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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File No. 333-30795
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM
TO
RADIO ONE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1166660
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5900 PRINCESS GARDEN PARKWAY,
8TH FLOOR
LANHAM, MARYLAND 20706
(Address of principal executive offices)
(301) 306-1111
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [ X ].
One share of voting stock was held by a non-affiliate of the registrant as of
December 31, 1998.
The number of shares outstanding of each of the issuer's classes of common
stock, as of December 31, 1998 is as follows:
<TABLE>
Class Outstanding at December 31, 1998
- ------------------------------------- ---------------------------------
<S> <C>
Class A Common Stock, $.01 par value 138.45
Class B Common Stock, $.01 par value 0
</TABLE>
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RADIO ONE, INC. AND SUBSIDIARIES
--------------------------------
Form 10-K
For the Fiscal Year Ended December 31, 1998
TABLE OF CONTENTS
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<TABLE>
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PAGE
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PART I
ITEM 1. Business.................................................................................. 1
ITEM 2. Properties and Facilities................................................................. 29
ITEM 3. Legal Proceedings......................................................................... 31
ITEM 4. Submission of Matters to a Vote of Security Holders....................................... 31
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters..................... 32
ITEM 6. Selected Financial Data................................................................... 33
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................. 34
ITEM 8. Financial Statements and Supplementary Data (The following consolidated financial
statements are incorporated in this report by reference to Radio One's Current
Report on Form 8-K filed March 12, 1999; File No. 333-30795; File No. 9956-4256)..........
Report of Independent Public Accountants...............................................
Consolidated Balance Sheets as of December 31, 1997 and 1998...........................
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998....................................................
Consolidated Statements of Changes in Stockholders' Deficit for the
years ended December 31, 1996, 1997 and 1998........................................
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998....................................................
Notes to Consolidated Financial Statements.............................................
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................................... 43
PART III
ITEM 10. Directors and Executive Officers of the Registrant........................................ 44
ITEM 11. Executive Compensation.................................................................... 45
ITEM 12. Security Ownership of Certain Beneficial Owners and Management............................ 47
ITEM 13. Certain Relationship and Related Transactions............................................. 49
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................... 51
</TABLE>
SIGNATURES
EXHIBIT INDEX
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PART I
ITEM 1. BUSINESS
Unless otherwise noted, the terms "Radio One," "we," "our" and "us"
refer to Radio One, Inc. and our subsidiaries, Radio One Licenses, Inc., WYCB
Acquisition Corporation, Broadcast Holdings, Inc., Bell Broadcasting Company,
Radio One of Detroit, Inc., Allur-Detroit, Inc., Allur Licenses, Inc., Radio One
of Atlanta, Inc., ROA Licenses, Inc., Dogwood Communications, Inc. and Dogwood
Licenses, Inc., from the time of their respective acquisitions.
Radio One was founded in 1980 and is the largest radio broadcasting company
in the United States primarily targeting African-Americans. Including our recent
acquisition of two stations in Atlanta and after we complete our pending
acquisitions, we will own and operate 25 radio stations. Twenty-four of these
stations (seventeen FM and seven AM) are in eight of the top 20 African-American
radio markets: Washington, D.C., Baltimore, Atlanta, Philadelphia, Detroit, St.
Louis, Cleveland and Richmond. Our strategy is to expand within our existing
markets and into new markets that have a significant African-American presence.
We believe radio broadcasting primarily targeting African-Americans has
significant growth potential. We also believe that we have a competitive
advantage in the African-American market and the radio industry in general, due
to our primary focus on urban formats, our skill in programming and marketing
these formats, and our turnaround expertise.
We have succeeded in increasing ratings, net broadcast revenue and
broadcast cash flow of all of the FM stations we have owned or managed for at
least one year. The radio station clusters that we owned as of December 31,
1998, were ranked first or second in all of their markets in combined audience
and net broadcast revenue share among radio stations targeting African-
Americans. Our net broadcast revenue and broadcast cash flow have grown
significantly on both a total and same station basis.
Radio One is led by our Chairperson and co-founder, Ms. Catherine L.
Hughes, and her son, Mr. Alfred C. Liggins, III, our Chief Executive Officer and
President, who together have over 40 years of operating experience in radio
broadcasting. Ms. Hughes, Mr. Liggins and our strong management team have
successfully implemented a strategy of acquiring and turning around
underperforming radio stations. We believe that we are well positioned to apply
our proven operating strategy to our recently or soon to be acquired stations in
Detroit, St. Louis, Cleveland and Richmond, and to other radio stations in
existing and new markets as attractive acquisition opportunities arise.
