes
will not recognize income, gain or loss for Federal income tax purposes as a
result of such deposit and defeasance and will be subject to Federal income tax
on the same amounts and in the same manner and at the same times as would have
been the case if such deposit and defeasance had not occurred (and, in the case
of legal defeasance only, such Opinion of Counsel must be based on a ruling of
the Internal Revenue Service or other change in applicable Federal income tax
law).
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the holders of a majority in aggregate
principal amount of the Senior Subordinated Notes then outstanding; provided,
however, that no such modification or amendment may, without the consent of the
holder of each Senior Subordinated Note then outstanding affected thereby, (a)
change the Stated Maturity of the principal of, or any installment of interest
on, any Senior Subordinated Note, (b) reduce the principal amount of (or the
premium), or interest on, any Senior Subordinated Note, (c) change the place or
currency of payment of principal of (or premium), or interest on, any Senior
Subordinated Note, (d) impair the right to institute suit for the enforcement of
any payment on or with respect to any Senior Subordinated Note, (e) reduce the
above-stated percentage of Senior Subordinated Notes then outstanding necessary
to modify or amend the Indenture, (f) reduce the percentage of aggregate
principal amount of Senior Subordinated Notes then outstanding necessary for
waiver of
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compliance with certain provisions of the Indenture or for waiver of certain
defaults, (g) modify any provisions of the Indenture relating to the
modification and amendment of the Indenture or the waiver of past defaults or
covenants, except as otherwise specified, (h) modify any of the provisions of
the Indenture relating to the subordination of the Senior Subordinated Notes or
the Subsidiary Guarantees in a manner materially adverse to the holders, (i)
modify any provisions of the Indenture relating to the guarantee by the Company
or any Subsidiary Guarantor of the Indebtedness of any Unrestricted Subsidiaries
or (j) following the mailing of any Offer to Purchase, modify any Offer to
Purchase for the Senior Subordinated Notes required under covenants described
under "Certain Covenants-Limitation on Certain Asset Sales" and "-Change of
Control" in a manner materially adverse to the holders thereof.
The holders of a majority in aggregate principal amount of the outstanding
Senior Subordinated Notes, on behalf of all holders of Senior Subordinated
Notes, may waive compliance by the Company with certain restrictive provisions
of the Indenture. Subject to certain rights of the Trustee, as provided in the
Indenture, the holders of a majority in aggregate principal amount of the Senior
Subordinated Notes then outstanding, on behalf of all holders of Senior
Subordinated Notes, may waive any past default under the Indenture, except a
default in the payment of principal, premium or interest, a default arising from
failure to purchase any Senior Subordinated Note tendered pursuant to an Offer
to Purchase or a default in respect of a provision that cannot be amended
without the consent of each Noteholder affected.
THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the Trustee
will exercise such rights and powers vested in it under the Indenture and use
the same degree of care and skill in its exercise as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claim as
security or otherwise. The Trustee is permitted to engage in other transactions
with the Company or any Affiliate; provided, that if it acquires any conflicting
interest (as defined in the Indenture or in the Trust Indenture Act), it must
eliminate such conflict or resign.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were originally sold by the Company on May 19, 1997 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Notes to qualified institutional buyers in reliance on
Rule 144A under the Securities Act and to a limited number of institutional
accredited investors that agreed to comply with certain transfer restrictions
and other conditions. As a condition to the Purchase Agreement, the Company
entered into the Registration Rights Agreement with the Initial Purchasers (the
"Registration Rights Agreement") pursuant to which the Company has agreed, for
the benefit of the holders of the Notes, at the Company's cost, to use its best
efforts to (i) file the Exchange Offer Registration Statement within 45 days
after the date of the original issue of the Notes with the Commission with
respect to the Exchange Offer for the Exchange Notes, and (ii) cause the
Exchange Offer Registration Statement to be declared effective under the
Securities Act within 150 days after the date of original issuance of the Notes.
Upon the Exchange Offer Registration Statement being declared effective, the
Company will offer the Exchange Notes in exchange for surrender of the Notes.
The Company will keep the Exchange Offer open for not less than 30 calendar days
(or longer if required by applicable law) after the date on which notice of the
Exchange Offer is mailed to the holders of the Notes. For each Note surrendered
to the Company pursuant to the Exchange Offer, the holder of such Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Note. Interest on each Exchange Note will accrue from the date of
its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Exchange Notes would in general
be freely tradeable after the Exchange Offer without further registration under
the Securities Act. However, any purchaser of Notes who is an "affiliate" of the
Company or who intends to participate in the Exchange Offer for the purpose of
distributing the Exchange Notes (i) will not be able to rely on the
interpretation of the staff of the Commission, (ii) will not be able to tender
its Notes in the Exchange Offer and (iii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or transfer of the Notes, unless such sale or transfer is made pursuant to
an exemption from such requirements.
Each holder of the Notes (other than certain specified holders) who wishes
to exchange the Notes for Exchange Notes in the Exchange Offer will be required
to represent in the Letter of Transmittal that (i) it is not an affiliate of the
Company, (ii) the Exchange Notes to be received by it were acquired in the
ordinary course of its business and (iii) at the time of commencement of the
Exchange Offer, it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes.
In addition, each Participating Broker-Dealer that receives Exchange Notes for
its own account in exchange for Notes, where such Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of Distribution."
The Commission has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to the Exchange
Notes (other than a resale of an unsold allotment from the original sale of the
Notes) with the prospectus contained in the Exchange Offer Registration
Statement. Under the Registration Rights Agreement, the Company is required to
allow Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use the prospectus contained in the Exchange
Offer Registration Statement in connection with the resale of such Exchange
Notes.
In the event that changes in the law or the applicable interpretations of
the staff of the Commission do not permit the Company to effect such an Exchange
Offer, or if for any other reason the Exchange Offer is not consummated within
180 days after the original issue date of the Notes, or if any holder of the
Notes (other than an "affiliate" of the Company or the Initial Purchaser) is not
eligible to participate in the Exchange Offer, or upon the request of the
Initial Purchaser under certain circumstances, the Company will, at its cost,
(a) as promptly as practicable, file the Shelf Registration Statement covering
resales of the Notes, (b) use its best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act and (c) use its best
efforts to keep effective the Shelf Registration
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Statement until the earlier of three years after its effective date and such
time as all of the applicable Notes have been sold thereunder. The Company will,
in the event of the filing of the Shelf Registration Statement, provide to each
applicable holder of the Notes copies of the prospectus which is a part of the
Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resales of the Notes. A holder of Notes that
sells such Notes pursuant to the Shelf Registration Statement generally will be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations). In
addition, each holder of the Notes will be required to deliver information to be
used in connection with the Shelf Registration Statement and to provide comments
on the Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Notes included in the Shelf
Registration Statement and to benefit from the provisions set forth in the
following paragraph.
If (i) by July 3, 1997, neither the Exchange Offer Registration Statement
nor the Shelf Registration Statement has been filed with the SEC; (ii) by
November 17, 1997, neither the Exchange Offer is consummated nor the Shelf
Registration Statement is declared effective; or (iii) after either the Exchange
Offer Registration Statement or the Shelf Registration Statement is declared
effective, such Registration Statement thereafter ceases to be effective or
usable (subject to certain exceptions) in connection with resales of Notes or
Exchange Notes in accordance with and during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (i)
through (iii), a "Registration Default"), additional cash interest will accrue
on the Notes and the Exchange Notes, in each case at the rate of 0.50% per annum
from and including the date on which any such Registration Default shall occur
to but excluding the date on which all Registration Defaults have been cured.
Such interest is payable in addition to any other interest payable from time to
time with respect to the Notes and the Exchange Notes.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which is filed as an exhibit to the Exchange Offer Registration Statement of
which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Notes who
were eligible to participate in the Exchange Offer but who did not tender their
Notes will not have any further registration rights and such Notes will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for such Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Notes accepted
in the Exchange Offer. Holders may tender some or all of their Notes pursuant to
the Exchange Offer. However, Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes except that (i) the Exchange Notes bear a Series B designation and
a different CUSIP Number from the Notes, (ii) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof and (iii) the holders of the Exchange Notes will not be
entitled to certain rights under the Registration Rights Agreement, including
the provisions providing for an increase in the interest rate on the Notes in
certain circumstances relating to the timing of the Exchange Offer, all of which
rights will terminate when the Exchange Offer is terminated. The Exchange Notes
will evidence the same debt as the Notes and will be entitled to the benefits of
the Indenture.
As of the date of this Prospectus, $85,478,000 aggregate principal amount
of Notes were outstanding. The Company has fixed the close of business on
October 6, 1997 as the record date for the
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Exchange Offer for purposes of determining the persons to whom this Prospectus
and the Letter of Transmittal will be mailed initially.
Holders of Notes do not have any appraisal or dissenters' rights under the
General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Notes when,
as and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See "-Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
November 10, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "-Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Notes that are accepted for exchange will receive, in cash, accrued interest
thereon to, but not including, the date of issuance of the Exchange Notes. Such
interest will be paid with the first interest payment on the Exchange Notes on
November 15, 1997. Interest on the Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each May 15 and
November 15, commencing on November 15, 1997.
PROCEDURES FOR TENDERING
For a holder of Notes to tender Notes validly pursuant to the Exchange
Offer, a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), with any required signature guarantee, or (in the case of a
book-entry transfer), an Agent's Message in lieu of the Letter of Transmittal,
and any other required documents, must be received by the Exchange Agent at the
address set forth below under "Exchange Agent" prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition,
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prior to 5:00 p.m., New York City time, on the Expiration Date, either (a)
certificates for tendered Notes must be received by the Exchange Agent at such
address or (b) such Notes must be transferred pursuant to the procedures for
book-entry transfer described below (and a confirmation of such tender received
by the Exchange Agent, including an Agent's Message if the tendering holder has
not delivered a Letter of Transmittal).
The term "Agent's Message" means a message transmitted by DTC, received by
the Exchange Agent and forming part of the confirmation of a book-entry
transfer, which states that DTC has received an express acknowledgment from the
participant in DTC tendering Notes which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that the Company may enforce such
agreement against such participant. In the case of an Agent's Message relating
to guaranteed delivery, the term means a message transmitted by DTC and received
by the Exchange Agent, which states that DTC has received an express
acknowledgment from the participant in DTC tendering Notes that such participant
has received and agrees to be bound by the Notice of Guaranteed Delivery.
By tendering Notes pursuant to the procedures set forth above, each holder
will make to the Company the representations set forth above in the third
paragraph under the heading "- Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE
HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. See "Instruction to
Registered Holder and/or Book-Entry Transfer Facility Participant from Owner"
included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of the
Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered holder
as such registered holder's name appears on such Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
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The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Notes at the book-entry transfer facility, The Depository Trust Company (the
"Book-Entry Transfer Facility"), for the purpose of facilitating the Exchange
Offer, and subject to the establishment thereof, any financial institution that
is a participant in the Book-Entry Transfer Facility's system may make
book-entry delivery of Notes by causing such Book-Entry Transfer Facility to
transfer such Notes into the Exchange Agent's account with respect to the Notes
in accordance with the Book-Entry Transfer Facility's procedures for such
transfer. Although delivery of the Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility,
an appropriate Letter of Transmittal properly completed and duly executed with
any required signature guarantee, or (in the case of a book-entry transfer) an
Agent's Message in lieu of the Letter of Transmittal, and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the Exchange Offer
by causing DTC to transfer Notes to the Exchange Agent in accordance with DTC's
ATOP procedures for transfer. DTC will then send an Agent's Message to the
Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right in its sole discretion to waive any defects, irregularities
or conditions of tender as to particular Notes. The Company's interpretation of
the terms and conditions of the Exchange Offer (including the instructions in
the Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Notes must
be cured within such time as the Company shall determine. Although the Company
intends, to notify holders of defects or irregularities with respect to tenders
of Notes, neither the Company, the Exchange Agent nor any other person shall
incur any liability for failure to give such notification. Tenders of Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within five New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility),
and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
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(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by the Letter of Transmittal are
received by the Exchange Agent upon five New York Stock Exchange trading days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Notes to be withdrawn (the "Depositor"),
(ii) identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of Notes transferred by
book-entry transfer, the name and number of the account at the Book-Entry
Transfer Facility to be credited), (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee with respect
to the Notes register the transfer of such Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Notes are to
be registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Notes so withdrawn are validly retendered. Any
Notes which have been tendered but which are not accepted for exchange will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Notes may be retendered by following one of the
procedures described above under "-Procedures for Tendering" at any time prior
to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Notes for, any Exchange Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole judgment
of the Company, might materially impair the ability of the Company to proceed
with the Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation of
the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Notes and return all
tendered Notes to the tendering holders, (ii) extend the Exchange Offer and
retain all Notes tendered prior to the expiration of the Exchange Offer,
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subject, however, to the rights of holders to withdraw such Notes (see
"-Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which have
not been withdrawn.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Delivery to an address other than as set forth above will not constitute a
valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Notes, which is face value, as reflected in the Company's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii) so
long as the Notes are eligible for resale pursuant to Rule 144A, to a person
inside the United States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, in accordance with Rule 144
under the Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
reasonably acceptable to the Company), (iii) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective registration statement under
the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person that is an
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"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in exchange for Notes in the ordinary course of
business and who is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, will be allowed to resell the Exchange Notes
to the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Participating Broker-Dealer that receives
Exchange Notes for its own account in exchange for Notes, where such Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the Exchange Notes are to be
acquired by the holder or the person receiving such Exchange Notes, whether or
not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, and (v) the holder or any such other person acknowledges that if
such holder or other person participates in the Exchange Offer for the purpose
of distributing the Exchange Notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes and cannot rely on those no-action letters. As
indicated above, each Participating Broker-Dealer that receives an Exchange Note
for its own account in exchange for Notes must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. For a
description of the procedures for such resales by Participating Broker-Dealers,
see "Plan of Distribution."
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DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITY
The Company will either (i) amend and restate the Existing Credit Facility
pursuant to a commitment letter with the Bank that expires on September 26,
1997, or (ii) terminate the Existing Credit Facility. The Company is currently
exploring alternative financing sources from other senior lenders that may be
willing to provide the Company with a revolving credit facility on terms more
favorable to the Company.
If the Company enters into the New Credit Facility, the New Credit Facility
would provide a revolving credit facility in a combined amount of $7.5 million
consisting of a $5.0 million tranche (the "Tranche A Facility") which would be
available until a maturity date three years from the closing under the New
Credit Facility and a $2.5 million tranche (the "Tranche B Facility") which
would be available at such time the Tranche A Facility has been fully funded and
the Company is making an escrow deposit for an acquisition to be made pursuant
to an acquisition agreement previously approved by the Bank. The proceeds of the
Tranche A Facility and, once funded, the Tranche B Facility may be borrowed,
prepaid and reborrowed and letters of credit may be issued thereunder, subject
to a limit of $1.0 million with respect to the Tranche A Facility and $2.5
million with respect to the Tranche B Facility, provided that borrowings under
the Tranche B Facility must be repaid at such time as the related acquisition is
consummated. The New Credit Facility would terminate on the third anniversary of
its closing, at which time any outstanding principal balance together with all
accrued and unpaid interest thereon would become due and payable. All amounts
borrowed under the New Credit Facility would be guaranteed by each of the
Company's direct and indirect Restricted Subsidiaries.
The New Credit Facility would be secured by a first priority perfected
security interest in: (i) all of the Common Stock of the Company and its direct
and indirect Restricted Subsidiaries, including all warrants or options and
other similar securities to purchase such securities and (ii) substantially all
of the assets of the Company and its direct and indirect Restricted Subsidiaries
(except for certain unrestricted subsidiaries) including, without limitation,
any and all FCC licenses to the maximum extent permitted by law.
Generally, the Company would have the option to select the interest rate
and interest payment dates on borrowings under the New Credit Facility as either
(i) 1.375% plus the greater of (a) the Federal Funds Rate (to be defined in the
new credit agreement governing the New Credit Facility) plus 0.5%, and (b) the
prime rate of the Bank, with interest payable on the last day of each calendar
quarter, or (ii) subject to legality and availability, the Eurodollar Rate (to
be defined in the credit agreement) during interest periods of 1, 2, 3 or 6
months, with interest payable on the last day of each such interest period and
at the end of each 3-month period during each such interest period. Following
the occurrence of and during the continuation of an event of default (to be
defined in the credit agreement), interest will accrue at the then applicable
rates, plus 2% to the end of any then existing interest period, and thereafter
at the prime rate of the Bank plus 1.375% plus 2%. The Company will pay the Bank
a facility fee equal to approximately $75,000 at the closing of the New Credit
Facility and $9,375 will be payable on the date of the initial extension of
credit under the Tranche B Facility. Additionally, commencing at the closing,
the Company would pay a commitment fee of (i) 1/2% per annum of the unused
portion of the Tranche A Facility and (ii) 1/4% per annum of the total amount of
the Tranche B Facility until the date borrowings under the Tranche B Facility
are available, then 1/2% per annum of the unused portion of the Tranche B
Facility. In addition, the Company would pay the Bank a letter of credit fee
equal to the greater of $500 and 1% of the face amount of each letter of credit.
The outstanding principal balance of the New Credit Facility would
automatically be reduced in an amount equal to 100% of the net proceeds received
by the Borrower or any of its Restricted Subsidiaries from the sale of (i)
assets the net proceeds of which exceed $50,000 singularly or in the aggregate
in any fiscal year and which are not reinvested in broadcast assets within 270
days of such sale, provided that whenever the aggregate net proceeds realized
since the Issue Date equals or exceeds $4,750,000, then all net proceeds from
such asset sales thereafter which are not reinvested as aforesaid, shall be used
to prepay advances and to permanently reduce the applicable Commitment (as
defined in the New
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Credit Facility), (ii) the public or private issuance of indebtedness (other
than indebtedness permitted under the New Credit Facility) after closing, or
(iii) the public or private issuance of equity securities after closing except
to the extent that such proceeds are used to make permitted investments in
Unrestricted Subsidiaries. Notwithstanding the foregoing, if an event of default
under the New Credit Facility exists, all such net proceeds described above will
also reduce the applicable Commitment.
The New Credit Facility would restrict the incurrence of indebtedness in
excess of that permitted by the Senior Subordinated Notes; certain liens; loans,
investments and certain transactions with affiliates of the Company; certain
restricted payments; dividends, distributions or stock repurchases; redemption
of any Senior Preferred Stock; amendments to certain agreements between
stockholders; the payment of management fees; mergers and acquisitions; sales of
assets; changes in the business of the Company; and changes of control of the
Company. Notwithstanding anything to the contrary, the New Credit Facility would
not restrict the payment of interest payable on the Senior Subordinated Notes.
All of the terms described herein with respect to the New Credit Facility
are based on draft documents existing as of the date hereof, and the commitment
letter with the Bank. If the Company enters into the New Credit Facility,
certain of such terms may change and there can be no assurance that such would
not be material or adverse to the Company.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of (i) 2,000 authorized
shares of Common Stock, $.01 par value per share (the "Common Stock"), which
consist of (a) 1,000 shares of Class A Common Stock (the "Class A Common
Stock"), of which 138.45 shares are issued and outstanding, and (b) 1,000 shares
of Class B Common Stock (the "Class B Common Stock"), of which no shares are
issued and outstanding, and (ii) 250,000 authorized shares of Senior Preferred
Stock, par value $.01 per share, which consist of (a) 100,000 shares of Series A
15% Cumulative Redeemable Preferred Stock (the "Series A Senior Preferred
Stock"), of which 84,843.03 shares are issued and outstanding, and (b) 150,000
shares of Series B 15% Cumulative Redeemable Preferred Stock (the "Series B
Senior Preferred Stock"), of which 124,467.10 shares are issued and outstanding.
There is no established trading market for the Common Stock or the Senior
Preferred Stock.
COMMON STOCK
Dividends. Holders of shares of Common Stock are entitled to receive such
dividends as may be declared by the Company's Board of Directors out of funds
legally available for such purpose. The payment of dividends is currently
restricted by the Indenture governing the Senior Subordinated Notes and the
Preferred Stockholders' Agreement (as defined) and will be restricted by the New
Credit Facility, if it is entered into by the Company. See "Description of
Exchange Notes-Certain Covenants-Limitation on Restricted Payments" and
"Description of Certain Indebtedness-New Credit Facility."
Voting Rights. Holders of shares of Class A Common Stock vote as a single
class on all matters submitted to a vote of the stockholders except as otherwise
required by law. Except to the extent required by applicable law, holders of
shares of Class B Common Stock have no right to vote on any matter submitted to
a vote of the stockholders. Under Delaware law, the affirmative vote of the
holders of a majority of the outstanding shares of any class of the Common Stock
voting as a separate class is required to approve, among other things, a change
in the designations, preferences and limitations of the shares of such class of
Common Stock. Certain extraordinary transactions (such as a merger or a sale of
substantially all of the assets of the Company) require the affirmative vote of
at least two-thirds of the outstanding shares of Class A Common Stock.