On March 12, 1999, we filed a registration statement on Form S-1 in
connection with our offering (the "Common Stock Offering") of Class A Common
Stock. On March 19, 1999, we filed a registration statement on Form S-1 in
connection with our offering (the "Preferred Stock Offering") of Senior
Cumulative Exchangeable Preferred Stock (the "New Preferred Stock"). See Item 7
- -- "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The following table sets forth certain information with respect to Radio
One and its markets as of December 31, 1998:
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RADIO ONE AND OUR MARKETS
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<CAPTION>
RADIO ONE DATA/(1)/ MARKET DATA/(2)/
------------------------------------------------------------- ----------------------------------------
NUMBER OF AFRICAN-AMERICAN 1996 MSA POPULATION
-------- ---------------- -------------------
STATIONS MARKET ENTIRE MARKET
-------- ------ -----------------
RANKING BY
----------
1998 ANNUAL SIZE OF
------------ ----------
RADIO AFRICAN-
AUDIENCE ------------ ---------- TOTAL
-------- REVENUE AUDIENCE REVENUE REVENUE AMERICAN --------- AFRICAN-
SHARE ---------------- -------- ------- ------------ ---------- (IN -----------
MARKET FM AM RANK RANK SHARE SHARE ($ MILLIONS) POPULATION MILLIONS) AMERICAN %
- ------ -- ----- -------- ---------------- -------- ------- ------------ ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Washington, D.C... 2 2 1 1 12.0 9.5% $257.0 3 4.2 27.2%
Detroit........... 2 2(3) 2 2 4.7 3.6 211.5 5 4.5 22.5
Philadelphia...... 1 - 2 2 3.3 2.2 249.1 6 4.9 19.9
Baltimore......... 2 2 1 1 17.0 19.1 100.2 11 2.5 26.0
</TABLE>
__________________
(1) Audience Share Rank and Audience Share data are from the Fall 1998 Arbitron
Survey. Revenue Rank and Revenue Share data are from Hungerford or Miller
Kaplan, adjusted to include WYCB-AM, which does not report to Hungerford or
Miller Kaplan.
(2) Annual Radio Revenue data are from Hungerford or Miller Kaplan. Population
data are from BIA (Fourth Edition 1998).
(3) Includes WJZZ-AM, which is located in Kingsley, Michigan.
THE AFRICAN-AMERICAN MARKET OPPORTUNITY
We believe that operating urban formatted radio stations primarily targeting
African-Americans has significant growth potential for the following reasons:
. RAPID POPULATION GROWTH. 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 20.0% increase from 1995, compared to an
expected increase of 13.0% for the population as a whole). (Source: 1996
U.S. Census Bureau Current Population Report)
. HIGHER INCOME GROWTH. According to the U.S. 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. African-American buying power is estimated to
reach $533 billion in 1999 (up 73.0% from 1990 compared to a 57.0% increase
for all Americans) and to account for 8.2% of total buying power in 1999
(compared to 7.4% in 1990). (Source: "African-American Buying Power by
Place of Residence: 1990-1999," Dr. Jeffrey M. Humphreys). In addition,
the African-American consumer tends to have a different consumption profile
than non-African-Americans. For example, 31% of African-Americans purchased
a TV, VCR or stereo in the past year compared to 25% of average U.S.
households. African-Americans' higher than average rate of consumption is a
powerful reason for U.S. retailers to increase targeted advertising
spending toward this consumer group. (Source: Pricewaterhouse Coopers, LLP
1998 Study)
. GROWTH IN ADVERTISING TARGETING THE AFRICAN-AMERICAN MARKET. We believe
that large corporate advertisers are becoming more focused on reaching
minority consumers in the United States. The African-American and Hispanic
communities are viewed as an emerging growth market within the mature
domestic market. A 1997 study estimated that major national advertisers
spent $881 million on advertising targeting African-American consumers, up
from $463 million in 1985. (Source: Target Market News (Chicago, IL-1997)).
For example, Ford Motor Company reportedly plans to increase its spending
targeting African-Americans and Hispanics by 20% in the 1998-99 model year.
(Source: Ad Week Midwest September 28, 1998). We believe Ford is one
example of many large corporations currently expanding their commitment to
ethnic advertising.
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. URBANIZATION OF AMERICAN CULTURE AND SOCIETY. We believe that there is an
ongoing "urbanization" of many facets of American society as evidenced by
the influence of African-American culture in the areas of music (for
example, hip-hop and rap music), film, fashion, sports and urban-oriented
television shows and networks. We believe that companies as disparate as
the News Corporation's Fox television network, the sporting goods
manufacturer Nike(R), the fast food chain McDonald's(R), and prominent
fashion designers have embraced this urbanization trend in their products
as well as their advertising messages.
. GROWING POPULARITY OF URBAN FORMATS. We believe that urban programming
has been expanded to target a more diverse urban listener base and has
become more popular with listeners and advertisers over the past ten years.
The number of urban radio stations has increased from 294 in 1990 to an
estimated 371 in 1998, or 26%, and is expected to increase an additional
10% to 409 by 2002. In 1998, urban formats were one of the top three
formats in nine of the top ten radio markets nationwide and the top format
in five of these markets. (Source: INTEREP, Research Division, 1998 Urban
Radio Study)
. CONCENTRATED PRESENCE IN URBAN MARKETS. In 1996, approximately 58.0% of
the African-American population was located in the top 30 African-American
markets. Relative to radio broadcasters targeting a broader audience, we
believe we can cover the various segments of our target market with fewer
programming formats and therefore fewer radio stations than the maximum
allowed by the FCC (up to eight radio stations in the largest markets with
no more than five being FM or AM). (Source: BIA, Fourth Edition 1998)
. STRONG AUDIENCE LISTENERSHIP AND LOYALTY. In 1996, African-Americans
listened to radio broadcasts an average of 27.2 hours per week compared to
22.9 hours per week for non-African-Americans among all persons in the ten
largest markets. In addition, Radio One believes that African-American
radio listeners exhibit greater loyalty to radio stations that target the
African-American community because those radio stations become a valuable
source of entertainment and information responsive to the community's
interests and lifestyles. (Source: INTEREP Research Division, 1998 Urban
Radio Study)
ACQUISITION STRATEGY
Our acquisition strategy is to acquire and turn around underperforming radio
stations principally in the top 30 African-American markets. We consider
acquisitions in existing markets where expanded coverage is desirable and in new
markets where we believe it is advantageous to establish a presence. In
analyzing potential acquisition candidates, we generally consider:
. the price and terms of the purchase;
. whether the radio station has a signal adequate to reach a large
percentage of the African-American community in a market;
. whether we can increase ratings and net broadcast revenue of the radio
station;
. whether we can reformat or improve the radio station's programming in
order to serve profitably the African-American community;
. whether the radio station affords us the opportunity to introduce
complementary formats in a market where Radio One already maintains a
presence; and
. the number of competitive radio stations in the market.
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For strategic reasons, or as a result of a station cluster purchase, we may
also acquire and operate stations with formats that target non-African-American
segments of the population.
TURNAROUND EXPERTISE
We typically enter a market by acquiring a station or stations that have
little or negative broadcast cash flow. Additional stations we have acquired in
existing markets have often been, in our opinion, substantially underperforming.
By implementing our operating strategies, we have succeeded in increasing
ratings, net broadcast revenue and broadcast cash flow of all the FM stations we
have owned or managed for at least one year. We have achieved these improvements
while operating against much larger competitors. Some of these successful
turnarounds are described below by market:
. WASHINGTON, D.C. In 1995, we acquired WKYS-FM for approximately $34.0
million. At the time, WKYS-FM was ranked number 13 by Arbitron in the 12-
plus age demographic. Over a two-year period, we repositioned WKYS-FM,
improved its programming and enhanced the station's community involvement
and image. In the Fall 1998 Arbitron Survey, the station was ranked number
one in the 18-34 age demographic (with a 10.2 share) and number two in the
12-plus age demographic (with a 5.4 share), behind two stations tied for
number one (each with a 5.6 share).
In 1987, we acquired WMMJ-FM for approximately $7.5 million. At the time,
WMMJ-FM was being programmed in a general market Adult Contemporary format,
and had a 1.2 share of the 12-plus age demographic. After extensive
research we changed the station's format, making WMMJ-FM the first FM radio
station on the East Coast to introduce an Urban Adult Contemporary
programming format. In the Fall 1998 Arbitron Survey, the station was
ranked number three in the 25-54 age demographic (with a 5.8 share) and
number five in the 12-plus age demographic (with a 5.0 share).
. BALTIMORE. In 1993, we acquired WERQ-FM and WOLB-AM (formerly WERQ-AM)
for approximately $9.0 million. At the time, these stations had mediocre
ratings. We converted WERQ-FM's programming to a more focused Young Urban
Contemporary format and began aggressively marketing the station. WERQ-FM
is now Baltimore's dominant station, ranked number one in the 12-plus, 18-
34 and 25-54 age demographics in the Fall 1998 Arbitron Survey, a position
it first achieved in the Spring 1997 Arbitron Survey.
In 1992, we acquired WWIN-FM and its sister station, WWIN-AM, for
approximately $4.7 million. At the time, WWIN-FM was a distant second in
ratings to its in-format direct competitor, WXYV-FM. We repositioned WWIN-
FM towards the 25-54 age demographic, and in the Fall 1998 Arbitron Survey
the station was ranked number two in that age demographic (with a 7.5
share) behind two stations tied for number one (each with a 7.7 share),
including Radio One's WERQ-FM.