Liquidation Rights. Upon liquidation, dissolution or winding-up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
available for distribution after payment in full of all obligations to creditors
of the Company and to the holders of Senior Preferred Stock.
Other Provisions. The holders of Common Stock are not entitled to
preemptive or subscription rights under the Company's Amended and Restated
Certificate of Incorporation. The shares of Common Stock presently outstanding
are validly issued, fully paid and nonassessable.
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Conversion. Holders of shares of either Class A Common Stock or Class B
Common Stock have the right at any time to convert all or a portion of the
shares of the class of Common Stock so held into the same number of shares of
the other class of Common Stock.
Ownership Restrictions. The Amended and Restated Certificate of
Incorporation of the Company restricts the ownership, voting and transfer of the
Company's capital stock in accordance with the Communications Act and the rules
of the FCC, to prohibit ownership of the Company's outstanding capital stock (or
the voting rights it represents) by or for the account of aliens or corporations
otherwise subject to domination or control by aliens.
SENIOR PREFERRED STOCK
Dividends. Dividends on the outstanding shares of Senior Preferred Stock
will accumulate at the rate of 15% per annum and will compound annually. The
Company may, at its option, pay dividends either in cash or by accumulating such
dividends. In the event that the Company breaches one of the covenants contained
in the Preferred Stockholders' Agreement (and fails to cure such breach during
the applicable cure period), the holders of a majority of the outstanding shares
of Senior Preferred Stock may elect, by notifying the Company in writing, to
have the accrual rate for dividends on the Senior Preferred Stock increased to
18% per annum until such breach has been waived or cured; provided, however, in
the event the Company fails to meet certain minimum cash flow, revenue or EBITDA
targets relating exclusively to the operations of WPHI-FM, the dividend rate on
the outstanding shares of Senior Preferred Stock shall be retroactively
increased to 17% per annum from the date of issuance until such time as such
default is cured or waived by the holders of a majority of the outstanding
shares of Senior Preferred Stock. The payment of dividends are restricted by the
Indenture governing the Senior Subordinated Notes and will be restricted by the
New Credit Facility, if it is entered into by the Company. In addition, the
payment of dividends may be restricted by any other agreement governing
indebtedness for borrowed money permitted by the Preferred Stockholders'
Agreement together with the Indenture and the New Credit Facility,, the "Debt
Agreements"). See "Description of Exchange Notes-Certain Covenants-Limitation on
Restricted Payments."
Voting Rights. The Senior Preferred Stock will be non-voting, except with
respect to certain amendments to the Company's Amended and Restated Certificate
of Incorporation and as otherwise required by law. Under Delaware law, the
affirmative vote of the holders of a majority of the outstanding shares of the
Senior Preferred Stock voting as a separate class is required to approve, among
other things, a change in the designations, preferences and limitations of the
shares of Senior Preferred Stock.
Liquidation Rights. Upon the liquidation, winding up or dissolution of the
Company, holders of the Senior Preferred Stock shall be entitled to receive $100
per share, plus accumulated but unpaid dividends thereon, if any, before any
payments shall be made to holders of the Common Stock. The Senior Preferred
Stock shall rank senior to all other outstanding classes of equity securities.
The Company shall not be permitted to authorize any new class of equity security
without the approval of at least a majority of the shares of the Senior
Preferred Stock then outstanding, voting or consenting, as the case may be, as
one class.
Redemption Rights. The shares of Senior Preferred Stock shall be redeemed
on May 29, 2005 (the "Mandatory Redemption Date"). The redemption of Senior
Preferred Stock will be restricted by applicable law and by the terms of the
Debt Agreements. See "Description of Exchange Notes-Certain
Covenants-Limitation on Restricted Payments."
Subject to applicable law and the terms of the Debt Agreements, the
Company, at its sole option, may redeem then outstanding shares of Senior
Preferred Stock at a redemption price equal to 100% of the Senior Preferred
Stock's liquidation value (plus any accumulated and accrued but unpaid dividends
thereon) as follows:
o The Company may redeem all or a portion of the outstanding shares of Series
A Senior Preferred Stock; provided, however, that any holder of Series B
Senior Preferred Stock shall have the right to have its shares redeemed as
well (such redemptions will take place on a pro rata basis so that the
Company will not be required to (although it may elect to) redeem more
shares of Senior Preferred Stock than it originally called for redemption
from the holders of Series A Senior Preferred Stock).
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o So long as the Company has paid in full all accumulated and accrued but
unpaid dividends on the outstanding shares of Senior Preferred Stock, the
Company may redeem shares of Senior Preferred Stock having an aggregate
liquidation value of $2.0 million, which redemption shall be on a pro rata
basis among all holders of shares of Senior Preferred Stock.
o At any time and from time to time on or after June 6, 1999, the Company may
redeem all or a portion of the outstanding shares of Senior Preferred Stock
(such redemptions to take place on a pro rata basis).
Subject to applicable law and the terms of the Debt Agreements, the holders
of Senior Preferred Stock may require the Company to redeem the outstanding
shares of Senior Preferred Stock at a redemption price equal to 100% of the
Senior Preferred Stock's liquidation value (plus any accumulated and accrued but
unpaid dividends thereon) as follows:
o The holders of shares of Series B Senior Preferred Stock shall have the
right to require the Company to redeem their shares of Series B Preferred
in the event that the Company exercises its option to redeem shares of
Series A Senior Preferred Stock (such redemptions will take place on a pro
rata basis so that the Company will not be required to (although it may
elect to) redeem more shares of Senior Preferred Stock than it originally
called for redemption from the holders of Series A Senior Preferred Stock).
o Upon the occurrence of the Company's initial public offering of Common
Stock (other than an offering made in connection with a business
acquisition or combination or an employee benefit plan), the holders of a
majority of the outstanding shares of Senior Preferred Stock shall have the
right to require the Company to redeem all or a portion of the outstanding
shares of Senior Preferred Stock including any and all accumulated and
accrued but unpaid dividends thereon but only to the extent of the net
proceeds to the Company from the public sale of such Common Stock.
o Once all of the Company's outstanding indebtedness for money borrowed has
been finally and indefeasibly paid in full in cash (including, without
limitation, the Senior Indebtedness (as defined in the Standstill
Agreement)), and any commitment to fund related thereto shall have been
terminated, if any covenant under the Preferred Stockholders' Agreement
discussed below is then in breach and such breach has not been cured during
the applicable cure period, then, following the expiration of such cure
period and continuing until such time as the breach is cured, the holders
of a majority of the outstanding shares of Senior Preferred Stock shall
have the right to require the Company to redeem all or a portion of the
outstanding shares of Senior Preferred Stock (such redemptions to take
place on a pro rata basis among all holders of shares of Senior Preferred
Stock).
Preferred Stockholders' Agreement. The Company is subject to certain
restrictions, and the holders of Senior Preferred Stock are entitled to certain
rights, under the terms of a Preferred Stockholders' Agreement dated as of May
14, 1997 entered into by the Company, Radio One Licenses, Inc., the holders of
the Senior Preferred Stock, Alfred C. Liggins, III, Catherine L. Hughes and
Jerry A. Moore (as the same may be amended from time to time, the "Preferred
Stockholders' Agreement"). Under the Preferred Stockholders' Agreement, for so
long as the Senior Preferred Stock is outstanding, the Company is obligated to
satisfy certain financial tests in respect of broadcast cash flow for the
Company as a whole, corporate overhead expense and capital expenditures. In
addition, for so long as any Senior Preferred Stock or Warrants are outstanding,
the Company is required to comply with certain financial statement delivery
requirements as well as covenants that restrict the Company's ability to incur
indebtedness for borrowed money or liens, sell a material portion of its assets,
merge with or acquire additional businesses, make loans to or investments in
others, enter into sale-leaseback transactions, amend its certificate of
incorporation or bylaws, change its accounting policies, engage in affiliated
transactions, or declare or pay dividends or sell or issue capital stock.
Generally, compliance with the terms of the Preferred Stockholders' Agreement
may be waived by the holders of a majority of the outstanding shares of Senior
Preferred Stock. However, any amendments to the covenants regarding the
prohibition on mergers and acquisitions of additional businesses or the
distribution, redemption or issuance of capital stock will require the consent
of the holders of at least eighty percent of the outstanding shares of Senior
Preferred Stock. Additionally, the Company shall be obligated to indemnify the
holders of the
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Senior Preferred Stock against certain tax obligations which may adversely
affect such holders as a result of the Existing Notes Exchange. The Company's
failure to comply with any covenants or financial tests set forth in the
Preferred Stockholders' Agreement shall give rise to the rights set forth below.
In addition, the Preferred Stockholders' Agreement provides that at the
election of the holders of a majority of the outstanding shares of Senior
Preferred Stock the Company will, subject to the terms of the Standstill
Agreement (as defined), within four months of the occurrence of any of the
following events, enter into a signed agreement for the sale of the Company or
the assets thereof or a signed financing commitment letter with an institutional
lender, providing for sufficient funds to repay all of the outstanding
indebtedness under the Debt Agreements, the liquidation value of the outstanding
shares of the Senior Preferred Stock (including all accrued and unpaid dividends
thereon) and the value of the Warrants, and close such transaction upon FCC
approval but in any event within four months of such signed agreement: (1) the
Company fails to redeem any Senior Preferred Stock and such failure continues
for five days after such redemption is required; (2) the Company, without the
prior written consent of a majority of the outstanding shares of Senior
Preferred Stock, breaches and does not cure within the applicable periods, (x)
the corporate overhead expense covenant or the distributions, redemptions or
issuances of capital stock covenant by more than $250,000, (y) the indebtedness
covenant, the lien covenant, the sale of assets covenant or the guaranties
covenant, in each case by more than a specified amount, or (z) the no merger or
acquisition of additional businesses covenant in any material manner; or (3) the
Company fails to meet certain minimum trailing twelve month broadcast cash flow
hurdles for two consecutive quarter end dates. In connection with the foregoing,
the holders of a majority of the outstanding Senior Preferred Stock have the
right to expand the Company's board of directors to nine members, thereby giving
them the right to control the board, subject to FCC approval. However, the right
to cause a sale or refinancing of the Company pursuant to the foregoing is
subject to the Standstill Agreement which was entered into with the Trustee, on
behalf of the holders of the Senior Subordinated Notes, and the Bank as of May
19, 1997 (the "Standstill Agreement"). Under the Standstill Agreement, if either
the Trustee or, if the Company enters into the New Credit Facility, the Bank, is
actively pursuing its rights under the Indenture or the New Credit Facility, as
the case may be, the holders of Senior Preferred Stock may not cause the sale or
refinancing of the Company.
Forced Sale Rights. Holders of a majority of the outstanding shares of
Senior Preferred Stock have the option to cause the sale or refinancing of the
entire business of, or all of the equity interests in, the Company upon the
first to occur of the following: (1) a breach of the Company's put/call
obligations under the Warrantholders' Agreement which has not been cured within
30 days after written notice thereof; (2) a breach by the Company of the forced
sale or refinancing covenant contained in the Preferred Stockholders' Agreement
(see "Description of Capital Stock-General"); or (3) a breach of the Company's
demand registration obligations under the Warrantholders' Agreement. In
connection with the foregoing, the holders of a majority of the outstanding
Senior Preferred Stock have the right to expand the Company's board of directors
to nine members, thereby giving them the right to control the board, subject to
FCC approval. Prior to or upon the consummation of the sale or refinancing, the
Company must repay in full all outstanding indebtedness for money borrowed
(including without limitation the Senior Indebtedness). However, the right to
cause a sale or refinancing of the Company pursuant to the foregoing is subject
to the Standstill Agreement, which provides that if any or all of the holders of
Senior Indebtedness are actively pursuing their rights under the Debt
Agreements, the holders of Senior Preferred Stock may not cause the sale or
refinancing of the Company.
WARRANTS TO PURCHASE COMMON STOCK
General. The Company has outstanding warrants (the "Warrants") to purchase
an aggregate of 147.04 shares (or approximately 51.5%) of the Company's
outstanding Common Stock on a fully diluted basis, subject to adjustment
pursuant to the provisions of the amended and restated warrant certificates
dated as of May 19, 1997, issued by the Company (the "Warrant Certificates"),
subject to FCC approval. Each registered holder of Warrants is referred to
herein as a "Warrant Holder." The Warrants were originally issued pursuant to
the Securities Purchase Agreement, dated as of June 6, 1995, among Radio One,
the investors named therein and the management stockholders named therein (the
"Securities Purchase Agreement") and were amended and restated in connection
with the Existing Notes Ex-
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change. The Warrants are subject to the Warrantholders' Agreement, dated as of
June 6, 1995, among Radio One, the stockholders named therein and the investors
named therein, as amended by the First Amendment to the Warrantholders'
Agreement dated as of May 19, 1997 (the "Warrantholders' Agreement") and are
entitled to certain benefits under the Preferred Stockholders' Agreement. A copy
of each of the Warrant Certificates, the Preferred Stockholders' Agreement and
the Warrantholders' Agreement (collectively, the "Warrant Documents") can be
obtained, upon request, from the Company. The Securities Purchase Agreement was
substantially terminated upon the consummation of the Existing Notes Exchange.
The following is a summary of certain provisions of the Warrant Documents.
Terms of Exercise. Each Warrant entitles the Warrant Holder, subject to and
upon compliance with the provisions of the Warrant Documents, to purchase one
share of the Company's Common Stock, or such other number of shares of Common
Stock as may be determined in accordance with the adjustment terms of the
Warrant Certificate, at a price per share of $100, subject to adjustment in
accordance with the terms of the Warrant Certificate (the "Warrant Price"). The
Warrant Certificate provides that the number of shares of Common Stock
purchasable upon exercise of the Warrants and the Warrant Price shall be
adjusted upon the occurrence of any subdivision or combination of the Company's
Common Stock, or upon the payment of a dividend or distribution on the Common
Stock consisting of shares of Common Stock.
Each Warrant is exercisable (i) by Warrant Holders holding a majority of
the outstanding shares of Senior Preferred Stock or (ii) at any time after the
redemption of all of the outstanding shares of Senior Preferred Stock, by the
Warrant Holder of such Warrant, except that if a Warrant Holder is a Specialized
Small Business Investment Company (as defined in the Warrant Certificate), the
Warrant held by such Warrant Holder may not be exercised after the sixth
anniversary of the redemption in full of all Senior Preferred Stock held by such
Warrant Holder.
Each Warrant is exercisable upon the completion of certain procedures
specified in the Warrant Certificate including surrender to the Company of the
underlying Warrant Certificate together with the payment to the Company of (a)
cash in an amount equal to the then applicable Warrant Price or (b) that number
of shares of Common Stock of the Company having a fair market value (as defined
in the Warrant Certificate) equal to the then applicable Warrant Price. In the
alternative, the Warrant Holder may exercise each of its Warrants, on a net
basis, such that, without the exchange of any funds, the Warrant Holder will
receive that number of shares of Common Stock issuable upon exercise of such
Warrant less that number of shares of Common Stock having an aggregate fair
market value (as defined in the Warrant Certificate) at the time of exercise
equal to the applicable Warrant Price.
Put and Call Rights. Following the consummation of the Existing Notes
Exchange, the holders of Senior Preferred Stock representing a majority of the
outstanding shares of Senior Preferred Stock may, subject to the terms of the
Standstill Agreement, elect to require the Company to purchase all outstanding
Warrants (and other equity securities identified in the Warrantholders'
Agreement) held by all of the holders of the Senior Preferred Stock and all of
the holders of the Warrants (collectively, the "Put/Call Securities") at any
time on or after: (i) the redemption in full of the Senior Preferred Stock, (ii)
the merger or consolidation of the Company (subject to certain exceptions
contained in the Warrantholders' Agreement and the Preferred Stockholders'
Agreement), or (iii) the sale of all or substantially all of the capital stock
or assets of the Company or any subsidiary (subject to certain exceptions
contained in the Warrantholders' Agreement and the Preferred Stockholders'
Agreement); provided, however, that the Company's obligation to repurchase such
Put/Call Securities shall arise only to the extent permitted by the terms of the
Debt Agreements and the Standstill Agreement.
Subject to the terms of the Standstill Agreement, each holder of the
outstanding shares of Senior Preferred Stock may also require the Company to
purchase all outstanding Put/Call Securities held by such holder on the
Mandatory Redemption Date upon 120 days prior written notice to the Company.
At the election of the Company, the Company may repurchase all, but not
less than all, of the Put/Call Securities then outstanding at any time after the
Mandatory Redemption Date, so long as: (i) there is no outstanding request for
demand registration pursuant to the Warrantholders' Agreement, and (ii) all of
the outstanding shares of Senior Preferred Stock have been redeemed in full
(including all accrued but unpaid dividends) on or prior to the closing of such
repurchase.
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The purchase price of the Put/Call Securities to be purchased by the
Company (whether at the option of the Company or at the option of one or more
holders of the Put/Call Securities) is the aggregate Per Share Net Equity Value
(as defined in the Warrantholders' Agreement) of such purchased Put/Call
Securities. The Per Share Net Equity Value, for purposes of the Warrantholders'
Agreement, means the result obtained by dividing (a) the fair market value of
the Company plus all accounts receivable, cash and cash equivalents held by the
Company plus the aggregate exercise price for all outstanding Warrants less all
indebtedness for money borrowed and current liabilities of the Company by (b)
the number of shares of Common Stock outstanding on a fully diluted basis.
Registration Rights. Subject to certain conditions and exceptions, if at
any time or times, the Company shall determine to, or be required to, register
any shares of its Common Stock for sale under the Securities Act, the Company
shall use its best efforts to effect the registration under the Securities Act
of all of the Registrable Securities (as defined in the Warrantholders'
Agreement) that holders of such Registrable Securities request to be registered.
Generally, if on any two occasions after the earlier of (a) 180 days after the
initial public offering of the Company, and (b) June 6, 1998, holders of at
least 66 2/3% of the outstanding shares of Senior Preferred Stock notify the
Company in writing that they intend to offer or cause to be offered for public
sale all or any portion of their Registrable Securities, the Company shall
notify all holders of Registrable Securities and either (i) elect to make a
primary offering of its Common Stock or (ii) use its best efforts to cause the
registration under the Securities Act of all Registrable Securities requested to
be registered.
Rights to Participate in Sales of Securities. Subject to certain conditions
and exceptions, the Company can not sell or issue any shares of capital stock of
the Company or any subsidiary, or any bonds, certificates of indebtedness,
debentures or other securities convertible into or exchangeable for capital
stock of the Company or any subsidiary, or options, warrants or rights carrying
any rights to purchase capital stock or convertible or exchangeable securities
of the Company or any subsidiary or any other equity interests in the Company or
any subsidiary, other than in connection with an initial public offering of the
Company's Common Stock, unless (i) the Company shall have received a bona fide
arms' length offer to purchase such securities from a third party and (ii) the
Company first submits a written offer to holders of the Senior Preferred Stock
and/or the Warrants identifying such third party and the terms of the offer, and
the Company offers such holders of the Senior Preferred Stock and/or the
Warrants the opportunity to purchase their proportionate share of such
securities on terms and conditions not less favorable than those that the
Company proposes to sell such securities to such third party.
No Rights in Corporate Governance. Warrant Holders are not entitled, by
virtue of being Warrant Holders, to receive dividends, vote, receive notice of
any meetings of the stockholders of the Company or otherwise have any rights of
stockholders of the Company.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY
The Company's Amended and Restated Certificate of Incorporation limits the
liability of directors to the maximum extent permitted by Delaware law, which
specifies that a director of a company adopting such a provision will not be
personally liable for monetary damages for breach of fiduciary duty as a
director, except for the liability (i) for any breach of the director's duty of
loyalty to the company or its stockholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation Law;
or (iv) for any transaction from which the director derived an improper personal
benefit.
The Company's Amended and Restated Certificate of Incorporation provides
for mandatory indemnification of directors and officers and authorizes
indemnification for employees and agents in such manner, under such
circumstances and to the fullest extent permitted by the Delaware General
Corporation Law, which generally authorizes indemnification as to all expenses
incurred or imposed as a result of actions, suits or proceedings if the
indemnified parties act in good faith and in a manner they reasonably believe to
be in or not opposed to the best interests of the Company. The Company believes
that these provisions are necessary or useful to attract and retain qualified
persons as directors.
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There is no pending litigation or proceeding involving a director or
officer as to which indemnification is being sought.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
CONSEQUENCES OF THE EXCHANGE
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "Service") will not take a contrary view,
and no ruling from the Service has been or will be sought. Legislative, judicial
or administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States)
may be subject to special rules not discussed below. The Company recommends that
each holder consult such holder's own tax advisor as to the particular tax
consequences of exchanging such holder's Notes for Exchange Notes, including the
applicability and effect of any state, local or foreign tax laws.
Kirkland & Ellis, special counsel to the Company, has advised the Company
that in its opinion, the exchange of the Notes for Exchange Notes pursuant to
the Exchange Offer will not be treated as an "exchange" for federal income tax
purposes because the Exchange Notes will not be considered to differ materially
in kind or extent from the Notes. Rather, the Exchange Notes received by a
holder will be treated as a continuation of the Notes in the hands of such
holder. As a result, there will be no federal income tax consequences to holders
exchanging Notes for Exchange Notes pursuant to the Exchange Offer.
OTHER MATTERS
The following general discussion summarizes certain of the material U.S.
federal income and estate tax aspects of the purchase, ownership and disposition
of the Senior Subordinated Notes. This discussion is a summary for general
information only and does not consider all aspects of U.S. federal income tax
that may be relevant to the purchase, ownership and disposition of the Senior
Subordinated Notes by a prospective investor in light of such investor's
personal circumstances. This discussion also does not address the U.S. federal
income tax consequences of ownership of Senior Subordinated Notes not held as
capital assets within the meaning of Section 1221 of the Code, or the U.S.
federal income tax consequences to investors subject to special treatment under
the U.S. federal income tax laws, such as dealers in securities or foreign
currency, tax-exempt entities, banks, thrifts, insurance companies, persons that
hold the Senior Subordinated Notes as part of a "straddle", a "hedge" against
currency risk or a "conversion transaction", persons that have a "functional
currency" other than the U.S. dollar, and investors in pass through entities. In
addition, this discussion is limited to the U.S. federal income tax consequences
to initial holders that purchase the Senior Subordinated Notes at their issue
price (as defined below). It does not describe any tax consequences arising out
of the tax laws of any state, local or foreign jurisdiction.
This discussion is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions. All of the
foregoing is subject to change, possibly on a retroactive basis, and any such
change could affect the continuing validity of this discussion. Kirkland &
Ellis, special counsel to the Company, has advised the Company that in its
opinion, this discussion is correct in all material respects. However, persons
considering the purchase of Senior Subordinated Notes should consult their own
advisors concerning the application of U.S. Federal income tax laws, as well as
the laws of any state, local or foreign taxing jurisdiction, to their particular
situations.
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U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a Senior Subordinated Note that is (i) a
citizen or resident (as defined in Section 7701(b)(1) of the Code) of the United
States, (ii) a corporation created or organized under the laws of the United
States
or any political subdivision thereof or therein, or (iii) an estate or trust
described in Section 7701(a)(30) of the Code (a "U.S. Holder"). Certain U.S.
federal income tax consequences relevant to a holder other than a U.S. Holder
are discussed separately below.
Interest and Original Issue Discount. The Notes were, and the Exchange
Notes will be, issued with original issue discount ("OID"). OID is the excess of
(i) the stated redemption price at maturity of a Senior Subordinated Note over
(ii) its issue price.
The "stated redemption price at maturity" of a Senior Subordinated Note is
the sum of all payments provided by the instrument other than payments of
qualified stated interest. "Qualified stated interest" generally means stated
interest that is unconditionally payable in cash or property (other than debt
instruments of the issuer) at least annually at a single fixed rate that
appropriately takes into account the length of the interval between stated
interest payments. With respect to the Senior Subordinated Notes, qualified
stated interest includes all semiannual stated interest payments to the extent
that such stated interest payments do not exceed 7%. Payments attributable to
qualified stated interest will generally be taxable to a U.S. Holder as ordinary
income at the time such payments accrue or are received in accordance with each
such U.S. Holder's method of accounting.
The "issue price" of a Senior Subordinated Note is the first price at which
a substantial amount of the Senior Subordinated Notes is sold to the public for
cash (excluding sales to bond houses, brokers or similar persons or
organizations acting in the capacity as underwriters, placement agents or
wholesalers).
A U.S. Holder is required to include OID in income as ordinary interest as
it accrues under a constant yield method in advance of receipt of the cash
payments attributable to such income, regardless of such U.S. Holder's regular
method of accounting. In general, the amount of OID included in income by the
initial Holder of a Senior Subordinated Note is the sum of the daily portions of
OID for each day during the taxable year (or portion of the taxable year) on
which such Holder held such Senior Subordinated Note. The "daily portion" is
determined by allocating the OID for an accrual period equally to each day in
that accrual period. The "accrual period" for a Senior Subordinated Note may be
of any length and may vary in length over the term of a Senior Subordinated
Note, provided that each accrual period is no longer than one year and each
scheduled payment of principal or interest occurs either on the first or final
day of an accrual period.
The amount of OID for an accrual period is generally equal to the excess of
(i) the product of the Senior Subordinated Note's adjusted issue price at the
beginning of such accrual period and its yield to maturity over (ii) the amount
of any qualified stated interest payments allocable to such accrual period. The
"adjusted issue price" of a Senior Subordinated Note at the beginning of any
accrual period is the sum of the issue price of the Senior Subordinated Note
plus the amount of OID allocable to all prior accrual periods minus the amount
of any prior payments on the Senior Subordinated Note that were not qualified
stated interest payments. Under these rules, a U.S. Holder generally will have
to include in income increasingly greater amounts of OID in successive accrual
periods.
In determining the yield and maturity of the Senior Subordinated Notes, the
Company will be deemed to exercise the call option in a manner that minimizes
the yield on the Senior Subordinated Notes. If the Senior Subordinated Notes are
not in fact called on a presumed exercise date, then, for purposes of the
accrual of original issue discount, the yield and maturity of the Senior
Subordinated Notes are redetermined by treating the Senior Subordinated Notes as
retired and reissued on that date for an amount equal to their adjusted issue
price on that date.
Applicable High Yield Discount Obligation Rules. The original issue
discount on any obligation that constitutes an "applicable high yield discount
obligation" is not deductible until paid. An "applicable high yield discount
obligation" is any debt instrument that (i) has a maturity date which is more
than five years from the date of issue, (ii) has a yield to maturity which
equals or exceeds five percentage
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points over the "applicable federal rate" for the calendar month in which the
obligation is issued and (iii) has "significant original issue discount." The
applicable federal rate is an interest rate, announced monthly by the IRS, that
is based on the yield of debt obligations issued by the U.S. Treasury. A debt
instrument generally has "significant original issue discount" if, as of the
close of any accrual period
ending more than five years after the date of issue, the excess of the interest
(including original issue discount) that has accrued on the obligation over the
interest (including original issue discount) that is required to be paid
thereunder exceeds the product of the issue price of the instrument and its
yield to maturity. Moreover, if a Senior Subordinated Note's yield to maturity
exceeds the applicable federal rate plus six percentage points, a ratable
portion of the Company's deduction for original issue discount (the
"Disqualified OID") (based on the portion of the yield to maturity that exceeds
the applicable federal rate plus six percentage points) will be denied. For
purposes of the dividends-received deduction under Section 243 of the Code, the
Disqualified OID will be treated as a dividend to the extent it would have been
so treated if it had been distributed by the Company with respect to its stock.
The Company expects that, based on the terms of the instrument and its
projected yield to maturity, the Senior Subordinated Notes will constitute
applicable high yield discount obligations. As a result, the Company will not be
allowed a deduction for the accrual of original issue discount on the Senior
Subordinated Notes until such interest is actually paid.
Sale, Exchange or Redemption of the Notes. Upon the sale, exchange,
retirement or other disposition of a Senior Subordinated Note, a U.S. Holder
will generally recognize taxable gain or loss equal to the difference between
(i) the amount realized on the disposition (other than amounts attributable to
accrued and unpaid interest) and (ii) the U.S. Holder's adjusted tax basis in
the Senior Subordinated Note. A U.S. Holder's adjusted tax basis in a Senior
Subordinated Note generally will equal the cost of the Senior Subordinated Note
(net of accrued interest) to the U.S. Holder increased by any OID included in
income through the date of disposition. Assuming the Senior Subordinated Note is
held as a capital asset, such gain or loss will generally constitute capital
gain or loss and will be long-term capital gain or loss if the U.S. Holder has
held such Senior Subordinated Note for longer than one year. Moreover, if the
U.S. Holder has held such Senior Subordinated Note for a period in excess of
eighteen months, gain from the sale or other disposition generally will be
eligible for a further-reduced rate of tax. In addition, a U.S. Holder will be
required to recognize ordinary income equal to the amount of accrued interest on
the Senior Subordinated Note that such U.S. Holder has not previously included
in income under such U.S. Holder's method of accounting.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a Senior Subordinated Note that is not a
U.S. Holder (a "Non-U.S. Holder").
Subject to the discussion of backup withholding below, payments of interest
(including original issue discount) on a Senior Subordinated Note to any
Non-U.S. Holder will generally not be subject to U.S. federal income or
withholding tax, provided that (1) the holder is not (i) a direct or indirect
owner of 10 percent or more of the total voting power of all voting stock of the
Company, (ii) a controlled foreign corporation related to the Company through
stock ownership or (iii) a foreign tax-exempt organization or a foreign private
foundation for U.S. federal income tax purposes, (2) such interest payments are
not effectively connected with the conduct by the Non-U.S. Holder of a trade or
business within the United States and (3) the Company or its paying agent
receives (i) from the Non-U.S. Holder, a properly completed Form W-8 (or
substitute Form W-8) under penalties of perjury which provides the Non-U.S.
Holder's name and address and certifies that the Non-U.S. Holder of the Senior
Subordinated Note is a Non-U.S. Holder or (ii) from a security clearing
organization, bank or other financial institution that holds the Senior
Subordinated Notes in the ordinary course of its trade or business (a "financial
institution") on behalf of the Non-U.S. Holder, certification under penalties of
perjury that such a Form W-8 (or substitute Form W-8) has been received by it,
or by another such financial institution, from the Non-U.S. Holder, and a copy
of the Form W-8 (or substitute Form W-8) is furnished to the payor. Recently
proposed Treasury Regulations would provide alternative methods for satisfying
these certification requirements, and are proposed to be effective for payments
made after December 31, 1997. A
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Non-U.S. Holder that does not qualify for exemption from withholding under the
preceding paragraph generally will be subject to withholding of U.S. federal
income tax at the rate of 30% (or lower applicable treaty rate) on payments of
interest (including original issue discount) on the Senior Subordinated Notes.
If the payments of interest (including original issue discount) on a Senior
Subordinated Note are effectively connected with the conduct by a Non-U.S.
Holder of a trade or business in the United States, such payments will be
subject to U.S. federal income tax on a net basis at the rates applicable to
United States persons generally (and, with respect to corporate holders, may
also be subject to a 30 percent branch profits tax). If payments are subject to
U.S. federal income tax on a net basis in accordance with the rules described in
the preceding sentence, such payments will not be subject to United States
withholding tax so long as the holder provides the Company or its paying agent
with a properly executed Form 4224. Recently proposed Treasury Regulations would
provide alternative methods for satisfying this certification requirement, and
are proposed to be effective for payments made after December 31, 1997.
Non-U.S. Holders should consult any applicable income tax treaties, which
may provide for a lower rate of withholding tax, exemption from or reduction of
branch profits tax, or other rules different from those described above.
Sale, Exchange or Redemption of Senior Subordinated Notes. Except as
described below and subject to the discussion concerning backup withholding, any
gain realized by a Non-U.S. Holder on the sale, exchange, retirement or other
disposition of a Senior Subordinated Note generally will not be subject to U.S.
federal income tax, unless (i) such gain is effectively connected with the
conduct by such Non-U.S. Holder of a trade or business within the United States,
(ii) the Non-U.S. Holder is an individual who holds the Senior Subordinated Note
as a capital asset and is present in the United States for 183 days or more in
the taxable year of the disposition and certain other conditions are satisfied,
or (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of
U.S. tax law applicable to certain U.S.
expatriates.
Federal Estate Tax. Senior Subordinated Notes held (or treated as held) by
an individual who is a Non-U.S. Holder at the time of his or her death will not
be subject to U.S. federal estate tax provided that (i) the individual does not
actually or constructively own 10% or more of the total voting power of all
voting stock of the Company and (ii) income on the Senior Subordinated Notes was
not effectively connected with the conduct by such Non-U.S. Holder of a trade of
business within the United States.
Information Reporting and Backup Withholding. The Company must report
annually to the Service and to each Non-U.S. Holder any interest including OID
that is subject to withholding or that is exempt from U.S. withholding tax.
Copies of those information returns may also be made available, under the
provisions of a specific treaty or agreement, to the tax authorities of the
country in which the Non-U.S. Holder resides.
The regulations provide that backup withholding (which generally is a
withholding tax imposed at the rate of 31 percent on payments to persons that
fail to furnish certain required information) and information reporting will not
apply to payments made in respect of the Senior Subordinated Notes by the
Company to a Non-U.S. Holder, if the Holder certifies as to its non-U.S. status
under penalties of perjury or otherwise establishes an exemption (provided that
neither the Company nor its paying agent has actual knowledge that the holder is
a United States person or that the conditions of any other exemption are not, in
fact, satisfied).
The payment of the proceeds from the disposition of Senior Subordinated
Notes to or through the United States office of any broker, U.S. or foreign,
will be subject to information reporting and possible backup withholding unless
the owner certifies as to its non-U.S. status under penalty of perjury or
otherwise establishes an exemption, provided that the broker does not have
actual knowledge that the Holder is a U.S. person or that the conditions of any
other exemption are not, in fact, satisfied. The payment of the proceeds from
the disposition of a Senior Subordinated Note to or through a non-U.S. office of
a non-U.S. broker that is not a U.S. related person will not be subject to
information reporting or backup withholding. For this purpose, a "U.S. related
person" is (i) a "controlled foreign corporation" for U.S. federal income tax
purposes or (ii) a foreign person 50% or more of whose gross income from all
sources for the three-year period ending with the close of its taxable year
preceding the payment (or for such part of the period that the broker has been
in existence) is derived from activities that are effectively connected with the
conduct of a United States trade or business.
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In the case of the payment of proceeds from the disposition of Senior
Subordinated Notes to or through a non-U.S. office of a broker that is either a
U.S. person or a U.S. related person, the regulations require information
reporting on the payment unless the broker has documentary evidence in its
files that the owner is a Non-U.S. Holder and the broker has no knowledge to
the contrary. Backup withholding will not apply to payments made through
foreign offices of a broker that is a U.S. person or a U.S. related person
(absent actual knowledge that the payee is a U.S. person).
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Notes where such Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer or the purchasers of any
such Exchange Notes. Any Participating Broker-Dealer that resells the Exchange
Notes that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such
Exchange Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incidental to the Exchange Offer (including the expenses of one counsel
for the Holders of the Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the Holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Securities
hereby offered will be passed upon for the Company by Kirkland & Ellis,
Washington, D.C.
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EXPERTS
The audited financial statements of the Company as of December 31, 1996,
and 1995 and for each of the years in the three-year period ended December 31,
1996, included in this Prospectus and the Registration Statement, have been
audited by Arthur Andersen LLP, independent public accountants, as stated in
their report thereon appearing elsewhere herein, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
The audited financial statements of the Jarad Broadcasting Company of
Pennsylvania, Inc. as of December 31, 1996, and 1995 and for each of the years
in the three-year period ended December 31, 1996, included in this Prospectus
and the Registration Statement, have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their report with respect thereon
appearing elsewhere herein, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The balance sheet of WKYS-FM, Inc. as of December 31, 1994 and the
statements of operations, changes in stockholders' deficit and cash flows for
the years ended December 31, 1993 and 1994, included in this Prospectus and the
Registration Statement, have been included herein in reliance on the report of
Coopers and Lybrand LLP, independent accountants, given on the authority of that
firm as experts in accounting and auditing.
MARKET AND INDUSTRY DATA
Audience shares and audience share ranks are as reported by the Arbitron
Company ("Arbitron") in its Radio Market Report (the "Arbitron Market Report")
for the period indicated. Audience share data is expressed as the "local"
average quarter hour share for each indicated radio station, which is derived by
comparing the radio station's average quarter hour share to the total average
quarter hour share for all radio stations in a particular Metro Survey Area
("MSA") that are reported in the Arbitron Market Report. Average quarter hour
share is a percentage of the estimated number of persons who listened to a given
radio station for a minimum of five minutes within a quarter hour compared to
the total number of persons who listened to radio within such quarter hour. Data
relating to the number of hours African-Americans and non-African-Americans
spend listening to the radio are derived from the Arbitron Market Report for the
period indicated.
MSA population, African-American population as a percentage of overall
population in a market and market ranking by MSA population are as reported by
BIA Publications, Inc. ("BIA") in its Investing in Radio 1997 (First Edition)
(the "BIA Market Report, 1997 (First Edition)"), or derived from data contained
therein.
Unless otherwise indicated herein, data relating to radio advertising
revenue by market, revenue shares and revenue ranks for radio stations in the
Washington, D.C. and Baltimore markets are as reported by Hungerford, Aldrin,
Nichols & Carter, P.C., CPAs and Consultants ("Hungerford") in their Radio
Revenue Report (December 1996) (the "Hungerford Report (Dec. 1996)"). All
revenue data included in the Hungerford Report (Dec. 1996) is based on gross
revenues and limited to a compilation of data with respect to radio stations
which report to Hungerford. Radio station WYCB-AM, which the Company intends to
acquire pursuant to the DC Acquisition, does not report to Hungerford.
Unless otherwise indicated herein, radio advertising revenue by market,
revenue shares and revenue ranks for the radio station in the Philadelphia
market are as reported by Miller, Kaplan, Arase & Co., Certified Public
Accountants ("Miller Kaplan") in their market revenue report for Philadelphia
(the "Miller Kaplan Report (Dec. 1996)"). The Miller Kaplan Report (Dec. 1996)
reports net revenues and excludes barter transactions from its reported figure.
Unless otherwise indicated herein, data regarding household income,
population growth rates and population projections are based upon data compiled
by the U.S. Department of Commerce, Bureau of the Census (the "Census Bureau").
The calculation of the percentage of the African-American population located in
the top-30 African-American markets is based upon the total 1995
African-American population in such markets as compiled from the BIA Market
Report, 1997 (First Edition) as a percentage of the total 1995 African-American
population according to the Census Bureau.
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The number of viable radio stations in Baltimore is as reported by
Duncan's American Radio, Inc. ("Duncan") in its Duncan's Radio Market Guide
(1996 Edition) ("Duncan's Radio Market Guide").
Each of Arbitron, BIA, Hungerford, Miller Kaplan, the Census Bureau and
Duncan's compile their audience share, revenue share and other statistical data,
as the case may be, under procedures and methodologies which have the
limitations provided in their respective reports or guides. All such information
provided herein is subject to those limitations.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
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<S> <C>
RADIO ONE, INC.
Report of Independent Public Accountants ................................................ F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 ........................... F-3
Consolidated Statements of Operations for the years ended December 25, 1994, December
31, 1995 and 1996 .................................................................. F-4
Consolidated Statements of Changes in Stockholders' Deficit for the years ended December
25, 1994, December 31, 1995 and 1996 ................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 25, 1994, December
31, 1995 and 1996 .................................................................. F-6
Notes to Consolidated Financial Statements ............................................. F-7
Consolidated Balance Sheets as of December 31, 1996 and June 29, 1997 (unaudited) ...... F-16
Consolidated Statements of Operations for the three months and six months ended June 30,
1996 and June 29, 1997 (unaudited) ................................................... F-17
Consolidated Statements of Stockholders' Deficit for the six months ended June 29, 1997
(unaudited) ........................................................................... F-18
Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and June 29,
1997 (unaudited) ..................................................................... F-19
Notes to Unaudited Consolidated Financial Statements .................................... F-20
JARAD BROADCASTING COMPANY OF PENNSYLVANIA, INC.
Report of Independent Public Accountants ................................................ F-22
Balance Sheets as of December 31, 1995 and 1996, and March 30, 1997 (unaudited) ......... F-23
Statements of Operations for the years ended December 31, 1994, 1995 and 1996, and for
the three months ended March 30, 1996 and 1997 (unaudited) ............................. F-24
Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31,
1994, 1995 and 1996, and for the three months ended March 30, 1997 (unaudited) ...... F-25
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996, and for
the three months ended March 30, 1996 and 1997 (unaudited) .......................... F-26
Notes to Financial Statements ......................................................... F-27
WKYS-FM, INC.
Report of Independent Accountants ...................................................... F-31
Balance Sheet as of December 31, 1994 ................................................ F-32
Statements of Operations for the years ended December 31, 1993 and 1994 ............... F-33
Statements of Changes in Stockholders' Deficit for years ended December 31, 1993 and 1994 F-34
Statements of Cash Flows for the years ended December 31, 1993 and 1994 ............... F-35
Notes to Financial Statements ......................................................... F-36
Unaudited Statement of Operations for the five months ended May 31, 1995 ............... F-43
Unaudited Statement of Changes in Stockholders' Deficit for the five months ended May 31,
1995 ................................................................................. F-44
Unaudited Statement of Cash Flows for the five months ended May 31, 1995 ............... F-45
Notes to Unaudited Financial Statements ................................................ F-46
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Radio One, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of Radio One, Inc.