. PHILADELPHIA. In 1997, we acquired WPHI-FM (formerly WDRE-FM) for
pproximately $20.0 million. At the time WDRE-FM was being programmed in a
Modern Rock format and had a 2.0 share in the 12- plus age demographic. We
changed the station's format to Young Urban Contemporary and, in the Fall
1998 Arbitron Survey, the station was ranked number 14 in the 12-plus age
demographic (with a 3.3 share) and number five in the 18-34 age demographic
(with a 6.0 share).
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TOP 30 AFRICAN-AMERICAN RADIO MARKETS IN THE UNITED STATES/(1)/
Boxes enclose the tabular information for Washington, D.C., Detroit,
Philadelphia, Atlanta, Baltimore, St. Louis, Cleveland and Richmond.
<TABLE>
<CAPTION>
AFRICAN-AMERICANS
AS A PERCENTAGE OF THE
AFRICAN-AMERICAN OVERALL POPULATION
RANK MARKET POPULATION IN THE MARKET/(2)/ IN THE MARKET/(2)/
- ---- -------- ------------------------------- -----------------------
(IN THOUSANDS)
<S> <C> <C> <C>
1. New York 3,731 22.2%
2. Chicago 1,648 19.4
- -----------------------------------------------------------------------------------------------------------
3. WASHINGTON, D.C. 1,150 27.2
- -----------------------------------------------------------------------------------------------------------
4. Los Angeles 1,134 9.4
- -----------------------------------------------------------------------------------------------------------
5. DETROIT 1,004 22.5
6. PHILADELPHIA 947 19.9
7. ATLANTA 921 25.7
- -----------------------------------------------------------------------------------------------------------
8. Houston/Galveston 782 18.3
9. Miami/Ft. Lauderdale/ Hollywood 718 20.2
10. Dallas/Ft. Worth 645 14.2
- -----------------------------------------------------------------------------------------------------------
11. BALTIMORE 644 26.0
- -----------------------------------------------------------------------------------------------------------
12. San Francisco 599 9.2
13. Memphis 482 41.5
14. New Orleans 460 36.3
15. Norfolk/Virginia Beach/Newport News 444 29.6
- -----------------------------------------------------------------------------------------------------------
16. ST. LOUIS 439 17.2
17. CLEVELAND 398 18.7
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18. Boston 281 7.3
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19. RICHMOND 281 30.0
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20. Charlotte/Gastonia/Rock Hill 266 19.9
21. Birmingham 261 27.0
22. Raleigh/Durham 244 23.5
23. Milwaukee/Racine 237 14.4
24. Greensboro/Winston-Salem/High Point 226 19.7
25. Cincinnati 220 11.4
26. Kansas City 215 12.8
27. Tampa/St. Petersburg/Clearwater 202 9.0
28. Jacksonville 201 19.0
29. Indianapolis 193 14.1
30. Pittsburgh 188 7.9
</TABLE>
(1) BOXES AND BOLD TEXT INDICATE MARKETS WHERE RADIO ONE CURRENTLY OWNS OR WILL
OWN AND OPERATE RADIO STATIONS UPON CONSUMMATION OF THE ACQUISITIONS
DESCRIBED BELOW UNDER "STATION OPERATIONS - ATLANTA, GEORGIA, - ST. LOUIS,
MISSOURI, - CLEVELAND, OHIO AND - RICHMOND, VIRGINIA."
(2) POPULATION ESTIMATES ARE FOR 1996 AND ARE BASED UPON BIA INVESTING IN RADIO
MARKET REPORT ("BIA 1998 FOURTH EDITION").
OPERATING STRATEGY
In order to maximize net broadcast revenue and broadcast cash flow at our
radio stations, we strive to achieve the largest audience share of African-
American listeners in each market, convert these audience share ratings to
advertising revenue, and control operating expenses. The success of our strategy
relies on the following:
. market research, targeted programming and marketing;
. strong management and performance-based incentives;
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. strategic sales efforts;
. radio station clustering, programming segmentation and sales bundling;
. advertising partnerships and special events; and
. significant community involvement.
Market Research, Targeted Programming and Marketing
Radio One uses market research to tailor the programming, marketing and
promotions of our radio stations to maximize audience share. To achieve these
goals, we use market research to identify unserved or underserved markets or
segments of the African-American community in current and new markets and to
determine whether to acquire a new radio station or reprogram one of our
existing radio stations to target those markets or segments.
We also seek to reinforce our targeted programming by creating a distinct and
marketable identity for each of our radio stations. To achieve this objective,
in addition to our significant community involvement discussed below, we employ
and promote distinct, high-profile on-air personalities at many of our radio
stations, many of whom have strong ties to the African-American community.
Strong Management and Performance-based Incentives
Radio One focuses on hiring highly motivated and talented individuals in each
functional area of the organization who can effectively help us implement our
growth and operating strategies. Radio One's management team is comprised of a
diverse group of individuals who bring expertise to their respective functional
areas. We seek to hire and promote individuals with significant potential, the
ability to operate with high levels of autonomy and the appropriate team-
orientation that will enable them to pursue their careers within the
organization.
To enhance the quality of our management in the areas of sales and
programming, 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 broadcast cash flow benchmarks which create an incentive for
management to focus on both sales growth and 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.
Strategic Sales Efforts
Radio One has assembled an effective, highly trained sales staff responsible
for converting audience share into revenue. We operate with a focused, sales-
oriented culture which rewards aggressive selling efforts through a generous
commission and bonus compensation structure. We hire and deploy large teams of
sales professionals for each of our stations or station clusters, and we provide
these teams with the resources necessary to compete effectively in the markets
in which we operate. We utilize various sales strategies to sell and market our
stations as stand-alones, in combination with other stations within a given
market and across markets, where appropriate.
Radio Station Clustering, Programming Segmentation and Sales Bundling
Radio One strives to build clusters of radio stations in our markets, with
each radio station targeting different demographic segments of the African-
American population. This clustering and programming segmentation strategy
allows us to achieve greater penetration into each segment of our target market.
We are then able to offer advertisers multiple audiences and to bundle the radio
stations for advertising sales purposes when advantageous.
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We believe there are several potential benefits that result from operating
multiple radio stations in the same market. First, each additional radio station
in a market provides us with a larger percentage of the prime advertising time
available for sale within that market. Second, the more stations we program, the
greater the market share we can achieve in our target demographic groups through
the use of segmented programming. Third, we are 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 us to take advantage of our market expertise and existing
relationships with advertisers.
Advertising Partnerships and Special Events
We believe that in order to create advertising loyalty, Radio One must strive
to be the recognized expert in marketing to the African-American consumer in the
markets in which we operate. We believe that Radio One has achieved this
recognition by focusing on serving the African-American consumer and by creating
innovative advertising campaigns and promotional tie-ins with our advertising
clients and sponsoring numerous entertainment events each year. We sponsor the
Stone Soul Picnic, an all-day free outdoor concert which showcases advertisers,
local merchants and other organizations to over 100,000 people in each of
Washington, D.C. and Baltimore. We also sponsor The People's Expo every March in
Washington, D.C. and Baltimore, which provides entertainment, shopping and
educational seminars to Radio One's listeners and others from the communities we
serve. In these events, advertisers buy signage, booth space and broadcast
promotions to sell a variety of goods and services to African-American
consumers. As we expand our presence in our existing markets and into new
markets, we plan to increase the number of events and the number of markets in
which we host these major events.
Significant Community Involvement
We believe our active involvement and significant relationships in the
African-American community provides a competitive advantage in targeting
African-American audiences. In this way, we believe our proactive involvement in
the African-American community in each of our markets significantly improves the
marketability of our radio broadcast time to advertisers who are targeting such
communities.
We believe that a radio station's image should reflect the lifestyle and
viewpoints of the target demographic group it serves. Due to our fundamental
understanding of the African-American community, we believe we are 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 our operations and enables us to create enhanced awareness and name
recognition in the marketplace. In addition, we believe our multi-level approach
to community involvement leads to increased effectiveness in developing and
updating our programming formats. We believe our enhanced awareness and more
effective programming formats lead to greater listenership and higher ratings
over the long-term.
We have a history of sponsoring events that demonstrate our commitment to the
African-American community, including:
. heightening the awareness of diseases which disproportionately impact
African-Americans, such as sickle-cell anemia and leukemia, and holding
fund raisers to benefit the search for their cure;
. developing contests specifically designed to assist African-American
single mothers with day care expenses;
. fund-raising for the many African-American churches throughout the country
that have been the target of arsonists; and
. organizing seminars designed to educate African-Americans on personal
issues such as buying a home, starting a business, developing a credit
history, financial planning and health care.
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MANAGEMENT STOCK OPTION PLAN
On March 10, 1999, we adopted the 1999 Stock Option and Restricted Stock Grant
Plan (the ''Option Plan'') designed to provide incentives relating to equity
ownership to present and future executive, managerial, and other key employees
of Radio One and our subsidiaries. The Option Plan affords us latitude in
tailoring incentive compensation for the retention of key personnel, to support
corporate and business objectives, and to anticipate and respond to a changing
business environment and competitive compensation practices.