(a Delaware corporation during 1996) and subsidiary as of December 31, 1995 (as
restated-see Note 1) and 1996, and the related consolidated statements of
operations, changes in stockholders' deficit and cash flows for each of the
years in the three-year period ended December 31, 1996 (December 31, 1995, as
restated). 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Radio One, Inc. and
subsidiary as of December 31, 1995 and 1996 and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Baltimore, Maryland,
February 13, 1997
F-2
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 (AS RESTATED) AND 1996
<TABLE>
<CAPTION>
DECEMBER
-----------------------------------
1995 1996
---------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................. $ 2,702,868 $ 1,708,295
Trade accounts receivable, net of allowance for doubtful
accounts of $669,400 and $765,200, respectively ...... 5,763,686 6,419,468
Prepaid expenses and other .............................. 230,787 117,025
------------- -------------
Total current assets .............................. 8,697,341 8,244,788
PROPERTY AND EQUIPMENT, net .............................. 3,627,431 3,007,004
INTANGIBLE ASSETS, net ................................. 43,454,898 39,358,127
OTHER ASSETS ............................................. 113,902 1,166,861
------------- -------------
Total assets ....................................... $ 55,893,572 $ 51,776,780
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable ....................................... $ 1,483,428 $ 388,581
Accrued expenses ....................................... 1,218,393 1,452,444
Current portion of long-term debt ..................... 2,103,264 5,633,286
------------- -------------
Total current liabilities ........................ 4,805,085 7,474,311
LONG-TERM DEBT AND DEFERRED INTEREST, net
of current portion .................................... 62,482,000 59,305,225
------------- -------------
Total liabilities ................................. 67,287,085 66,779,536
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, $9,490 par value, 100 shares authorized,
no shares issued and outstanding for 1996 ............ - -
Common stock-Class A, $.01 par value, 1,000 shares au-
thorized, 138.45 shares issued, and outstanding 1 1
Common stock-Class B, $.01 par value, 1,000 shares au-
thorized, no shares issued and outstanding - -
Additional paid-in capital .............................. 1,205,189 1,205,189
Accumulated deficit .................................... (12,598,703) (16,207,946)
------------- -------------
Total stockholders' deficit ........................ (11,393,513) (15,002,756)
------------- -------------
Total liabilities and stockholders' deficit ...... $ 55,893,572 $ 51,776,780
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
F-3
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED DECEMBER 25, 1994,
DECEMBER 31, 1995 (AS RESTATED) AND 1996
<TABLE>
<CAPTION>
DECEMBER
--------------------------------------------------
1994 1995 1996
------------- ---------------- ---------------
<S> <C> <C> <C>
REVENUES:
Broadcast revenues, including barter revenues
of $562,832, $920,914 and $1,121,559, respec-
tively $17,856,242 $ 24,625,834 $ 27,026,888
Less: Agency commission ........................ 2,314,825 3,171,059 3,325,063
----------- ------------ ------------
Net broadcast revenues ........................ 15,541,417 21,454,775 23,701,825
----------- ------------ ------------
OPERATING EXPENSES:
Program and technical ........................... 2,773,187 3,642,081 4,157,554
Selling, general and administrative ............ 5,733,169 8,093,217 9,770,127
Corporate expenses ........................... 1,128,484 1,995,252 1,792,665
Depreciation and amortization .................. 2,026,945 3,911,788 4,261,690
----------- ------------ ------------
Total operating expenses ..................... 11,661,785 17,642,338 19,982,036
----------- ------------ ------------
Operating income .............................. 3,879,632 3,812,437 3,719,789
INTEREST EXPENSE, including amortization
of deferred financing costs ..................... 2,664,873 5,289,054 7,252,377
OTHER (INCOME) EXPENSE, NET ..................... (38,375) (89,247) 76,655
----------- ------------ ------------
Income (loss) before provision for income
taxes and extraordinary item ............... 1,253,134 (1,387,370) (3,609,243)
PROVISION FOR INCOME TAXES ..................... 30,500 - -
----------- ------------ ------------
Income (loss) before extraordinary item ...... 1,222,634 (1,387,370) (3,609,243)
EXTRAORDINARY ITEM:
Loss on early retirement of debt ............... - 468,233 -
----------- ------------ ------------
Net income (loss) ........................... $1,222,634 $ (1,855,603) $ (3,609,243)
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED
DECEMBER 25, 1994, DECEMBER 31, 1995 (AS RESTATED) AND 1996
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL TOTAL
PREFERRED STOCK STOCK PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
STOCK CLASS A CLASS B CAPITAL DEFICIT STOCK DEFICIT
----------- --------- --------- ------------ ---------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, as of
December 26, 1993 ......... $ 1,100 $ 940 $- $ - $ (5,234,938) $ (264,850) $ (5,497,748)
Net income ............... - - - - 1,222,634 - 1,222,634
Purchase of stock war-
rants - - - - (91,789) - (91,789)
-------- ------ --- ---------- ------------- ---------- -------------
BALANCE, as of
December 25, 1994 ......... 1,100 940 - - (4,104,093) (264,850) (4,366,903)
Net loss .................. - - - - (1,855,603) - (1,855,603)
Purchase of stock war-
rants - - - - (6,639,007) - (6,639,007)
Issuance of stock options - - - 778,000 - - 778,000
Allocation of detachable
stock warrants ......... - - - 690,000 - - 690,000
Cancellation and issuance
of stock ............... (1,100) (939) - (262,811) - 264,850 -
-------- ------ --- ---------- ------------- ---------- -------------
BALANCE, as of
December 31, 1995 ......... - 1 - 1,205,189 (12,598,703) - (11,393,513)
Net loss .................. - - - - (3,609,243) - (3,609,243)
-------- ------ --- ---------- ------------- ---------- -------------
BALANCE, as of
December 31, 1996 ......... $ - $ 1 $- $1,205,189 $ (16,207,946) $ - $ (15,002,756)
======== ====== === ========== ============= ========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 25, 1994,
DECEMBER 31, 1995 (AS RESTATED) AND 1996
<TABLE>
<CAPTION>
DECEMBER
-----------------------------------------------------
1994 1995 1996
--------------- ---------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ....................................... $ 1,222,634 $ (1,855,603) $ (3,609,243)
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization ........................... 2,026,945 3,911,788 4,261,690
Amortization of debt financing costs and unamortized
discount ............................................. - 207,885 366,189
Issuance of stock options .............................. - 778,000 -
Loss on disposals ....................................... - - 152,468
Deferred interest ....................................... - 235,264 2,639,389
Effect of change in operating assets and
liabilities-
(Increase) decrease in trade accounts receivable ...... (398,441) (2,064,861) (655,782)
Increase (decrease) in prepaid expenses and other ...... (55,334) (84,654) 113,762
Decrease (increase) in other assets .................. 36,739 (23,880) (71,026)
Increase (decrease) in accounts payable ............... 376,623 604,303 (817,671)
Increase in accrued expenses ........................... 58,635 213,706 234,051
Decrease in prepaid loan financing fees ............... 35,160 - -
------------ ------------- ------------
Net cash flows from operating activities ............ 3,302,961 1,921,948 2,613,827
------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ........................ (636,444) (224,883) (251,469)
Proceeds from disposal of property and equipment ......... 32,104 61,615 -
Deposits and payments for station purchases ............... (639,881) (33,769,789) (1,000,000)
------------ ------------- ------------
Net cash flows from investing activities ............ (1,244,221) (33,933,057) (1,251,469)
------------ ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt ....................................... (1,659,817) (23,049,114) (2,407,933)
Proceeds from new debt .................................... - 65,000,000 51,002
Deferred debt financing cost .............................. - (2,014,624) -
Purchase of stock and stock warrants ..................... (91,789) (6,639,007) -
------------ ------------- ------------
Net cash flows from financing activities ............ (1,751,606) 33,297,255 (2,356,931)
------------ ------------- ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ............................................. 307,134 1,286,146 (994,573)
CASH AND CASH EQUIVALENTS, beginning of year .............. 1,109,588 1,416,722 2,702,868
------------ ------------- ------------
CASH AND CASH EQUIVALENTS, end of year ..................... $ 1,416,722 $ 2,702,868 $ 1,708,295
============ ============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for-
Interest ................................................ $ 2,356,069 $ 5,103,337 $ 4,815,486
============ ============= ============
Income taxes .......................................... $ 15,600 $ 34,800 $ 50,000
============ ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
Radio One, Inc. (a Delaware Corporation) and its subsidiary, Radio One
License LLC (a Delaware limited liability Company) (collectively referred to as
the Company) were organized to acquire, operate and maintain radio broadcasting
stations. The Company owns and operates three radio stations in Washington,
D.C.; WOL-AM, WMMJ-FM and WKYS-FM and four radio stations in Maryland; WWIN-AM,
WWIN-FM, WOLB-AM and WERQ-FM. The four Maryland radio stations were formerly
owned by Radio One of Maryland, Inc., a former wholly owned subsidiary of Radio
One, Inc. Effective January 1, 1996, in connection with Radio One, Inc.
converting to an S corporation, Radio One of Maryland, Inc. was dissolved and
its operations were merged into Radio One, Inc. In May 1996, Radio One, Inc.
formed Radio One License LLC, to hold the stations' FCC licenses. Prior to the
reorganization, Radio One, Inc. was a District of Columbia Corporation. In
connection with the Company's reorganization, all of the then existing preferred
and common stock was canceled, and newly authorized shares were issued.
An evaluation of the Company's operations should include consideration of
the "Risk Factors" described in the Registration Statement related to the
Company's contemplated debt offering, including the Company's highly leveraged
financial position, which will require substantial semi-annual interest payments
and may impair the Company's ability to obtain additional working capital
financing.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Radio One, Inc. and its wholly owned subsidiary, Radio One License LLC. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The accompanying consolidated financial statements are presented
on the accrual basis of accounting in accordance with generally accepted
accounting principles. 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 as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. While actual results could differ from those
estimates, management believes that actual results will not be materially
different from amounts provided in the accompanying consolidated financial
statements.
Reporting Periods
Prior to the year ended December 31, 1996, the Company's financial
reporting period was based on a fifty-two/fifty-three week period ending on the
last Sunday of the calendar year. During 1996, the Company elected to end its
year on December 31 of each year the effect of which was not material. For 1996,
this included a 52 week financial reporting period.
Acquisition of WKYS-FM
On June 6, 1995, the Company purchased WKYS-FM for approximately
$34,410,000. The Company accounted for the acquisition by allocating the
purchase price paid to the assets acquired based upon the appraised value of the
assets. The excess purchase price over the appraised value of assets acquired of
approximately $3,846,000 was allocated to goodwill. The financial activities of
WKYS-FM for the periods prior to June 6, 1995, are not included in the
accompanying consolidated statements of operations.
F-7
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The unaudited pro forma summary consolidated results of operations for the
years ended December 25, 1994, and December 31, 1995, assuming the acquisition
of WKYS-FM had occurred in the beginning of each of those fiscal years, is as
follows:
<TABLE>
<CAPTION>
1994 1995
-------------- ---------------
<S> <C> <C>
Net broadcast revenues .............................. $ 23,089,000 $ 23,926,000
Operating expenses, excluding depreciation and amortiza-
tion 14,647,000 15,524,000
Depreciation and amortization ........................ 4,418,000 5,107,000
Interest expense ....................................... 5,535,000 6,724,000
Other (income) expense, net ........................... (38,000) (89,000)
Provision for income taxes ........................... 30,000 -
Extraordinary loss .................................... - 468,000
------------ ------------
Net (loss) income .................................... $(1,503,000) $ (3,808,000)
============ ============
</TABLE>
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market accounts at
various commercial banks. All cash equivalents have original maturities of 90
days or less. For cash and cash equivalents, cost approximates market value.
Property and Equipment
Property and equipment are recorded at original cost and are being
depreciated on a straight-line basis over various periods. The components of the
Company's property and equipment as of December 31, 1995 and 1996 are as
follows:
<TABLE>
<CAPTION>
PERIOD OF
1995 1996 DEPRECIATION
--------------- --------------- --------------
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT:
Land .............................. $ 117,105 $ 117,105 -
Building and improvements ......... 147,677 147,677 31 years
Transmitter towers .................. 2,100,425 2,141,462 7 or 15 years
Equipment ........................... 2,454,632 2,615,179 5 to 7 years
Leasehold improvements ............ 815,765 626,408 Life of Lease
------------ ------------
5,635,604 5,647,831
Less-Accumulated depreciation ...... (2,008,173) (2,640,827)
------------ ------------
Property and equipment, net ...... $ 3,627,431 $ 3,007,004
============ ============
</TABLE>
Depreciation expense for the fiscal years ended December 25, 1994, December
31, 1995 and 1996, were $538,135, $741,528 and $705,784, respectively.
Revenue Recognition
In accordance with industry practice, revenue for broadcast advertising is
recognized when the commercial is broadcast.
Barter Arrangements
Certain program contracts provide for the exchange of advertising air time
in lieu of cash payments for the rights to such programming. These contracts are
recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights.
F-8
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
The Company broadcasts certain customers' advertising in exchange for
equipment, merchandise and services. The estimated fair value of the equipment,
merchandise or services received is recorded as deferred barter costs and the
corresponding obligation to broadcast advertising is recorded as deferred barter
revenues. The deferred barter costs are expensed or capitalized as they are
used, consumed or received. Deferred barter revenues are recognized as the
related advertising is aired.
Financial Instruments
Financial instruments as of December 31, 1995 and 1996, consist of cash and
cash equivalents, trade accounts receivables, accounts payable, accrued expenses
and long-term debt, as to all of which the carrying amounts approximate fair
value.
Stock Warrants
During 1995, the Company purchased outstanding stock warrants for
$6,639,007. The cost of these warrants purchased increased the accumulated
deficit. Also during 1995, the Company issued detachable stock warrants that had
an allocated value of $690,000 with certain subordinated notes (see Note 3).
New Accounting Standards
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 is effective
for financial statements for fiscal years beginning after December 15, 1995. The
adoption of SFAS No. 121 on January 1, 1996, had no impact on the Company's
financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation." With respect to stock options
granted to employees, SFAS No. 123 permits companies to continue using the
accounting method promulgated by the Accounting Principles Board Opinion No. 25
("APB No. 25"), "Accounting for Stock Issued to Employees", to measure
compensation expense or to adopt the fair value based method prescribed by SFAS
No. 123. If APB No. 25's method is continued, pro forma disclosures are
required as if SFAS No. 123 accounting provisions were followed.
Management elected to continue to measure compensation expense under APB
No. 25. The adoption of SFAS No. 123 did not require pro forma disclosures as
all stock options granted in 1995 were granted at a significant discount below
market value and, thus, the Company recorded compensation expense of $778,000 in
accordance with ABP No.25. Compensation expense was equal to the difference
between the fair value of stock that could be purchased with the options as of
the grant date and the exercise price of the options. Additional paid-in capital
was increased by the compensation expense recognized. There were no stock
options granted to employees during 1996 or for the three months ended March 30,
1997.
Reclassifications and 1995 Restatement
Certain reclassifications have been made to the 1994 and 1995 consolidated
financial statements in order to conform with the 1996 presentation.
The 1995 consolidated financial statements have been restated to give
effect to the recognition of compensation expense for the stock options vested
which were omitted in the financial statements as previously presented and to
adjust the value allocated to detachable stock warrants issued during 1995 with
certain subordinated notes, as discussed above, because of a correction in the
value of the warrants issued. Those two changes were made to properly account
and value the effect of the transactions and resulted in an increase in the 1995
operating expenses and net loss of $786,000.
F-9
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
2. INTANGIBLE ASSETS:
Intangible assets are being amortized on a straight-line basis over various
periods. The intangible asset balances and periods of amortization as of
December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
PERIOD OF
1995 1996 AMORTIZATION
-------------- ---------------- -------------
<S> <C> <C> <C>
FCC broadcast license ............... $40,206,783 $ 40,206,783 7-15 Years
Goodwill .............................. 7,812,373 7,553,267 15 Years
Debt financing ........................ 2,014,624 2,014,624 Life of Debt
Favorable transmitter site and other
intangibles ........................ 1,922,378 1,922,378 6-17 Years
Noncompete agreement .................. 900,000 900,000 3 Years
------------ -------------
Total .............................. 52,856,158 52,597,052
Less: Accumulated amortization ...... (9,401,260) (13,238,925)
------------ -------------
Net intangible assets ............... $43,454,898 $ 39,358,127
============ =============
</TABLE>
Amortization expense for the fiscal years ended December 25, 1994, December
31, 1995 and 1996, was $1,488,810, $3,170,260 and $3,555,906, respectively. The
amortization of the deferred financing cost was charged to interest expense.
3. LONG-TERM DEBT:
As of December 31, 1995, and 1996, the Company is obligated under a credit
agreement and subordinated notes, as follows:
<TABLE>
<CAPTION>
1995 1996
-------------- ---------------
<S> <C> <C>
NationsBank Credit Agreement ........................... $ 48,000,000 $ 45,596,736
Subordinated Notes (net of $650,000 and $579,211 of
unamortized discount allocated to detachable stock war-
rants, respectively) 16,350,000 16,420,789
Deferred interest on subordinated notes ............... 235,264 2,874,653
Notes payable .......................................... - 46,333
------------ ------------
Total ................................................ 64,585,264 64,938,511
Less: Current portion ................................. (2,103,264) (5,633,286)
------------ ------------
Total ................................................ $ 62,482,000 $ 59,305,225
============ ============
</TABLE>
NationsBank Credit Agreement
The purchase of WKYS in June 1995 was financed through a revolving credit
agreement (the NationsBank Credit Agreement) with NationsBank of Texas, N.A. and
the other lenders who are parties thereto of $53,000,000, which matures on March
31, 2002. The terms require scheduled quarterly step-downs in the amount of the
revolving credit commitment and annual principal payments based on a percentage
of excess cash flow, as outlined in the NationsBank Credit Agreement, and
monthly interest payments. The NationsBank Credit Agreement bears interest at
the LIBOR 30-day rate, plus an applicable margin. The margin fluctuates based on
the Company's ratio of senior debt to operating cash flow, as specified in the
credit agreement. The credit agreement is secured by all property of the Company
and interest and proceeds of real estate and Key Man life insurance policies.
The proceeds from the NationsBank Credit Agreement were also used to refund
certain existing debt.
The Company entered into two interest rate swap agreements as a hedge
against interest rate risk. These agreements fix the LIBOR rate on the credit
agreement at 5.95% for $24,000,000 and 5.75% for $19,000,000 of the outstanding
line of credit. The interest rate swaps were entered into in July, 1995 and
F-10
<PAGE>
September, 1995. The Company has accounted for the swaps as hedges. The Company
will not have to pay a termination fee upon termination of the swaps.
RADIO ONE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The NationsBank Credit Agreement has certain restrictive covenants of which
several were violated during 1996 and 1995. The Company violated the leverage
and debt service ratios, among other restrictions. The Company received waivers
for not meeting the above terms.
Subordinated Notes
The subordinated notes bear interest at 15%. Outstanding principal and
interest is due on the maturity date, December 31, 2003. The Company made an
interest payment during fiscal year 1995 of 13% on the outstanding principal
balance on all subordinated notes, as permitted by the NationsBank Credit
Agreement. All unpaid interest is deferred and compounds annually. These notes
are subordinate to the NationsBank Credit Agreement.
The subordinated notes have restrictive covenants of which certain
covenants were violated during 1996 and for which the Company received waivers.
These subordinated notes include detachable stock warrants to purchase
common stock at $100 per share.
The following is a schedule of the subordinated notes, the number of common
shares issuable with the stock warrants and the principal amount due as of
December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF
COMMON
SHARES PRINCIPAL
LENDER ISSUABLE AMOUNT DUE
- ----------------------------------------------------------------- ---------- ---------------
<S> <C> <C>
Alta Subordinated Debt Partners III, L.P. .................. 29.52 $ 5,859,118
BancBoston Investments, Inc. ................................. 20.15 4,000,000
Grant Wilson ................................................ 1.26 250,000
Fulcrum Venture Capital Corporation ........................ 15.61 783,773
Opportunity Capital Corporation .............................. 6.20 395,724
Syncom Capital Corporation ................................. 36.12 1,104,231
Greater Philadelphia Venture Capital Corporation, Inc. ...... .97 191,650
Capital Dimensions .......................................... 15.24 3,026,076
TSG Ventures, Inc. .......................................... 3.27 648,177
Alliance Enterprise Corporation .............................. 18.70 741,251
------- -----------
147.04 17,000,000
=======
Less: Unamortized discount allocated to detachable stock
warrants ................................................ (579,211)
-----------
16,420,789
Plus: Deferred interest .................................... 2,874,653
-----------
$19,295,442
===========
</TABLE>
During 1995, the Company retired certain subordinated debt with outstanding
detachable warrants. The Company purchased the outstanding detachable warrants,
which allowed the subordinated debt holders to acquire 52.46% of the outstanding
common stock, for $6,639,007. The Company issued new debt with detachable
warrants that allow these same subordinated debt holders to acquire 33.66% of
outstanding common stock. The acquisition of the warrants was accounted for by
charging the $6,639,007 to accumulated deficit, and valued the new detachable
warrants at the same value per share as the old warrants acquired. As part of
the subordinated debt acquired in 1995, $10,109,118 was acquired from new
lenders which received detachable warrants to acquire 17.84% of the outstanding
common stock of
F-11
<PAGE>
the Company. The Company allocated the proceeds between debt and additional
paid-in capital, based on the pro-rata value of the debt and detachable warrants
issued. As such, $9,419,118 was assigned to
RADIO ONE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
debt and $690,000 was assigned to the value of the warrants. The value assigned
to the warrants was recorded as an increase in additional paid-in capital. The
value assigned to debt was discounted and will be amortized over the life of the
related debt using the effective interest method.