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STATION OPERATIONS
The following is a general description of each of our markets and our radio
stations in each market. As noted, some of the data provided in the tables below
includes information during periods the radio stations listed were not owned or
operated by Radio One.
WASHINGTON, D.C.
The Washington, D.C. market is estimated to be the eighth largest radio market
in terms of MSA population. In 1998, this market had advertising revenue
estimated to be $252.8 million, making it the sixth largest radio market in
terms of advertising revenue. In 1996, Washington, D.C. had the third largest
African-American population in the United States with an MSA population of
approximately 4.2 million (approximately 27.2% of which was African-American).
We believe that we own 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 two of the
three AM radio stations that target African-Americans. Washington, D.C.
experienced annual radio revenue growth of 5.4% between 1991 and 1996, and radio
revenue in Washington, D.C. is expected to continue growing at an annual pace of
7.4% between 1997 and 2001. (Source: BIA 1998 Fourth Edition)
<TABLE>
<CAPTION>
1995/(4)/ 1996/(4)/ 1997/(4)/ 1998/(4)/ FALL 1998/(5)/
--------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
WKYS-FM(1)
Audience share (12-plus)........ 3.8 4.5 5.8 5.2 5.4
Audience share rank (12-plus)... 9t 6t 2 3 2
Audience share (18-34).......... 5.8 7.5 10.4 10.1 10.2
Audience share rank (18-34)..... 6 2 1 1 1
Revenue share................... 3.8% 3.3% 4.5% 5.0% n/a
Revenue rank.................... 14 14 10 9 n/a
WMMJ-FM(2)
Audience share (12-plus)........ 3.7 4.5 4.1 4.3 5.0
Audience share rank (12-plus)... 11t 6t 9 8 5
Audience share (25-54).......... 4.6 5.4 4.9 5.1 5.8
Audience share rank (25-54)..... 8 3t 7 4 3
Revenue share................... 3.7% 3.4% 2.9% 3.2% n/a
Revenue rank.................... 15 13 17 18 n/a
WOL-AM
Audience share (12-plus)........ 1.7 1.0 1.1 0.8 0.7
Audience share rank (12-plus)... 19 23t 20 25 25t
Audience share (35-64).......... 2.3 1.1 1.4 1.1 1.0
Audience share rank (35-64)..... 14t 23 19 22 21t
Revenue share................... 2.0% 1.8% 1.6% 0.8% n/a
Revenue rank.................... 18 18 19 21 n/a
WMMJ-FM AND WOL-AM (COMBINED)
Audience share (12-plus)........ 5.4 5.5 5.2 5.1 5.7
Audience share (25-54).......... 6.4 6.2 5.9 5.9 6.5
Revenue share................... 5.6% 5.3% 4.5% 4.0% n/a
Revenue rank.................... 7 8 12 11 n/a
WYCB-AM(3)
Audience share (12-plus)........ 1.6 1.3 1.2 1.0 0.9
Audience share rank (12-plus)... 20 20 19 22 22t
Audience share (35-64).......... 1.7 1.5 1.4 1.1 1.0
Audience share rank (35-64)..... 19 18 20 19 21t
Revenue share................... n/a n/a n/a 0.5% n/a
Revenue rank.................... n/a n/a n/a n/a n/a
</TABLE>
- ---------------------------------------
As used in this table, "n/a" means not available or not applicable and "t"
means tied with one or more other radio stations.
(1) WKYS-FM was acquired by Radio One on June 6, 1995.
(2) WOL-AM and WMMJ-FM advertising time is sold in combination.
(3) Radio One acquired WYCB-AM in the first quarter of 1998 through an
Unrestricted Subsidiary.
9
<PAGE>
(4) Audience share and audience share rank data are based on Arbitron Survey
four book averages for the years indicated ending with the Fall Arbitron
Survey. Revenue share and rank data are based upon the Radio Revenue Report
of Hungerford for 1998, 1997, 1996, and 1995 (if applicable) except for
WYCB-AM which does not report to Hungerford. Revenue share for WYCB-AM
represents the radio station's net broadcast revenue as a percentage of the
market radio revenue reported by the Hungerford Report (December 1998), as
adjusted for WYCB-AM's net broadcast revenue.
(5) Fall 1998 Arbitron Survey.
WOL-AM. In 1980, we acquired our first radio station, WOL-AM, for
approximately $900,000. WOL-AM was a music station with declining revenue and
audience shares that Radio One converted to one of the country's first all-talk
radio stations targeting African-Americans. Radio One'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."We believe that WOL-AM is a vital communications
platform for the African-American community and political and business leaders
in its market. WOL-AM's ratings have historically fluctuated between a 1.0 and
2.0 share in the 12-plus age demographic market.