Notes Payable
During 1996, the Company entered into two notes totaling $51,002 with
NationsBank to purchase vehicles. These notes bear interest at 8.74% and 8.49%,
require monthly principal and interest payments of $789 and $471 and mature on
April 30, 2000, and December 2, 2000.
Refinancing of Debt
During 1995, the Company retired $22,987,807 of outstanding debt with the
remaining proceeds from the NationsBank credit agreement and the proceeds from
the $17,000,000 in subordinated debt issued in 1995. Associated with the
retirement of the debt, the Company incurred certain early repayment penalties
and legal fees, and had to write-off certain deferred financing costs associated
with the debt retired. These costs amounted to $468,233 and were recorded as an
extraordinary item in the accompanying statements of operations.
4. COMMITMENTS AND CONTINGENCIES:
Leases
The Company entered into an operating lease for Baltimore office space with
a partnership in which two of the partners are stockholders of the Company (see
Note 7). The lease expires October 2003.
The Company leases Washington, D.C. office space, under an operating lease
which expires in December 2000. Subsequent to year-end, the Company plans to
exit this lease without penalty and enter into a new lease for space to expire
in December 2011.
The Company leases, under operating lease agreements, a broadcast tower and
transmitter facilities in Maryland and Washington, D.C. The lease for the
Maryland facility expires in November 1999, with an option to renew for an
additional five-year period. The lease for the Washington, D.C., broadcast tower
and transmitter facilities expires in November 2001. In addition, the Company
leases equipment under various leases, which expire over the next five years.
The following is a schedule of the future minimum rental payments required
under the operating leases, including the lease entered into subsequent to
year-end, that have an initial or remaining noncancelable lease term in excess
of one year as of December 31, 1996.
FOR THE YEAR
ENDING DECEMBER 31, TOTAL
------------------- -----------
1997 ............ $ 593,294
1998 ............ 521,491
1999 ............ 525,468
2000 ............ 549,718
2001 ............ 529,338
Thereafter ...... 3,485,826
-----------
Total ............ $6,205,135
===========
Total rent expense for the years ended December 25, 1994, December 31, 1995
and 1996, was $326,607, $570,214 and $777,075, respectively.
F-12
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FCC Broadcast Licenses
Each of the Company's radio stations operates pursuant to one or more
licenses issued by the Federal Communications Commission (FCC) that have a
maximum term of eight years prior to renewal. The Company's radio operating
licenses expire at various times from August 1, 1998 to October 1, 2003, except
that the license for WOL-AM expired on October 1, 1995. The Company's timely
filing of a license renewal application has automatically extended the license
term of WOL-AM until the FCC takes action on the Company's renewal application.
Although the Company may apply to renew its FCC licenses, third parties may
challenge the Company's renewal applications. Except for a complaint filed
against WOL-AM, the Company is not aware of any facts or circumstances that
would prevent the Company from having its current licenses renewed. Furthermore,
the Company believes that the complaint filed against WOL-AM will be resolved
satisfactorily and the license of that radio station renewed. However, there can
be no assurance that the licenses will be renewed.
Litigation
The Company has been named as a defendant in several legal actions
occurring in the ordinary course of business. It is management's opinion, after
consultation with its legal counsel, that the outcome of these claims will not
have a material adverse effect on the Company's financial position or results of
operations.
5. STOCK OPTION PLAN:
The Company has an Incentive Stock Option Plan (the Plan) which provides
for the issuance of qualified and nonqualified stock options to all full-time
key employees. The Plan allows the issuance of up to 25% of the authorized
common stock provided certain performance benchmarks are achieved by the
Company.
Exercise prices range from $1.00 for all nonqualified options to 100% of
the fair market value of the common stock for all qualified options. During
1995, options were granted to aquire 63.16 shares of common stock at $1 per
share. Of the options granted in 1995, options to acquire 57.45 shares vested
and were exercised during 1995. As the options were granted significantly below
their market value, the Company recognized compensation expense of $778,000
related to the vested portion of this grant. As of December 31, 1995 and 1996
and March 30, 1997 there were options outstanding to acquire 5.71 shares of
common stock at an exercise price of $1 per share, none of which were vested.
6. INCOME TAXES:
Effective January 1, 1996, the Company converted from a C Corporation to an
S Corporation under Subchapter S of the Internal Revenue Code. As an S
Corporation, the stockholders separately account for their pro-rata share of the
Company's income, deductions, losses and credits.
Prior to January 1, 1996, the Company accounted for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"). Under SFAS 109, deferred income taxes reflect
the impact of temporary differences between the assets and liabilities
recognized for financial reporting purposes and amounts recognized for tax
purposes. Deferred taxes are based on tax laws as currently enacted.
As a result of the Company's January 1, 1996, Subchapter S election, the
accompanying statement of operations for the year ended December 31, 1996, and
for the three months ended March 30, 1997, do not include an income tax
provision (benefit) for federal and state income taxes.
F-13
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A reconciliation of the statutory federal income taxes to the recorded
income tax provision for the years ended December 25, 1994, and December 31,
1995 and 1996, is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------- -------------- ----------------
<S> <C> <C> <C>
Statutory tax (@ 34% rate) ........................... $ 426,000 $ (630,000) $ (1,227,000)
Effect of state income taxes, net of federal ......... 85,000 (111,000) (217,000)
Effect of stock option compensation expense ............ - 275,000 -
Effect of S corporation loss to its stockholders ...... - - 1,444,000
Change in valuation reserve ........................... (480,500) 466,000 -
---------- ---------- ------------
Provision for income taxes ........................... $ 30,500 $ - $ -
========== ========== ============
</TABLE>
The components of the provision for income taxes for the years ended
December 25, 1994 and December 31, 1995, are as follows:
<TABLE>
<CAPTION>
1994 1995
------------- -----------
<S> <C> <C>
Current, includes state provision of $92,000 in
1994 .......................................... $ 517,500 $ -
Deferred, includes state provision of $1,200 and
r$88,000, espectively........................... (6,500) (466,000)
Change in valuation reserve ..................... (480,500) 466,000
---------- ----------
Provision for income taxes ..................... $ 30,500 $ -
========== ==========
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the financial statement and tax basis of assets and liabilities. The
significant components of the Company's deferred tax assets and liabilities as
of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
1995
--------------
<S> <C>
Deferred tax assets-
FCC and other intangibles amortization ...... $ 748,000
Reserve for bad debts ........................ 261,000
Goodwill .................................... 246,000
NOL carryforward ........................... 20,000
Other ....................................... 16,000
------------
Total deferred tax assets .................. 1,291,000
------------
Deferred tax liabilities-
Depreciation ................................. (214,000)
Other ....................................... (10,000)
------------
Total deferred tax liabilities ............ (224,000)
------------
Net deferred tax asset ..................... 1,067,000
Less: Valuation reserve ..................... (1,067,000)
------------
Deferred taxes included in the accompanying
consolidated balance sheets ............... $ -
============
</TABLE>
A 100% valuation reserve has been applied against the net deferred tax
asset as its realization was not more likely than not to be realized.
Prior to the Company's conversion from a C Corporation as of December 31,
1995, there was approximately $60,000 of available net operating loss
carryforwards.
F-14
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
During the period the Company was an S Corporation, January, 1996 to May,
1997, the Company incurred pretax losses. No pro forma income tax benefit has
been disclosed in pro forma disclosures because a 100% valuation reserve would
have been applied against the net deferred tax assets that would have been
created from the net operating loss as its realization was more likely to not be
realized than to be realized.
7. RELATED PARTY TRANSACTIONS:
In September 1990, the Company purchased a building in the name of the
majority stockholder for $72,500. All rental income generated from the office
building was received and used by the Company. The building was sold during
fiscal year 1995. This transaction resulted in no gain or loss to the Company.
In addition, the Company leases office space for $8,000 per month from a
partnership in which two of the partners are stockholders of the Company (see
Note 4). Total rent paid to the stockholders for fiscal year 1994, 1995 and
1996, was $134,091, $133,596, and $96,000, respectively. The Company also has a
receivable as of December 31, 1995 and 1996, of $47,043, and $78,122
respectively, due from Radio One of Atlanta, Inc., of which an executive officer
and stockholder of the Company holds voting control of the capital stock in ROA.
The Company also charges ROA a management fee of approximately $100,000 per year
which fee approximates the actual cost to the Company of providing accounting,
financial services, strategic planning, other general management and programming
services to ROA.
8. PROFIT SHARING:
The Company has a 401K profit sharing plan for its employees. The Company
can contribute to the plan at the discretion of its Board of Directors. The
Company made no contribution to the plan during fiscal year 1994, 1995 or 1996.
9. SUBSEQUENT EVENTS:
In December 1996, the Company signed an agreement to purchase certain
assets of Jarad Broadcasting Company of Pennsylvania, Inc., owner of radio
station WDRE-FM, located in Jenkintown, Pennsylvania, for $16,000,000. The
purchase agreement also includes three-year noncompete agreements totaling
$4,000,000. The Company expects to finalize the purchase in May 1997. The
Company has made a $1,000,000 non-refundable deposit in an escrow account to be
applied to the purchase price of WDRE-FM. This deposit is included in other
assets in the accompanying consolidated balance sheet as of December 31, 1996.
Subsequent to year end, the Company was negotiating an agreement to
purchase all of the outstanding capital stock of Broadcast Holdings, Inc. owner
of radio station WYCB-AM, located in Washington, D.C., for approximately
$4,000,000.
The Company intends to issue bonds in May 1997 to raise approximately
$75,000,000 in gross proceeds. A portion of the proceeds will be used to acquire
radio stations WPHI-FM and WYCB-AM. The Company also intends to use the proceeds
to repay all indebtedness under the NationsBank Credit Agreement. Concurrent
with the bond offering, the Company intends to convert its subordinated notes
into senior cumulative exchangeable redeemable preferred stock.
In connection with the contemplated debt offering, the Company plans to
either terminate the NationsBank Credit Agreement with its repayment and enter
into a new credit facility with NationsBank or amend and restate the terms of
the NationsBank Credit Agreement pursuant to the terms of a new commitment for a
revolving credit facility with a maximum borrowing capacity of $7,500,000.
F-15
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND JUNE 29, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 29,
1996 1997
--------------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 1,708,295 $ 8,782,042
Trade accounts receivable, net of allowance for doubtful accounts
of $765,200 and $953,042, respectively ........................... 6,419,468 7,474,895
Prepaid expenses and other ....................................... 117,025 331,280
------------- -------------
Total Current Assets .......................................... 8,244,788 16,588,217
PROPERTY AND EQUIPMENT, net .................................... 3,007,004 3,521,700
INTANGIBLE ASSETS, net .......................................... 39,358,127 57,182,814
OTHER ASSETS ................................................... 1,166,861 3,556
------------- -------------
Total Assets ................................................ $ 51,776,780 $ 77,296,287
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable ................................................ $ 388,581 $ 955,657
Accrued expenses ................................................ 1,452,444 2,035,210
Current portion of long-term debt .............................. 5,633,286 -
------------- -------------
Total Current Liabilities .................................... 7,474,311 2,990,867
LONG-TERM DEBT AND DEFERRED INTEREST, net of
current portion ................................................ 59,305,225 73,251,615
------------- -------------
Total Liabilities ............................................. 66,779,536 76,242,482
COMMITMENTS AND CONTINGENCIES .................................... - -
SENIOR CUMULATIVE REDEEMABLE PREFERRED
STOCK ......................................................... - 20,931,013
------------- -------------
STOCKHOLDERS' DEFICIT:
Preferred stock, $9,490 par value, 100 shares authorized, no shares
issued and outstanding .......................................... - -
Common stock - Class A, $.01 par value, 1,000 shares authorized,
138.45 shares issued and outstanding ........................... 1 1
Common stock - Class B, $.01 par value, 1,000 shares authorized,
no shares issued and outstanding .............................. - -
Additional paid-in capital ....................................... 1,205,189 -
Accumulated deficit ............................................. (16,207,946) (19,877,209)
------------- -------------
Total stockholders' deficit ................................. (15,002,756) (19,877,208)
------------- -------------
Total Liabilities and Stockholders' Deficit .................. $ 51,776,780 $ 77,296,287
============= =============
</TABLE>
F-16
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- -----------------------------------
JUNE 30, JUNE 29, JUNE 30, JUNE 29,
1996 1997 1996 1997
------------- ----------------- ---------------- ----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Broadcast revenues, including barter revenues of
$$252,182, 262,721, $602,890 and $505,358, re-
spectively $ 7,084,742 $ 8,827,680 $ 12,359,503 $ 15,126,031
Less: Agency commissions ..................... 908,083 1,124,225 1,512,885 1,890,029
----------- ------------- ------------ -------------
Net broadcast revenues ........................ 6,176,659 7,703,455 10,846,618 13,236,002
----------- ------------- ------------ -------------
OPERATING EXPENSES:
Program and technical ........................ 1,052,952 1,537,031 1,904,021 2,733,242
Selling, general and administrative ............ 2,477,422 3,080,216 4,900,873 5,858,243
Corporate expenses ........................... 274,003 385,168 619,960 1,080,281
Depreciation and amortization .................. 1,041,437 1,286,610 2,224,697 2,365,888
----------- ------------- ------------ -------------
Total operating expenses .................. 4,845,814 6,289,025 9,649,551 12,037,654
----------- ------------- ------------ -------------
Broadcast operating income .................. 1,330,845 1,414,430 1,197,067 1,198,348
INTEREST EXPENSE,
Including amortization of deferred financing
costs ....................................... 1,822,038 2,429,628 3,613,872 4,194,956
INCOME, NET .................................... (53,726) (87,021) (53,726) (107,385)
----------- ------------- ------------ -------------
Loss before provision for income taxes and ex-
traordinary item (437,467) (928,177) (2,363,079) (2,889,223)
PROVISION FOR INCOME TAXES ..................... - - - -
----------- ------------- ------------ -------------
Loss before extraordinary item ............... (437,467) (928,177) (2,363,079) (2,889,223)
EXTRAORDINARY ITEM: ...........................
Loss on early retirement of debt ............ - 1,985,229 - 1,985,229
----------- ------------- ------------ -------------
Net loss ....................................... $ (437,467) $ (2,913,406) $ (2,363,079) $ (4,874,452)
=========== ============= ============ =============
</TABLE>
F-17
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 29, 1997
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL TOTAL
PREFERRED STOCK STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK CLASS A CLASS B CAPITAL DEFICIT DEFICIT
---------- --------- --------- -------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, as of December 31,
1996 ..................... $ - $ 1 $ - $ 1,205,189 $ (16,207,946) $ (15,002,756)
Net loss .................. - - - - (4,874,452) (4,874,452)
Effect of Conversion to C Cor-
poration - - - (1,205,189) 1,205,189 -
---- ---- ---- ------------ -------------- --------------
BALANCE, as of June 29 1997
(unaudited) ............... $ - $ 1 $ - $ - $ (19,877,209) $ (19,877,208)
==== ==== ==== ============ ============== ==============
</TABLE>
F-18
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------------
JUNE 30, JUNE 29,
1996 1997
----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................... $ (2,363,079) $ (4,874,452)
Adjustments to reconcile net loss to net cash from operating
activities:
Depreciation and amortization .............................. 2,224,697 2,365,888
Amortization of debt financing costs and unamortized dis-
count 183,095 485,186
Loss on extinguishment of debt .............................. - 1,985,229
Deferred interest .......................................... 1,125,751 1,087,148
Effect of change in operating assets and liabilities:
Decrease (increase) in trade accounts receivable ......... 24,993 (1,055,427)
Decrease (increase) in prepaid expenses and other ......... 79,475 (214,255)
(Increase) decrease in other assets ........................ (115,617) 163,305
(Decrease) increase in accounts payable .................. (405,972) 567,077
Increase in accrued expenses .............................. 347,161 582,766
------------- -------------
Net cash flows from operating activities ............... 1,100,504 1,092,465
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ........................... (107,625) (664,129)
Payments for station purchase ................................. - (19,107,084)
------------- -------------
Net cash flows from investing activities ............... (107,625) (19,771,213)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt ............................................. (2,103,264) (45,599,162)
------------- -------------
Proceeds from new debt ....................................... - 72,750,000
Deferred debt financing cost ................................. - (1,398,343)
------------- -------------
Net cash flows from financing activities ............... (2,103,264) 25,752,495
------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVA-
LENTS (1,110,385) 7,073,747
CASH AND CASH EQUIVALENTS, beginning of year .................. 2,702,868 1,708,295
------------- -------------
CASH AND CASH EQUIVALENTS, end of year ........................ $ 1,592,483 $ 8,782,042
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFOR-
MATION:
Cash paid for:
Interest ................................................... $ 1,705,877 $ 1,479,564
============= =============
Income taxes ............................................. $ - $ -
============= =============
</TABLE>
F-19
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BUSINESS
Radio One, Inc. (a Delaware corporation) and its subsidiary, Radio One
Licenses, LLC (a Delaware limited liability company) (collectively referred to
as the Company) were organized to acquire, operate and maintain radio
broadcasting stations. The Company owns and operates three radio stations in
Washington, D.C.; WOL-AM, WMMJ-FM and WKYS-FM, four radio stations in Baltimore,
Maryland; WWIN-AM, WWIN-FM, WOLB-AM and WERQ-FM and one radio station in
Philadelphia, Pennsylvania; WPHI-FM. Effective January 1, 1996, Radio One, Inc.
converted to an S corporation until May, 1997, when it converted back to a C
corporation.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Radio One, Inc. and its wholly owned subsidiary, Radio One Licenses, LLC. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The accompanying consolidated financial statements are presented
on the accrual basis of accounting in accordance with generally accepted
accounting principles. 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 as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. While actual results could differ from those
estimates, management believes that actual results will not be materially
different from amounts provided in the accompanying consolidated financial
statements.
Interim Financial Statements
The consolidated financial statements for the six months ended June 30,
1996 and June 29, 1997 are unaudited, but in the opinion of management, such
financial statements have been presented on the same basis as the audited
consolidated financial statements and include all adjustments, consisting only
of normal recurring adjustments necessary for a fair presentation of the
financial position and results of operations, and cash flows for these periods.
As permitted under the applicable rules and regulations of the Securities
and Exchange Commission, these financial statements do not include all
disclosures normally included with audited consolidated financial statements,
and, accordingly, should be read in conjunction with the consolidated financial
statements and notes thereto as of December 31, 1996 and 1995 and for the years
then ended. The results of operations presented in the accompanying financial
statements are not necessarily representative of operations for an entire year.
2. SENIOR SUBORDINATED NOTES OFFERING:
On May 19, 1997, the Company purchased certain assets of Jarad Broadcasting
Company of Pennsylvania, Inc., owner of radio station WDRE-FM, licensed to
Jenkintown, Pennsylvania, for approximately $16.0 million. In connection with
the purchase, the Company entered into a three-year noncompete agreement
totaling $4.0 million with the former owners. Following this acquisition, the
Company converted the call letters of radio station WDRE-FM to WPHI-FM.
To finance the WDRE-FM acquisition and to refinance certain other debt, the
Company issued approximately $85.5 million of 12% Senior Subordinated Notes due
2004. The notes were sold at a discount, with the net proceeds to the Company of
approximately $72.8 million. The notes pay cash interest at 7% per annum through
May 15, 2000, and at 12% thereafter. In connection with this debt offering, the
Company retired approximately $45.7 million of debt outstanding with the
proceeds from
F-20
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1997 -(CONTINUED)
the offering. The Company also exchanged approximately $20.9 million of 15%
Senior Cumulative Redeemable Preferred Stock, which must be redeemed by May 24,
2005, for an equal amount of the Company's then outstanding subordinated notes.
In connection with these refinancings, the Company recognized an extraordinary
loss of approximately $2.0 million during the quarter ended June 29, 1997. Also
in connection with the conversion of the subordinated debt to preferred stock,
the Company was converted back to a C corporation for federal income tax
purposes. In connection with the conversion to a C corporation, in accordance
with SEC Staff Accounting Bulletin 4.B, the Company transferred the amount of
the undistributed losses at the date of conversion, up to the amount of
additional paid-in capital at that date, to additional paid-in capital. The
Company recorded a 100% valuation allowance on the income tax benefit generated
from the losses after the conversion, at the realization of the net operating
loss carryforward it created is not assured.
3. ACQUISITIONS:
On May 19, 1997, the Company acquired the broadcast assets of WDRE-FM
licensed to Jenkintown, Pennsylvania, for approximately $20 million. The Company
financed this purchase with a portion of the proceeds from the issuance of
approximately $85.5 million of 12% Senior Subordinated Notes Due 2004. The
Company assumed operational responsibility of WDRE-FM on February 8, 1997, under
a local marketing agreement with Jarad Broadcasting Company of Pennsylvania,
Inc. at which time the company changed the musical format of WDRE-FM from modern
rock to urban.
A portion of the proceeds from the 12% Senior Subordinated Notes discussed
above was also used to repay all indebtedness under the NationsBank credit
agreement. Concurrent with the issuance, the Company converted its subordinated
notes, consisting of approximately $17 million in principal and approximately
$3.9 million in accrued and unpaid interest, into Senior Cumulative Exchangeable
Redeemable Preferred Stock.
4. LONG-TERM DEBT:
On May 19, 1997, all amounts outstanding under the NationsBank Credit
Agreement were paid in full.
5. SUBSEQUENT EVENTS:
Subsequent to the debt offering, the Company intends to exchange such bonds
for its Series B 12% Senior Subordinated Notes due 2004 (the "Exchange Notes"),
which will have an aggregate original principal amount equal to the aggregate
principal amount of such bonds, and will have the same terms as such bonds
except that the Exchange Notes will not be subject to certain restrictions on
transfer. Thus, interest on the Exchange Notes will accrue at a rate of 7% per
annum on the principal amount of the Exchange Notes through and including May
15, 2000, and at a rate of 12% per annum on the principal amount of the Exchange
Notes after such date. Cash interest will be payable semi-annually on May 15 and
November 15 of each year, commencing November 15, 1997. The Exchange Notes will
be fully and unconditionally guaranteed to the maximum extent permitted by law,
jointly and severally, and on an unsecured senior subordinated basis, by Radio
One Licenses, Inc., a wholly owned and, as of the date hereof, the sole
subsidiary of the Company. Separate financial statements of Radio One Licenses,
Inc. are not presented because management has determined that such financial
statements would not be material to investors.
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Radio One, Inc. and Subsidiary:
We have audited the accompanying balance sheets of Jarad Broadcasting Company of
Pennsylvania, Inc. (a Pennsylvania Corporation) as of December 31, 1995 and
1996, and the related statements of operations, changes in stockholders' equity
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 1996. 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 Jarad Broadcasting Company of
Pennsylvania, Inc. as of December 31, 1995 and 1996 and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Baltimore, Maryland,
February 24, 1997
F-22
<PAGE>
JARAD BROADCASTING COMPANY OF PENNSYLVANIA, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996 AND MARCH 31, 1997
<TABLE>
<CAPTION>
DECEMBER
---------------------------- MARCH
1995 1996 1997
------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ...................................................... $ 47,927 $ 64,842 $ -
Trade accounts receivable, net of allowance for doubtful ac-
counts of $50,442, $48,849 and $20,913, respectively 580,611 533,946 195,434
Prepaid expenses and other ................................. 39,067 18,666 219,522
---------- ---------- ----------
Total current assets .................................... 667,605 617,454 414,956
---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Equipment ................................................... 107,678 116,811 118,526
Office furniture and equipment .............................. 77,746 111,562 122,380
---------- ---------- ----------
185,424 228,373 240,906
Less: Accumulated depreciation .............................. (67,384) (103,893) (113,452)
---------- ---------- ----------
Property and equipment, net .............................. 118,040 124,480 127,454
---------- ---------- ----------
INTANGIBLE ASSETS, net ....................................... 2,422,607 2,188,871 2,130,173
---------- ---------- ----------
Total assets ............................................. $3,208,252 $2,930,805 $2,672,583
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Bank overdraft ............................................. $ - $ - $ 29,452
Accounts payable .......................................... 59,711 142,206 71,078
Accrued expenses .......................................... 261,600 311,623 286,954
Current portion of due to affiliate ........................ 308,640 2,552,320 2,434,169
---------- ---------- ----------
Total current liabilities ................................. 629,951 3,006,149 2,821,653
DUE TO AFFILIATE ............................................. 2,561,837 - -
---------- ---------- ----------
Total liabilities ....................................... 3,191,788 3,006,149 2,821,653
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' equity (deficit):
Common stock, $1.00 par value, 1,000 shares authorized, 100
shares issued and outstanding ........................... 100 100 100
Retained earnings (accumulated deficit) ..................... 16,364 (75,444) (149,170)
---------- ---------- ----------
Total stockholders' equity (deficit) ..................... 16,464 (75,344) (149,070)
---------- ---------- ----------
Total liabilities and stockholders' equity ............... $3,208,252 $2,930,805 $2,672,583
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-23
<PAGE>
JARAD BROADCASTING COMPANY OF PENNSYLVANIA, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------ ----------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Broadcast revenues, including barter reve-
nues of $334,365, $456,523, $374,291,
$106,839 and $171,319, respectively ......... $4,528,743 $4,405,282 $3,131,865 $ 489,930 $ 441,637
Less: Agency commissions ..................... 480,893 531,714 276,294 31,095 23,630
----------- ----------- ---------- ---------- ----------
Net broadcast revenues ..................... 4,047,850 3,873,568 2,855,571 458,835 418,007
----------- ----------- ---------- ---------- ----------
OPERATING EXPENSES:
Programming and production ..................... 278,306 219,142 229,785 69,073 4,889
Selling, general and administrative ............ 1,851,702 1,835,340 2,193,269 470,629 382,127
Parent Company allocations ..................... 768,121 926,091 13,500 3,375 -
Depreciation and amortization ............... 310,464 264,010 270,245 66,439 68,257
----------- ----------- ---------- ---------- ----------
Total operating expenses ..................... 3,208,593 3,244,583 2,706,799 609,516 455,273
----------- ----------- ---------- ---------- ----------
Operating income (loss) ..................... 839,257 628,985 148,772 (150,681) (37,266)
AFFILIATED INTEREST EXPENSE, in-
cluding amortization of deferred financing
costs .......................................... 360,677 422,228 339,176 95,022 85,460
----------- ----------- ---------- ---------- ----------
Income (loss) before allocation for in-
come taxes and extraordinary item 478,580 206,757 (190,404) (245,703) (122,726)
ALLOCATION FOR INCOME TAXES ..................... 214,829 108,728 (98,596) (123,400) (49,000)
----------- ----------- ---------- ---------- ----------
Income (loss) before extraordinary item . 263,751 98,029 (91,808) (122,303) (73,726)
EXTRAORDINARY ITEM:
Loss on early retirement of debt ............... 57,163 - - - -
----------- ----------- ---------- ---------- ----------
Net income (loss) ........................... $ 206,588 $ 98,029 $ (91,808) $ (122,303) $ (73,726)
=========== =========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE>
JARAD BROADCASTING COMPANY OF PENNSYLVANIA, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
RETAINED TOTAL
EARNINGS/ STOCKHOLDERS'
COMMON (ACCUMULATED EQUITY
STOCK DEFICIT) (DEFICIT)
-------- -------------- --------------
<S> <C> <C> <C>
BALANCE, December 31, 1993 ............... $100 $ (288,253) $ (288,153)
Net income .............................. - 206,588 206,588
----- ---------- ----------
BALANCE, December 31, 1994 ............... 100 (81,665) (81,565)
Net income .............................. - 98,029 98,029
----- ---------- ----------
BALANCE, December 31, 1995 ............... 100 16,364 16,464
Net loss .............................. - (91,808) (91,808)
----- ---------- ----------
BALANCE, December 31, 1996 ............... 100 (75,444) (75,344)
===== ========== ==========
Net loss .............................. - (73,726) (73,726)
----- ---------- ----------
BALANCE, March 31, 1997 (unaudited) ...... $100 $ (149,170) $ (149,070)
===== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
JARAD BROADCASTING COMPANY OF PENNSYLVANIA, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------- ------------ ------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................. $ 206,588 $ 98,029 $ (91,808) $ (122,303) $ (73,726)
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization ..................... 310,464 264,010 270,245 66,439 68,257
Effect of change in operating assets and
liabilities-
(Increase) decrease in trade accounts receivable (309,120) 198,481 25,898 257,501 338,512
Decrease (increase) in prepaid expenses and
other .......................................... 25,613 (32,935) 20,401 11,951 (200,856)
(Decrease) increase in accounts payable ......... (94,909) (34,250) 82,495 29,178 (71,128)
Increase (decrease) in accrued expenses ......... 25,336 (47,522) 50,023 (5,283) (24,669)
Net increase (decrease) in due to affiliate, for
operating activities ........................... 297,098 (150,759) 1,135 (123,400) 124,289
---------- ---------- ---------- ---------- ----------
Net cash flows from operating activities ...... 461,070 295,054 358,389 114,083 160,679
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .................. (42,596) (42,799) (32,834) (19,475) (12,533)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of affiliate outstanding indebtedness ...... (369,728) (279,840) (308,640) (104,245) (242,440)
---------- ---------- ---------- ---------- ----------
Bank overdrafts .................................... - - - - 29,452
---------- ---------- ---------- ---------- ----------
Net cash flows from financing activities ......... (369,728) (279,840) (308,640) (104,245) (212,988)
NET INCREASE (DECREASE) IN CASH ..................... 48,746 (27,585) 16,915 (9,637) (64,842)
CASH, beginning of year .............................. 28,766 75,512 47,927 47,927 64,842
---------- ---------- ---------- ---------- ----------
CASH, end of year .................................... $ 77,512 $ 47,927 $ 64,842 $ 38,290 $ -
========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW
INFORMATION:
Cash paid for-
Interest paid (including affiliate) ............... $ 360,677 $ 422,228 $ 339,176 $ 95,022 $ 85,460
========== ========== ========== ========== ==========
Income taxes .................................... $ 18,061 $ 112,540 $ 18,000 $ - $ -
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
JARAD BROADCASTING COMPANY OF PENNSYLVANIA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
Jarad Broadcasting Company of Pennsylvania, Inc. (the Company) was
acquired in March 1993 by the Morey Organization (a New York corporation). The
Company operates one radio station in Jenkintown, Pennsylvania-WDRE-FM.
Interim Financial Statements
The consolidated financial statements for the three months ended March 31,
1996 and March 30, 1997 are unaudited but in the opinion of management, such
financial statements have been presented on the same basis as the audited
consolidated financial statements for the year ended December 31, 1996 and
include all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the financial position and results of
operations, and cash flows for these periods.
Basis of Presentation
The accompanying financial statements are presented on the accrual basis of
accounting in accordance with generally accepted accounting principles. 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 as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. While
actual results could differ from those estimates, management believes that
actual results will not be materially different from amounts provided in the
accompanying financial statements.
Sale of Station
In December 1996, the Company entered into a sale agreement with Radio One,
Inc. to sell all tangible and intangible assets for approximately $16,000,000,
subject to certain closing adjustments. The purchase agreement also includes
two-year noncompete agreements totaling $4,000,000. The sale is expected to be
finalized in April 1997, concurrently with the closing of a debt offering by
Radio One, Inc.
The Company has experienced a significant decline in its revenues, and
subsequent to year-end, in connection with the sale to Radio One, Inc., the
Company changed its programming format. In 1996, the Company incurred a loss of
approximately $92,000 and has an accumulated deficit of approximately $75,000 as
of December 31, 1996. In addition, the Company has significant negative net
worth and debt due to an affiliate. These factors, along with others could
negatively impact future operations of the Company.
Programming
During 1994 and 1995, the Company's programming was simulcast from the
Morey Organization. In 1996, the Company performed its own station programming.
On February 8, 1997, the Company entered into a Local Marketing Agreement
(LMA) which gives Radio One, Inc. the right to program the station 24 hours a
day, seven days a week, and continue in effect until the consummation of the
acquisition discussed above. For the three months ended March 30, 1997, the
Company recognized LMA fee revenues of $107,000.
F-27
<PAGE>
JARAD BROADCASTING COMPANY OF PENNSYLVANIA, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed under the straight-line method over the following
estimated useful lives.
Broadcast equipment .................. 7 years
Automobiles ........................ 5 years
Office furniture and equipment ...... 5 years
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
and for the three months ended March 31, 1996 and 1997, was $22,030, $29,071,
$36,509, $7,741 and $9,559, respectively.
Revenue Recognition
Revenues for advertising is recognized when the commercial is broadcasted.
Barter Arrangements
Certain program contracts provide for the exchange of advertising air time
in lieu of cash payments for the rights to such programming. These contracts are
recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights.
The Company broadcasts certain customers' advertising in exchange for
equipment, merchandise and services. The estimated fair value of the equipment,
merchandise or services received is recorded as deferred barter costs and the
corresponding obligation to broadcast advertising is recorded as deferred barter
revenues. The deferred barter costs are expensed or capitalized as they are
used, consumed or received. Deferred barter revenues are recognized as the
related advertising is aired.
Financial Instruments
Financial instruments as of December 31, 1995, 1996 and March 31, 1997,
consist of cash, trade accounts receivables, accounts payable, accrued expenses
and amounts due to affiliate, all of which the carrying amounts approximate fair
value.
Income Taxes
The Company is included in the consolidated federal tax return of the Morey
Organization. The Morey Organization allocates a current and deferred tax
provision or benefit to the Company based on the consolidated groups total tax
or benefit for the year and the estimate of the Company's share of the total tax
liability or benefit, based upon a tax-sharing arrangement. The tax-sharing
arrangement utilizes a systematic and rational method that is consistent with
the broad principle established by Statement of Accounting Statements No. 109
(SFAS 109), "Accounting for Income Taxes."
Employee Benefit Plan
The Company participates in the 401(k) profit sharing plan (the Plan) of
the Morey Organization. The Plan covers eligible employees of the Company.
Employees may make voluntary contributions to the Plan, and the Company may make
discretionary matching contributions. For the years ended December 31, 1994,
1995 and 1996 and for the three months ended March 31, 1997, there were no
Company discretionary contributions.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
F-28
<PAGE>
JARAD BROADCASTING COMPANY OF PENNSYLVANIA, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. SFAS No. 121 is
effective for financial statements for fiscal years beginning after December 15,
1995. The adoption of SFAS No. 121 on January 1, 1996, had no impact on the
Company's financial position or results of operations.
2. INTANGIBLE ASSETS:
Organizational costs and the FCC broadcast license are being amortized on a
straight-line basis over various periods. The deferred financing cost is being
amortized over the life of the debt on the effective interest rate method. The
intangible asset balances at cost and periods of amortization as of December 31,
1995 and 1996 and March 31, 1997, are as follows:
<TABLE>
<CAPTION>
PERIOD OF
1995 1996 1997 AMORTIZATION
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
FCC broadcast license ............... $2,835,000 $2,835,000 $2,835,000 15 years
Debt financing ........................ 136,000 136,000 136,000 5 years
Organizational costs .................. 92,982 92,982 92,982 5 years
---------- ---------- ----------
Total .............................. 3,063,982 3,063,982 3,063,982
Less: Accumulated amortization ...... (641,375) (875,111) (933,809)
---------- ---------- ----------
Net Intangible assets ............... $2,422,607 $2,188,871 2,130,173
========== ========== ==========
</TABLE>
Amortization expense for the years ended December 31, 1994, 1995, and 1996,
and for the three months ended March 31, 1996 and 1997 was $288,434, $234,939,
$233,736, $58,698 and $58,698, respectively.
3. DUE TO AFFILIATE:
In connection with the purchase of the Company, the Morey Organization
borrowed funds to finance the acquisition. The debt used to finance the
acquisition of the Company was recorded by the Company as affiliate borrowing.
The affiliate borrowing was at an interest rate of 12%. During 1994, the debt
borrowed to purchase the Company was refinanced. In connection with the debt
refinancing, the Company wrote off $57,163 of deferred financing costs related
to the old debt. The $57,163 writeoff was recorded as an extraordinary item. The
portion of the new debt used to refinance the old debt was recorded as an
affiliate loan to the Company. The new debt bears interest at rates ranging from
prime plus 2% to prime plus 2.25%. Also, associated with the new debt, the
Company was allocated $136,000 of deferred financing cost from the Morey
Organization. As the affiliate loan will be repaid with the sale to Radio One,
the debt has been classified as a current liability as of December 31, 1996.
The Company has an arrangement with the Morey Organization whereby the
Morey Organization will provide certain management and other services to the
Company. The services provided include consultation and direct management
assistance with respect to operations and strategic planning. During 1994 and
1995, due to affiliate consisted of allocations from the Morey Organization
related to simulcast broadcasting. In 1996, all broadcasting was done out of
Pennsylvania.
The Company serves as guarantor of all outstanding indebtedness of the
Morey Organization.
F-29
<PAGE>
JARAD BROADCASTING COMPANY OF PENNSYLVANIA, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
4. COMMITMENTS AND CONTINGENCIES:
Leases
The Company holds operating leases for office space which expire October
1997, a broadcast tower and transmittal facility which expires June 2006 and
certain office equipment which expire over the next five years.
The following is a schedule of the future minimum rental payments required
under the operating leases as of March 31, 1997:
FOR THE YEAR
ENDING DECEMBER 31,
------------------------
1997 (remaining) ...... $ 44,770
1998 .................. 14,803
1999 .................. 14,803
2000 .................. 14,803
2001 .................. 12,346
Thereafter ............ 5,300
---------
Total .................. $106,825
=========
Total rent expense for the years ended December 31, 1994, 1995 and 1996 and
for the three months ended March 31, 1996 and 1997, was $58,721, $68,954,
$60,146, $12,279 and $15,036, respectively.
Litigation
The Company is a party to various litigation arising in the ordinary course
of its business. It is management's opinion, after consultation with its legal
counsel, that none of the outcomes of these claims, whether individually or in
the aggregate, will have a material adverse effect on the Company's financial
position or results of operations.
F-30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of WKYS-FM, Inc.
We have audited the accompanying balance sheet of WKYS-FM, Inc. (WKYS) as of
December 31, 1994, and the related statements of operations, changes in
stockholders' deficit and cash flows for the years ended December 31, 1993 and
1994. These financial statements are the responsibility of WKYS' 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 WKYS-FM, Inc. as of December
31, 1994, and the results of its operations and its cash flows for the years
ended December 31, 1993 and 1994 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that WKYS will
continue as a going concern. As discussed in Notes 1 and 4 to the financial
statements, WKYS has incurred recurring losses, has working capital and net
capital deficiencies, and has not met certain debt obligations and covenants.
WKYS has entered into an agreement to sell substantially all of its tangible and
intangible assets, the proceeds from which would differ from the present
carrying values. This agreement is currently pending approval by the Federal
Communications Commission (FCC). Further, WKYS' lenders have agreed to accept
repayment from the proceeds of this sale in amounts which are substantially less
than the outstanding debt in full satisfaction of WKYS' obligations. Should the
FCC not approve the sale of WKYS' assets, WKYS and its lenders have agreed that
a receiver shall be appointed to sell these assets. Management's plans with
regard to these matters are more fully described in Notes 1 and 4. The
accompanying financial statements do not include any adjustments which might
result from these transactions, the outcome of which is currently uncertain.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
February 3, 1995
<PAGE>
WKYS-FM, INC.
BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<CAPTION>
1994
----------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash ........................................................................... $ 430,652
Accounts receivable, net of allowance for doubtful accounts of $100,000 ......... 2,287,444
Prepaids and other ............................................................ 96,630
Assets held for sale ............................................................ 27,440,999
Deferred financing costs, net of accumulated amortization of $723,208 ............ 241,034
-------------
Total current assets ......................................................... 30,496,759
-------------
OTHER ASSETS ..................................................................... 114,763
-------------
Total assets .................................................................. $ 30,611,522
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Long-term debt .................................................................. $ 58,432,840
Accounts payable and accrued expenses .......................................... 1,799,552
Accrued interest payable ......................................................... 338,920
Deferred rent .................................................................. 159,114
-------------
Total current labilities ...................................................... 60,730,426
-------------
REDEEMABLE PREFERRED STOCK, $1,000 par value ($1,000 per share liquidation
value):
Class A, non-voting, 926 shares authorized, issued and outstanding ............... 926,000
-------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Class B redeemable preferred stock, non-voting, 874 shares authorized, issued and
outstanding, $1,000 par value, $1,000 per share liquidation value............... 874,000
Common stock, $.01 par value, 1,000 shares authorized:
Class A, 630 shares issued and outstanding .................................... 6
Class B, non-voting, 370 shares issued and outstanding ........................ 4
Additional paid-in capital ...................................................... 199,990
Accumulated deficit ............................................................ (32,118,904)
-------------
Total stockholders' deficit ................................................... (31,044,904)
-------------
Total liabilities and stockholders' deficit .................................... $ 30,611,522
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
WKYS-FM, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
1993 1994
----------------- ---------------
Operating revenue:
Broadcasting sales .................. $ 7,699,296 $ 7,080,463
Barter sales ........................ 418,556 379,098
Other sales ........................ 129,536 88,160
------------- -------------
Total operating revenue ............ 8,247,388 7,547,721
------------- -------------
Direct expenses:
Programming ........................ 1,904,042 1,506,760
Sales .............................. 1,576,250 1,302,716
Technical ........................... 232,846 245,091
General and administrative ......... 1,829,957 1,958,597
Depreciation ........................ 269,437 161,374
Amortization ........................ 923,801 923,801
Management and consulting fees ...... 275,000 275,000
------------- -------------
Total direct expenses ............ 7,011,333 6,373,339
------------- -------------
Operating income .................. 1,236,055 1,174,382
------------- -------------
Other (income) expense:
Interest expense ..................... 7,943,481 9,536,071
Interest income ..................... (19,714) (5,502)
Other .............................. 530,914 579,396
------------- -------------
Total other (income) expense ...... 8,454,681 10,109,965
------------- -------------
Net loss ........................... $ (7,218,626) $ (8,935,583)
============= =============
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
WKYS-FM, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
CLASS B CLASS A CLASS B ADDITIONAL
PREFERRED COMMON COMMON PAID-IN ACCUMULATED
STOCK STOCK STOCK CAPITAL DEFICIT TOTAL
----------- --------- --------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1993 ......... $874,000 $6 $4 $199,990 $ (15,964,695) $ (14,890,695)
Net loss ............... - - - - (7,218,626) (7,218,626)
--------- --- --- --------- ------------- -------------
Balance as of
December 31, 1993 ...... 874,000 6 4 199,990 (23,183,321) (22,109,321)
Net loss ............... - - - - (8,935,583) (8,935,583)
--------- --- --- --------- ------------- -------------
Balance as of
December 31, 1994 ...... $874,000 $6 $4 $199,990 $ (32,118,904) $ (31,044,904)
========= === === ========= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
WKYS-FM, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
1993 1994
---------------- ----------------
<S> <C> <C>
Operating activities:
Net loss ................................................... $ (7,218,626) $ (8,935,583)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization .............................. 1,193,238 1,085,175
Deferral of interest on long-term debt ..................... 5,472,220 6,895,784
Management fees accrued .................................... 275,000 275,000
Decrease in unamortized discount on long-term debt ......... 246,082 365,711
Loss on disposal of equipment .............................. 10,552 2,160
Deferred rent ................................................ 47,809 27,381
Changes in assets and liabilities:
Accounts receivable ....................................... 202,946 77,972
Prepaids and other ....................................... (325) (24,588)
Non-current assets ....................................... (21,300) (19,068)
Accounts payable and accrued expenses ..................... 14,778 280,185
Accrued interest payable ................................. 830,285 (624,460)
------------ ------------
Net cash provided by (used in) operating activities ...... 1,052,659 (594,331)
------------ ------------
Investing activities:
Purchases of furniture and equipment ........................ (108,072) (22,310)
------------ ------------
Net cash used in investing activities ..................... (108,072) (22,310)
------------ ------------
Financing activities:
Principal payments on long-term debt ........................ (88,119) (37,500)
------------ ------------
Net cash used in financing activities ..................... (88,119) (37,500)
------------ ------------
Net increase (decrease) in cash .............................. 856,468 (654,141)
Cash, beginning of year ....................................... 228,325 1,084,793
------------ ------------
Cash, end of year ............................................. $ 1,084,793 $ 430,652
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
WKYS-FM, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
WKYS-FM, Inc. (WKYS) is a privately-held Delaware corporation which
operates an FM radio station serving the Washington, D.C. metropolitan area.
WKYS was purchased by Albimar Properties Limited Partnership ("Albimar
Properties") in December 1988. Albimar Properties was subsequently merged with
Albimar Communications, Inc. (ACI), and the stock of WKYS is currently owned by
ACI and a group of private investors.
As reflected in the accompanying financial statements, WKYS has incurred
recurring losses, has working capital and net capital deficiencies and has not
met certain debt obligations and covenants. Management of WKYS has entered into
several forbearance agreements with its lenders in an attempt to restructure
WKYS' debt in a manner that would allow WKYS to meet its obligations currently.
The most recent of these forbearance agreements expired on June 30, 1994, at
which time all of WKYS' debt obligations became payable in full.
On August 24, 1994, WKYS executed an Agreement for Judgment and Conditional
Forbearance with its senior lender, and Forbearance Agreements with its
subordinated lenders (the Agreements). Pursuant to the Agreements, each of the
lenders has agreed to forbear from taking action against WKYS in exchange for
WKYS' agreement to sell substantially all of its assets under certain terms and
conditions. The proceeds from such a sale shall be distributed among the
creditors of WKYS and its shareholders in the order of priority set forth in the
Agreements (Note 4). If WKYS is unsuccessful in selling its assets within the
time allotted by the Agreements, or in accordance with the terms provided
therein, WKYS and its lenders have consented to the appointment of a receiver
for the purpose of selling the assets of WKYS and distributing the proceeds. The
Agreements provide for aggregate minimum repayments of approximately $31,000,000
by WKYS to its lenders in full satisfaction of all debt and related obligations.
On October 31, 1994, management of WKYS entered into an asset purchase
agreement (the Asset Purchase Agreement) to sell substantially all of the assets
of WKYS except cash and accounts receivable. The terms of the Asset Purchase
Agreement provide for a cash purchase price of approximately $34,410,000. This
sale is currently pending final approval by the Federal Communications
Commission (FCC). All assets subject to sale, including furniture and equipment
($196,400, net of accumulated depreciation of $1,609,120), the FCC broadcast
license ($11,475,185, net of accumulated amortization of $2,058,215) and
goodwill ($15,769,414, net of accumulated amortization of $2,828,222) have been
classified as assets held for sale at December 31, 1994. Management of WKYS
believes that this sale, if consummated, will yield sufficient proceeds to
satisfy all of WKYS' obligations.
Certain terms of the Asset Purchase Agreement were not consistent with the
requirements of the Agreements. At WKYS' request, all of its lenders agreed to
amend the terms of the Agreements to coincide with the terms of the Asset
Purchase Agreement pursuant to amendments dated October 31, 1994, November 2,
1994 and November 4, 1994, respectively.
The terms of the Asset Purchase Agreement provide that WKYS shall assign to
the buyer, for purposes of collection only, substantially all of its accounts
receivable that are outstanding and unpaid on the date of closing. The buyer is
required to collect all such receivables and remit payment to WKYS for a period
of 180 days, at which time all uncollected amounts become the responsibility of
WKYS. The terms of the Asset Purchase Agreement further provide that to the
extent that WKYS has cash flow, as defined, during the twelve months ending on
the last day of the month immediately preceding the closing of the sale of less
than $2,700,000 (the Cash Flow Deficiency), the buyer shall retain payments
collected with respect to accounts receivable in an amount equal to the Cash
Flow Deficiency.
The accompanying financial statements do not include any adjustments that
might result from the outcome of these transactions.
F-36
<PAGE>
WKYS-FM, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash concentration
As of December 31, 1993 and 1994, WKYS had approximately $884,000 and
$317,000, respectively, on deposit at commercial banks in excess of insured
amounts.
Barter transactions
WKYS has entered into barter transactions with advertisers, whereby WKYS
agrees to provide commercial air time in exchange for goods or services to be
distributed as prizes to its listeners or to be used in the operations of WKYS.
The fair value of advertisements broadcast are recognized as income when aired
and the fair value of merchandise or services received are charged to expense
when received or used. If merchandise or services are received prior to the
broadcast of the advertising, a liability is recorded. If the advertising is
broadcast prior to the receipt of the goods or services, a receivable is
recorded.
Furniture and equipment
Furniture and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets as shown
below.
ESTIMATED
USEFUL LIFE
------------
Equipment and vehicles .............................. 3 years
Furniture and fixtures .............................. 5 years
Antenna, transmitter and production materials ...... 7 years
Leasehold improvements are amortized using the straight-line method over
the shorter of the lease term or the 3-year estimated useful life of such
assets.
When assets are retired or sold, the cost and related accumulated
depreciation and amortization are removed from the accounts and any gain or loss
is reflected in operations. Maintenance and repairs are charged to expense as
incurred; the costs of additions and improvements are capitalized.
As of December 31, 1994, all furniture and equipment is included in assets
held for sale on the accompanying balance sheet (Note 1).
Intangible assets
Intangible assets are stated on the basis of the fair market value assigned
on the date of acquisition and are amortized by the straight-line method. The
costs of WKYS' FCC broadcast license and goodwill are amortized over 40 years.
Deferred financing costs are amortized over the life of the associated debt.
As of December 31, 1994, all intangible assets subject to the sale are
included in assets held for sale on the accompanying balance sheet (Note 1).
Revenue
In accordance with industry practice, revenue for commercial broadcasting
advertisements is recognized when the commercial is broadcast.
Other expenses
Other expenses represent costs incurred in attempting to restructure WKYS'
long-term debt. These amounts have been expensed since recovery is unlikely.
F-37
<PAGE>
WKYS-FM, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Income taxes
WKYS has adopted Statement of Financial Accounting Standards No. 109 (SFAS
109). Under SFAS 109, deferred tax assets and liabilities are recognized for the
future tax consequences of differences between tax bases of assets and
liabilities and financial reporting amounts, as well as the tax effects of
certain carryforward items. Deferred tax assets and liabilities are measured by
applying statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to amounts expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
3. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following at December 31, 1993 and
1994:
<TABLE>
<CAPTION>
1993 1994
--------------- ---------------
<S> <C> <C>
Equipment and vehicles .............................. $ 256,294 $ 275,617
Furniture and fixtures .............................. 748,947 732,841
Antenna, transmitter and production materials ...... 781,049 767,130
Leasehold improvements .............................. 25,463 29,932
------------ ------------
1,811,753 1,805,520
Less: accumulated depreciation and amortization (1,474,129) (1,609,120)
------------ ------------
$ 337,624 $ 196,400
============ ============
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1993 and 1994:
<TABLE>
<CAPTION>
1993 1994
-------------- ---------------
<S> <C> <C>
Revolving credit facility - Society National Bank. $21,165,000 $ 21,127,500
------------ ------------
Subordinated notes payable -
Alta Subordinated Debt Partners II, L.P.:
Original face amount ........................ 5,000,000 5,000,000
Deferred interest ........................... 8,860,482 13,777,998
------------ ------------
13,860,482 18,777,998
------------ ------------
Senior subordinated deferred note - NBC:
Original face amount ........................... 12,000,000 12,000,000
Unamortized discount ........................... (3,482,826) (3,117,115)
Deferred interest .............................. 7,666,189 9,644,457
------------ ------------
16,183,363 18,527,342
------------ ------------
Total long-term debt ........................... $51,208,845 $ 58,432,840
============ ============
</TABLE>
The revolving credit facility (the Facility) originally provided for
borrowings of up to $24,000,000. Beginning with the quarter ended March 31,
1990, the commitment reduced each quarter through December 31, 1997. WKYS was
required to pay to Society National Bank (Society) each quarter the excess of
the outstanding balance of the loan over the amount of the commitment. WKYS has
not made certain required repayments under the Facility, and is in violation of
certain restrictive covenants included in the Facility. WKYS and Society have
entered into several forbearance agreements in an attempt to restructure the
debt in a manner that would enable WKYS to meet its obligations currently. The
most recent of these forbearance agreements expired on June 30, 1994, at which
time all amounts owed by WKYS to Society became payable in full. On August 24,
1994, WKYS and Society executed an Agree-
F-38
<PAGE>
WKYS-FM, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
ment for Judgment and Conditional Forbearance, pursuant to which Society has
agreed to forbear from taking action against WKYS in exchange for WKYS'
agreement to sell substantially all of its assets under certain terms and
conditions. The terms of this Agreement for Judgment and Conditional Forbearance
are described more fully below.
Interest on the Facility accrues at Society's base lending rate plus 1.75%,
which approximated 7.75% and 10.25% at December 31, 1993 and 1994, respectively.
Interest is payable quarterly in arrears. WKYS is required to pay a commitment
fee of 1/2 of 1 percent on the unused portion of the revolving credit facility.
The borrowing is collateralized by all tangible and intangible property of WKYS,
assignment of all leases and a pledge of all capital stock of WKYS. The loan is
also guaranteed by ACI. This guarantee would expire upon satisfaction of WKYS'
obligation to Society as outlined in the Agreement for Judgment and Conditional
Forbearance as described more fully below.
The $5,000,000 subordinated notes (the Subordinated Notes) payable to a
group of investors led by Alta Subordinated Debt Partners II, L.P.
(collectively, the Investors) are due January 2, 1998. Interest of 10 percent is
payable in arrears on a quarterly basis. Additional interest of 15 percent is
accrued, compounded at 25 percent and capitalized annually. Interest payments
are due in arrears on December 22 of each year. WKYS may elect to defer the
payment of this interest until maturity. WKYS has not made any payments to the
Investors and is in default of certain provisions of the Subordinated Note
Agreement. On August 24, 1994, at which time all amounts owed to the Investors
approximated $16,300,000, WKYS and the Investors executed a Forbearance
Agreement, pursuant to which the Investors have agreed to forbear from taking
action against WKYS in exchange for WKYS' agreement to sell substantially all of
its assets under certain terms and conditions. The terms of this Forbearance
Agreement are described more fully below.
The Subordinated Notes are collateralized by the stock and assets of WKYS,
second only to the Facility. The Investors also hold WKYS' Class B common stock
and Class A redeemable preferred stock (see Note 6).
The $12,000,000 senior subordinated deferred note (the Senior Subordinated
Note) payable to NBC bears interest at 10 percent per annum and is due December
9, 1998. A market rate of 14.5% percent was imputed on the note, and the related
discount is being amortized over the life of the note using the effective
interest method. The note required no principal or interest payments through
1993. Commencing January 1, 1994, interest payments of $600,000 are due
semi-annually on January 1 and June 30. At maturity, the remaining principal and
deferred interest, which is estimated to approximate $24,290,000, is due and
payable. WKYS has not made any repayments to NBC and is in default of certain
provisions of the Senior Subordinated Note Agreement. On August 24, 1994, at
which time all amounts owed to NBC approximated $17,700,000 (net of the
unamortized discount), WKYS and NBC executed a Forbearance Agreement, pursuant
to which NBC has agreed to forbear from taking action against WKYS in exchange
for WKYS' agreement to sell substantially all of its assets under certain terms
and conditions. The terms of this Forbearance Agreement are described more fully
below.
Upon repayment of the Facility and the Subordinated Notes, this borrowing
is collateralized by all capital stock of WKYS.
The Agreements as defined in Note 1 set forth the terms and conditions
under which WKYS has agreed to attempt to sell its assets and distribute the
proceeds therefrom. Under the terms of the Agreements, the Lenders have agreed
to forbear from taking any action against WKYS until the earlier of:
i) The failure of WKYS to perform under any of the terms of the
Agreements;
ii) A Qualified Agreement of Sale, as defined in the Agreements, entered
into not later than October 31, 1994, is terminated;
F-39
<PAGE>
WKYS-FM, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
iii) The date on which the FCC denies the assignment of WKYS' FCC license;
iv) Twenty (20) days after FCC approval of a sale; or
v) June 30, 1995 (as amended-Note 1)
Further, certain members of WKYS' management have agreed not to compete
during the period prior to a sale of the assets of WKYS.
The Agreements provide for the distribution of "Net Proceeds" from a sale
of WKYS' assets as follows:
i) to Society in an amount equal to all amounts due less $1,000,000;
ii) to the Investors in an amount equal to at least $8,000,000 plus
certain of the Investors's legal fees;
iii) to NBC in the amount of $1,200,000.
Net proceeds is defined in the Agreements as the sum of all sale proceeds
(exclusive of up to $200,000 which may be paid to certain officers of WKYS in
exchange for agreements not-to-compete) less transaction costs and trade
payables.
Any excess of Net Proceeds over the amounts shown above shall be
distributed as follows:
i) to the Investors to pay certain additional fees;
ii) to WKYS in the amount of $300,000 to pay certain trade payables;
iii) to Society up to a maximum of $1,000,000;
iv) to ACI, the Investors and WKYS in the percentages of 55.1%, 32.4% and
12.5%, respectively.
In the event that WKYS is unsuccessful in selling its assets within the
time allotted or on the terms provided by the Agreements, WKYS and its lenders
have agreed that WKYS will not seek protection under Chapter 11 of the United
States Bankruptcy Code and that a receiver shall be appointed to sell the assets
of WKYS. In such an event, the sale proceeds shall be distributed as follows:
i) to repay Society in full;
ii) to repay the Investors $8,000,000 plus legal fees;
iii) to pay NBC $500,000; and
iv) to reimburse the Investors and NBC for certain legal fees.
Total cash paid for interest during 1993 and 1994 was approximately
$1,400,000 and $2,900,000, respectively.
5. INTEREST RATE SWAP AGREEMENTS
WKYS HAS ENTERED INTO AN INTEREST RATE SWAP AGREEMENT TO REDUCE THE IMPACT
OF CHANGES IN INTEREST rates on the Facility (Note 4). At December 31, 1993, a
total principal amount of $10 million of the revolving credit facility was
subject to this agreement. The interest rate swap agreement effectively changed
WKYS' interest rate on $10 million of the Facility to a fixed 8.9% through April
9, 1994, the date upon which the agreement matured. WKYS was exposed to credit
loss in the event of nonperformance by the other parties to the interest rate
swap agreements. However, WKYS did not experience nonperformance by the
counterparties.
F-40
<PAGE>
WKYS-FM, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
6. PREFERRED AND COMMON STOCK
Holders of Class A and Class B preferred stock have no dividend or voting
rights, except as otherwise provided by law or in certain limited circumstances.
WKYS may purchase, and the holders shall sell, all or any portion of the Class A
preferred stock at a redemption price of $1,000 per share at any time. The Class
A redeemable preferred stock will be redeemed at a price of $1,000 per share, on
the first to occur of when the holders shall have the right to require the
purchase of the preferred stock pursuant to the shareholders agreement dated
December 22, 1988, the repayment of all indebtedness issued pursuant to the note
and stock purchase agreement dated December 22, 1989, or December 31, 1997. On
or after the purchase by WKYS of all the Class A preferred, WKYS may purchase
all or any portion of the Class B preferred stock at a price of $1,000 per
share. Both Class A and Class B preferred stock have a liquidation price of
$1,000 per share.
Shares of Class A common stock and Class B common stock share identical
rights and privileges except that Class B common stock may only vote on certain
matters specifically identified in the Certificate of Incorporation and
Amendment thereto. All common stock dividends shall be made in shares of Class A
stock if on Class A stock and in shares of Class B stock if on Class B stock.
7. INCOME TAXES
WKYS has unused net operating loss carryforwards for federal and local
income tax reporting purposes of approximately $16,000,000 and $24,000,000 at
December 31, 1993 and 1994, respectively. These carryforwards expire in various
years through 2009. No federal or local income taxes were paid during 1993 and
1994.
As of December 31, 1993 and 1994, WKYS had a deferred tax asset of
approximately $6,100,000 and $9,800,000, respectively. This asset, however, has
been fully reserved due to the uncertainty regarding its ultimate realization.
The Company's deferred tax asset at December 31, 1993 and 1994 is
summarized as follows:
1993 1994
--------------- ---------------
Net operating loss carryforwards ... $ 6,100,000 $ 9,600,000
Other .............................. 200,000 200,000
------------ ------------
6,300,000 9,800,000
Valuation allowance ............... (6,300,000) (9,800,000)
------------ ------------
Total deferred taxes ............ $ - $ -
============ ============
WKYS also has charitable contributions carryforwards of approximately
$98,000 and $115,000 at December 31, 1993 and 1994, respectively.
8. COMMITMENTS
MANAGEMENT AND CONSULTING FEES
WKYS has entered into a long-term management and consulting agreement with
Albimar Management, Inc. (AMI), an affiliate of ACI, for a predetermined annual
fee. This fee amounted to $275,000 in 1993 and 1994. The Facility (Note 4)
imposes certain limitations on payment of fees to AMI, based upon excess cash
flow as defined in the Facility. As a result of these limitations, WKYS did not
make any payments to AMI during the year ended December 31, 1994. WKYS has
accrued a liability relative to this agreement of approximately $550,000 and
$937,000 at December 31, 1993 and 1994, respectively, representing the excess of
fees accrued over fees paid for all years.