WMMJ-FM. In 1987, Radio One purchased WMMJ-FM for approximately $7.5 million.
At the time, WMMJ-FM was being programmed in a general market Adult Contemporary
format, and had a 1.2 share of the 12-plus age demographic. After extensive
research we changed the station's format, making WMMJ-FM 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 25-54 age
demographic and provides adult-oriented Urban Contemporary music from the 1960s
through the 1990s. The Urban AC format was almost immediately successful, and in
the Fall 1998 Arbitron Survey, the station was ranked number three in the 25-54
age demographic (with a 5.8 share) and number five in the 12-plus age
demographic (with a 5.0 share).
WKYS-FM. In June 1995, Radio One purchased WKYS-FM for approximately $34.0
million. WKYS-FM is a Young Urban Contemporary radio station targeting African-
Americans in the 18-34 age demographic. 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 Infinity Broadcasting ("Infinity")) changed its format from Adult
Contemporary to Contemporary Hit/Urban ("CHR") and in Spring 1989, replaced
WKYS-FM as the number one urban radio station in terms of audience share. From
1986 to Fall 1994, WKYS-FM's overall ratings rank fell from number one to number
12 with a 3.3 share of the 12-plus age demographic, while WPGC-FM moved from
near the bottom to number one with a 9.0 share of the 12-plus age demographic.
By 1995, the former owner of WKYS-FM abandoned the 18-34 age demographic and
began to target the 25-54 age demographic, making it a direct competitor to
Radio One's WMMJ-FM instead of Infinity's WPGC-FM. When Radio One purchased
WKYS-FM in June 1995, we repositioned WKYS-FM's programming away from WMMJ-FM
and back toward the 18-34 age demographic. Since June 1995, we have been able to
increase dramatically WKYS-FM's overall 12-plus age demographic share and in
1997 WKYS-FM became Washington, D.C.'s number one rated radio station for the
12-plus and 18-34 age demographics. During this same period, WPGC-FM fell to the
number two position in the 12-plus and 18-34 age demographics. Recently, WKYS-
FM's position has fluctuated between the number one and number three rated
station in the 12-plus age demographic while maintaining its number one position
in the 18-34 age demographic.
WYCB-AM. On March 16, 1998, Radio One acquired, through an Unrestricted
Subsidiary, Broadcast Holdings, Inc. ("BHI"), the owner of WYCB-AM, a gospel
station, for approximately $3.8 million. Following the acquisition, we
integrated the operations of WYCB-AM, a gospel station, into our existing radio
station operations in the Washington, D.C. market.
10
<PAGE>
BALTIMORE, MARYLAND
The Baltimore market is estimated to be the 20th largest radio market in terms
of MSA population and advertising revenue. In 1998, this market had advertising
revenue estimated to be $105.8 million. In 1996, Baltimore had the 11th 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).
We believe we own the strongest franchise of African-American targeted radio
stations in the Baltimore market with the only two FM radio stations and two of
the four AM radio stations that target African-Americans. Baltimore experienced
annual radio revenue growth of 8.6% between 1991 and 1996 and radio revenue in
Baltimore is expected to continue growing at an annual pace of 6.2% between 1997
and 2001. (Source: BIA 1998 Fourth Edition)
<TABLE>
<CAPTION>
1995/(3)/ 1996/(3)/ 1997/(3)/ 1998/(3)/ FALL 1998/(4)/
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
WERQ-FM/(1)/
Audience share (12-plus)........ 5.2 6.4 9.3 9.4 9.6
Audience share rank (12-plus)... 7 4 1 1 1
Audience share (18-34).......... 8.6 10.7 16 16.6 16.5
Audience share rank (18-34)..... 2 2 1 1 1
WOLB-AM
Audience share (12-plus)........ 0.9 0.6 0.9 0.9 0.8
Audience share rank (12-plus)... 23t 28t 15t 18 24t
Audience share (35-64).......... 1.1 0.9 1.2 1.1 0.7
Audience share rank (35-64)..... 19t 23 15 16t 26t
WERQ-FM AND WOLB-AM (COMBINED)
Audience share (12-plus)........ 6.1 7 10.2 10.3 10.4
Audience share (25-54).......... 4.9 5.7 9.1 8.7 8.4
Revenue share................... 6.7% 6.7% 10.7% 13.1% n/a
Revenue rank.................... 8 8 4 2 n/a
WWIN-FM/(2)/
Audience share (12-plus)........ 4.0 3.6 3.6 5.0 5.5
Audience share rank (12-........ 10 10 9 7 6
plus)
Audience share (25-54).......... 5.5 4.9 4.9 6.8 7.5
Audience share rank (25-54)..... 5 7t 7 4 3
WWIN-AM
Audience share (12-plus)........ 1.1 1.1 0.8 1.1 1.1
Audience share rank (12-plus)... 18t 20t 17 17 19t
Audience share (35-64).......... 1.1 1.4 1.1 1.1 0.8
Audience share rank (35-64)..... 19t 18 16t 16t 25
WWIN-FM AND WWIN-AM (COMBINED)
Audience share (12-plus)........ 5.1 4.7 4.4 6.1 6.6
Audience share (25-54).......... 6.6 6.0 5.8 7.6 8.2
Revenue share................... 5.7% 5.8% 5.5% 6.0% n/a
Revenue rank.................... 10 10 9 8 n/a
</TABLE>
- ----------------------------------
As used in this table, "n/a"means not available or not applicable and "t"
means tied with one or more other radio stations.