F-41
<PAGE>
WKYS-FM, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Employment contracts
WKYS has entered into certain noncancelable employment contracts. As of
December 31, 1994, minimum payments to be made under these contracts are as
follows:
1995 ...... $ 337,069
1996 ...... 119,329
----------
$ 456,398
==========
The Asset Purchase Agreement provides that certain amounts payable under
these contracts shall be paid upon closing of the sale of WKYS' assets.
Operating leases
WKYS has entered into various operating leases for the rental of certain
equipment and facilities. Minimum rental payments under these noncancelable
leases at December 31, 1994, are as follows:
1995 ............ $ 494,448
1996 ............ 483,823
1997 ............ 467,712
1998 ............ 484,141
1999 ............ 503,076
Thereafter ...... 2,397,705
------------
$ 4,830,905
============
Rent expense under all operating leases for 1993 and 1994 was approximately
$454,000 and $450,000, respectively. All rent expense is included in general and
administrative expenses in the accompanying statements of operations, except for
rent relating to WKYS' transmitting tower, which is included in technical
expenses. Rent expense recognized relative to certain operating leases differs
from actual cash payments due to escalation clauses which are being expensed on
a straight-line basis for financial statement purposes. The Asset Purchase
Agreement provides that the buyer shall assume all of these operating leases.
Other
WKYS has entered into an agreement with the Washington Tennis Foundation
for the use of a tennis suite during the annual Washington Tennis Foundation
tennis tournament in exchange for $80,000, paid in equal amounts over 4 years
commencing in 1989. WKYS has the option to retain the right to the use of the
suite for a maximum of 24 years provided that it pays a $5,000 annual license
fee as specified in the agreement. The unamortized portion of payments made
pursuant to this agreement as of December 31, 1993 and 1994 of $63,334 and
$60,000, respectively, are included in other assets in the accompanying balance
sheet.
9. EMPLOYEE BENEFIT PLAN
Effective June 1, 1993, WKYS initiated a defined contribution (401-K) Plan
(the Plan) covering substantially all employees. Employees may contribute
between 2% and 15% of eligible compensation to the Plan.
WKYS has the option to make matching contributions to the Plan. No such
matching contributions were made during the years ended December 31, 1993 and
1994.
10. RELATED-PARTY TRANSACTIONS
In addition to related party transactions disclosed in Note 7, WKYS
incurred approximately $131,000 and $204,000 during 1993 and 1994, respectively,
in legal expenses which were paid to a law firm in which one of the partners is
also a shareholder of ACI.
11. SUBSEQUENT EVENT (UNAUDITED)
During 1995, the Asset Purchase Agreement was finalized substantially in
accordance with the terms disclosed in Note 1.
F-42
<PAGE>
WKYS-FM, INC.
UNAUDITED STATEMENT OF OPERATIONS
FOR THE FIVE MONTHS ENDED MAY 31, 1995
<TABLE>
<S> <C>
OPERATING REVENUE:
Broadcasting sales, net of agency commissions of $390,199 ...... $ 2,347,105
Barter sales ................................................... 123,477
------------
Total operating revenue ....................................... 2,470,582
------------
OPERATING EXPENSES:
Programming ................................................... 513,653
Sales ......................................................... 449,345
Technical ...................................................... 87,434
General and administrative .................................... 742,495
Depreciation and amortization ................................. 444,508
Management and consulting fees ................................. 125,000
------------
Total Operating expenses .................................... 2,362,435
------------
Operating income ............................................. 108,147
INTEREST EXPENSE ................................................ 4,830,484
------------
Net loss ...................................................... $ (4,722,337)
============
</TABLE>
The accompanying notes are an integral part of this statement.
F-43
<PAGE>
WKYS-FM, INC.
UNAUDITED STATEMENT OF CHANGES IN STOCKHOLDER'S DEFICIT
FOR THE FIVE MONTHS ENDED MAY 31, 1995
<TABLE>
<CAPTION>
CLASS B CLASS A CLASS B ADDITIONAL
PREFERRED COMMON COMMON PAID-IN ACCUMULATED
STOCK STOCK STOCK CAPITAL DEFICIT TOTAL
----------- --------- --------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1994 ............ $874,000 $6 $4 $199,990 $ (32,118,904) $ (31,044,904)
Net loss ......... - - - - (4,722,337) (4,722,337)
--------- - - --------- ------------- -------------
BALANCE, May 31, 1995 $874,000 $6 $4 $199,990 $ (36,841,241) $ (35,767,241)
========= === === ========= ============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-44
<PAGE>
WKYS-FM, INC.
UNAUDITED STATEMENT OF CASH FLOWS
FOR THE FIVE MONTHS ENDED MAY 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................................. $ (4,722,337)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .......................................... 444,508
Management fees accrued ................................................... 125,000
Deferred rent ............................................................ 20,083
Effect of changes in operating assets and liabilities-
Accounts receivable, net ................................................ 502,244
Prepaids and other ...................................................... 89,217
Noncurrent assets ...................................................... 27,381
Accounts payable and accrued expenses ................................. (933,346)
Accrued interest payable ................................................ 194,101
------------
Net cash flows used in operating activities ........................... (4,253,149)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment ....................................... (333,725)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt, net ........................ 4,580,291
------------
DECREASE IN CASH ......................................................... (6,583)
CASH, beginning of period ................................................ 430,652
------------
CASH, end of period ...................................................... $ 424,069
============
</TABLE>
The accompanying notes are an integral part of this statement.
F-45
<PAGE>
WKYS-FM, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MAY 31, 1995
1. BASIS OF PRESENTATION:
WKYS-FM, Inc. (WKYS) is a privately held Delaware corporation which
operates an FM radio station serving the Washington, D.C., metropolitan area.
WKYS was purchased by Albimar Properties Limited Partnership (Albimar
Properties) in December 1988. Albimar Properties was subsequently merged with
Albimar Communications, Inc. (ACI), and the stock of WKYS is currently owned by
ACI and a group of private investors. The accompanying unaudited financial
statements present the results of operations and cash flows of the Company for
the five months ended May 31, 1995.
These statements are unaudited and certain information and footnote
disclosures normally included in the Company's annual financial statements have
been omitted, as permitted under the applicable rules and regulations. Readers
of these statements should refer to the financial statements and notes thereto
as of December 31, 1994, and for the year then ended included elsewhere in this
filing. The results of operations presented in the accompanying financial
statements are not necessarily representative of operations for an entire year.
2. SUBSEQUENT EVENT:
On June 6, 1995, the assets of the radio station WKYS-FM were acquired by
Radio One, Inc. for a total consideration of approximately $34.4 million.
F-46
<PAGE>
INDEX TO SUPPLEMENTAL SCHEDULES
PAGE
-----
Report of Independent Public Accountants .................... S-2
Schedule II - Valuation and Qualifying Accounts .............. S-3
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Radio One, Inc. and Subsidiary:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Radio One, Inc. (a Delaware corporation during 1996) and
subsidiary included in this Prospectus and the Registration Statement and have
issued our report thereon dated February 13, 1997. Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedules listed in the accompanying index are presented for purposes
of complying with the Securities and Exchange Commission's rules and are not
part of the basic financial statements. These schedules have been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Baltimore, Maryland,
February 13, 1997
S-2
<PAGE>
RADIO ONE, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 25, 1994, DECEMBER 31, 1995 AND 1996
AND FOR THE THREE MONTHS ENDED MARCH 30, 1997
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO END OF
OF YEAR EXPENSE DEDUCTIONS YEAR
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 25, 1994 ......... $ 472,600 $610,200 $ 614,800 $ 468,000
Year ended December 31, 1995 ......... $ 468,000 $298,300 $ 96,900 $ 669,400
Year ended December 31, 1996 ......... $ 669,400 $627,800 $ 532,000 $ 765,200
Six months ended June 29, 1997 ...... $ 765,200 $514,600 $ 326,758 $ 953,042
Tax valuation reserve:
Year ended December 25, 1994 ......... $ - $ - $ - $ -
Year ended December 31, 1995 ......... $ 739,000 $328,000 $ - $1,067,000
Year ended December 31, 1996 ......... $1,067,000 $ - $1,067,000 $ -
Six months ended June 29, 1997 ...... $ - $ - $ - $ -
</TABLE>
S-3
<PAGE>
[INSIDE BACK COVER]
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer in such jurisdiction. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date hereof or
that there has been no change in the affairs of the Company since such date.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Available Information ........................ 3
Prospectus Summary ........................... 5
Risk Factors ................................. 17
The Transactions ........................... 25
Use of Proceeds .............................. 26
Capitalization .............................. 27
Pro Forma Consolidated Financial Data ...... 28
Selected Historical Consolidated Financial
Data .................................... 34
Management's Discussion and Analysis of
Results of Operations and Financial
Condition ................................. 36
Business .................................... 44
Management ................................. 63
Principal Stockholders ..................... 66
Certain Transactions ........................ 68
Description of the Exchange Notes ............ 70
The Exchange Offer ........................... 97
Description of Certain Indebtedness ......... 105
Description of Capital Stock ............... 106
Certain United States Federal Income Tax
Considerations ........................... 112
Plan of Distribution ........................ 116
Legal Matters .............................. 116
Experts .................................... 117
Market and Industry Data ..................... 117
Index to Financial Statements ............... F-1
</TABLE>
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
<PAGE>
================================================================================
[GRAPHIC OMITTED]
Offer to Exchange its
Series B
12% Senior Subordinated Notes
Due 2004
for
any and all of its outstanding
12% Senior Subordinated Notes
Due 2004
PROSPECTUS
October 9, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware, inter alia,
("Section 145") provides that a Delaware corporation may indemnify any persons
who were, are or are threatened to be made, parties to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person is or was an officer, director, employee
or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
were or are threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation by reason of the
fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the corporation's best
interests, provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged to be liable to
the corporation. Where an officer, director, employee or agent is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
The Company's Certificate of Incorporation provides for the indemnification
of directors and officers of the Company to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as it currently exists or may
hereafter be amended.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
3.1 Amended and Restated Certificate of Incorporation of Radio One, Inc.*
3.2 Amended and Restated By-laws of Radio One, Inc.*
4.1 Indenture dated as of May 15, 1997 among Radio One, Inc., Radio One
Licenses, Inc. and United States Trust Company of New York. *
4.2 Purchase Agreement dated as of May 14, 1997 among Radio One, Inc.,
Radio One Licenses, Inc., Credit Suisse First Boston Corporation and
NationsBanc Capital Markets, Inc.*
4.3 Registration Rights Agreement dated as of May 14, 1997 among Radio One,
Inc., Radio One Licenses, Inc., Credit Suisse First Boston Corporation
and NationsBanc Capital Markets, Inc.*
4.4 Standstill Agreement dated as of May 19, 1997 among Radio One, Inc.,
Radio One Licenses, Inc., NationsBank of Texas, N.A., United States
Trust Company of New York and the other parties thereto.*
5.1 Form of Opinion and consent of Kirkland & Ellis.*
8.1 Form of Opinion and consent of Kirkland & Ellis.*
10.1 Office Lease dated February 3, 1997 between National Life Insurance
Company and Radio One, Inc. for premises located at 5900 Princess
Garden Parkway, Lanham, Maryland, as amended on February 24, 1997.*
10.2 Purchase Option Agreement dated February 3, 1997 between National Life
Insurance Com- pany and Radio One, Inc. for the premises located at
5900 Princess Garden Parkway, Lanham, Maryland.*
10.3 Asset Purchase Agreement dated December 6, 1996 by and between Jarad
Broadcasting Company of Pennsylvania, Inc. and Radio One, Inc.*
10.4 Office Lease commencing November 1, 1993 between Chalrep Limited
Partnership and Ra- dio One, Inc., with respect to the property located
at 100 St. Paul Street, Baltimore, Mary- land.*
10.5 Preferred Stockholders' Agreement dated as of May 14, 1997 among Radio
One, Inc., Radio One Licenses, Inc. and the other parties thereto.*
10.6 Warrantholders' Agreement dated as of June 6, 1995, as amended by the
First Amendment to Warrantholders' Agreement dated as of May 19, 1997,
among Radio One, Inc., Radio One Licenses, Inc. and the other parties
thereto.*
10.7 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Syncom Capital Corporation.*
10.8 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Alliance Enterprise Corporation.*
10.9 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Greater Philadelphia Venture Capital Corporation, Inc.*
10.10 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Opportunity Capital Corporation.*
10.11 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Capital Dimensions Venture Fund, Inc.*
- ---------------------
* Previously filed.
II-2
<PAGE>
10.12 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to TSG Ventures Inc.*
10.13 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Fulcrum Venture Capital Corporation.*
10.14 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Alta Subordinated Debt Partners III, L.P.*
10.15 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to BancBoston Investments, Inc.*
10.16 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Grant M. Wilson.*
10.17 Management Agreement dated as of August 1, 1996 by and between Radio
One, Inc. and Radio One of Atlanta, Inc.*
10.18 Letter of Intent dated March 12, 1997 by and between Radio One, Inc.
and Allied Capital Financial Corporation, as amended by that certain
First Amendment dated as of May 6, 1997, that certain Second Amendment
dated as of May 30, 1997, that certain Third Amendment dated as of June
5, 1997 and that certain Letter Agreement dated as of July 1, 1997.*
10.19 Fifth Amendment dated as of July 31, 1997 to that certain Letter of
Intent dated March 12, 1997 by and between Radio One, Inc. and Allied
Capital Financial Corporation, as amended.*
10.20 Sixth Amendment dated as of September 8, 1997 to that certain Letter of
Intent dated March 12, 1997 by and between Radio One, Inc. and Allied
Capital Financial Corpora- tion, as amended.*
12.1 Statement of Computation of Ratios.*
21.1 Subsidiaries of Radio One, Inc.*
23.1 Consent of Arthur Andersen, L.L.P.
23.2 Consent of Coopers & Lybrand, L.L.P.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).*
23.4 Consent of Kirkland & Ellis (included in Exhibit 8.1)*
24.1 Powers of Attorney.*
25.1 Statement of Eligibility of Trustee on Form T-1.*
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Tender Instructions.*
- ----------
* Previously filed.
II-3
<PAGE>
(b) Financial Statement Schedules.
Not Applicable.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of the chapter at the start of
any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the Act
need not be furnished, provided, that the registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information necessary
to ensure that all other information in the prospectus is at least as
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements on Form F-3, a
post-effective amendment need not be filed to include financial statements
and information required by Section 10(a)(3) of the Act or Rule 3-19 of this
chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Form F-3.
(5) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(6) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
II-4
<PAGE>
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described under
Item 20 or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Lanham, State of
Maryland, on October 8, 1997.
RADIO ONE, INC.
By: /s/ Alfred C. Liggins, III
--------------------------------
Name: Alfred C. Liggins, III
Title: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Alfred C. Liggins, III
--------------------------- Chief Executive Officer, President and October 8, 1997
Alfred C. Liggins, III Director (principal executive officer)
*
- ------------------------ Executive Vice President and Chief October 8, 1997
Scott R. Royster Financial Officer (principal financial
officer and accounting officer)
*
--------------------------- Chairperson and Director October 8, 1997
Catherine L. Hughes
*
--------------------------- Director October 8, 1997
Terry L. Jones
*
--------------------------- Director October 8, 1997
Brian W. McNeill
*
--------------------------- Director October 8, 1997
P. Richard Zitelman
</TABLE>
*By: /s/ Alfred C. Liggins, III
---------------------------
Alfred C. Liggins, III
Attorney-in-Fact
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Lanham, State of
Maryland, on October 8, 1997.
RADIO ONE LICENSES, INC.
By: /s/ Alfred C. Liggins, III
--------------------------------
Name: Alfred C. Liggins, III
Title: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Alfred C. Liggins, III
--------------------------- Chief Executive Officer, President and October 8, 1997
Alfred C. Liggins, III Director (principal executive officer)
*
- ------------------------ Executive Vice President and Chief October 8, 1997
Scott R. Royster Financial Officer (principal financial
officer and accounting officer)
*
--------------------------- Chairperson and Director October 8, 1997
Catherine L. Hughes
*
--------------------------- Director October 8, 1997
Terry L. Jones
*
--------------------------- Director October 8, 1997
Brian W. McNeill
*
--------------------------- Director October 8, 1997
P. Richard Zitelman
</TABLE>
*By: /s/ Alfred C. Liggins, III
---------------------------
Alfred C. Liggins, III
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ---------- ------------ -----
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of Radio One, Inc.*
3.2 Amended and Restated By-laws of Radio One, Inc.*
4.1 Indenture dated as of May 15, 1997 among Radio One, Inc., Radio One
Licenses, Inc. and United States Trust Company of New York. *
4.2 Purchase Agreement dated as of May 14, 1997 among Radio One, Inc.,
Radio One Licenses, Inc., Credit Suisse First Boston Corporation and
NationsBanc Capital Markets, Inc.*
4.3 Registration Rights Agreement dated as of May 14, 1997 among Radio One,
Inc., Radio One Licenses, Inc., Credit Suisse First Boston Corporation
and NationsBanc Capital Markets, Inc.*
4.4 Standstill Agreement dated as of May 19, 1997 among Radio One, Inc.,
Radio One Licenses, Inc., NationsBank of Texas, N.A., United States
Trust Company of New York and the other parties thereto.*
5.1 Form of Opinion and consent of Kirkland & Ellis.*
8.1 Form of Opinion and consent of Kirkland & Ellis.*
10.1 Office Lease dated February 3, 1997 between National Life Insurance
Company and Radio One, Inc. for premises located at 5900 Princess
Garden Parkway, Lanham, Maryland, as amended on February 24, 1997.*
10.2 Purchase Option Agreement dated February 3, 1997 between National Life
Insurance Com- pany and Radio One, Inc. for the premises located at
5900 Princess Garden Parkway, Lanham, Maryland.*
10.3 Asset Purchase Agreement dated December 6, 1996 by and between Jarad
Broadcasting Company of Pennsylvania, Inc. and Radio One, Inc.*
10.4 Office Lease commencing November 1, 1993 between Chalrep Limited
Partnership and Ra- dio One, Inc., with respect to the property located
at 100 St. Paul Street, Baltimore, Mary- land.*
10.5 Preferred Stockholders' Agreement dated as of May 14, 1997 among Radio
One, Inc., Radio One Licenses, Inc. and the other parties thereto.*
10.6 Warrantholders' Agreement dated as of June 6, 1995, as amended by the
First Amendment to Warrantholders' Agreement dated as of May 19, 1997,
among Radio One, Inc., Radio One Licenses, Inc. and the other parties
thereto.*
10.7 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Syncom Capital Corporation.*
10.8 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Alliance Enterprise Corporation.*
10.9 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Greater Philadelphia Venture Capital Corporation, Inc.*
10.10 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Opportunity Capital Corporation.*
10.11 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Capital Dimensions Venture Fund, Inc.*
- ---------------------
* Previously filed.
II-2
<PAGE>
EXHIBITS DESCRIPTION PAGE
- ---------- ------------ -----
<S> <C> <C>
10.12 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to TSG Ventures Inc.*
10.13 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Fulcrum Venture Capital Corporation.*
10.14 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Alta Subordinated Debt Partners III, L.P.*
10.15 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to BancBoston Investments, Inc.*
10.16 Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Grant M. Wilson.*
10.17 Management Agreement dated as of August 1, 1996 by and between Radio
One, Inc. and Radio One of Atlanta, Inc.*
10.18 Letter of Intent dated March 12, 1997 by and between Radio One, Inc.
and Allied Capital Financial Corporation, as amended by that certain
First Amendment dated as of May 6, 1997, that certain Second Amendment
dated as of May 30, 1997, that certain Third Amendment dated as of June
5, 1997 and that certain Letter Agreement dated as of July 1, 1997.*
10.19 Fifth Amendment dated as of July 31, 1997 to that certain Letter of
Intent dated March 12, 1997 by and between Radio One, Inc. and Allied
Capital Financial Corporation, as amended.*
10.20 Sixth Amendment dated as of September 8, 1997 to that certain Letter of
Intent dated March 12, 1997 by and between Radio One, Inc. and Allied
Capital Financial Corpora- tion, as amended.*
12.1 Statement of Computation of Ratios.*
21.1 Subsidiaries of Radio One, Inc.*
23.1 Consent of Arthur Andersen, L.L.P.
23.2 Consent of Coopers & Lybrand, L.L.P.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).*
23.4 Consent of Kirkland & Ellis (included in Exhibit 8.1)*
24.1 Powers of Attorney.*
25.1 Statement of Eligibility of Trustee on Form T-1.*
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Tender Instructions.*
- ----------
* Previously filed.
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
Registration Statement.
/s/Arthur Andersen LLP
----------------------
Arthur Andersen LLP
Baltimore, Maryland,
October 7, 1997
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated February 3, 1995, on our audits of the financial statements of
WKYS-FM, Inc. We also consent to the reference to our firm under the caption
"Experts".
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Denver, Colorado
October 7, 1997