(1) Based upon the Hungerford Report (1998). WERQ-FM and WOLB-AM jointly report
revenue data to Hungerford.
(2) Based upon the Hungerford Report (1998). WWIN-FM and WWIN-AM jointly report
revenue data to Hungerford.
(3) Audience share and audience share rank data are based on Arbitron Survey
four book averages book for the years indicated ending with the Fall
Arbitron Survey. Revenue share and rank data are based on the Radio Revenue
Report by Hungerford for 1998, 1997, 1996 and 1995, as applicable.
11
<PAGE>
(4) Fall 1998 Arbitron Survey.
WWIN-FM and WWIN-AM. In January 1992, we made our first acquisition outside
the Washington, D.C. market with the purchase of WWIN-FM and its sister station
WWIN-AM for approximately $4.7 million. At the time, WWIN-FM was a distant
second in ratings to its in-format direct competitor WXYV-FM, with less than
one-third of that radio station's market share. Today, WWIN-FM is a leading
urban radio station in the 25-54 age demographic in the Baltimore market (ranked
number two in the Fall 1998 Arbitron Survey with a 7.5 share), and 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, Radio One completed another
acquisition in the Baltimore market with the purchase of WERQ-FM and WOLB-AM
(formerly WERQ-AM) for approximately $9.0 million. WERQ-FM was, at the time of
its acquisition, a CHR/Urban radio station, while WERQ-AM was a satellite-fed,
all-news radio station. We converted the format of WERQ-FM to a more focused
Young Urban Contemporary format targeted at the 18-34 age demographic, while
WOLB-AM began simulcasting with WOL-AM, Radio One's Black Talk radio station in
Washington, D.C. After we aggressively marketed the station, WERQ-FM became
Baltimore's dominant station ranked number one in the 12-plus, 18-34 and 25-54
age demographics in the Fall 1998 Arbitron Survey, a position it first achieved
in the Spring 1997 Arbitron Survey, while its former primary competitor, WXYV-
FM, changed format during 1997 and no longer targets the same listener base as
that of WERQ-FM.
PHILADELPHIA, PENNSYLVANIA
The Philadelphia market is estimated to be the fifth largest radio market in
terms of MSA population. In 1998, this market had advertising revenue estimated
to be $242.3 million, making it the seventh largest radio market in terms of
advertising revenue. In 1996, 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). Philadelphia
experienced annual radio revenue growth of 9.4% between 1991 and 1996, and radio
revenue in Philadelphia is expected to continue growing at an annual pace of
6.5% between 1997 and 2001. (Source: BIA 1998 Fourth Edition)
<TABLE>
<CAPTION>
1997/(1)/ 1998/(1)/ FALL 1998/(2)/
--------- ---------- -------------
<S> <C> <C> <C>
WPHI-FM
Audience share (12-plus).......... 3.6 3.3 3.3
Audience share rank (12-plus)..... 15 13t 14
Audience share (18-34)............ 6.4 6.0 6.0
Audience share rank (18-34)....... 5 5 5
Revenue share..................... 1.2% 2.2% n/a
Revenue rank...................... 18 16 n/a
</TABLE>
- ------------------------
As used in this table, "n/a" means not available or not applicable and "t"
means tied with one or more other radio stations.
(1) Audiences share and audience share rank data are based on Arbitron Survey
four book averages ending with the Fall Arbitron Survey for the years
indicated. Revenue share and rank data are based on the Radio Revenue
Report by Miller Kaplan for December 1998 and 1997, as applicable.
(2) Fall 1998 Arbitron Survey.
WPHI-FM. On February 8, 1997, Radio One entered into an LMA with the owner of
WPHI-FM (formerly WDRE-FM), and changed the radio station's programming format
from Modern Rock to Young Urban Contemporary targeting the 18-34 age
demographic. On May 19, 1997, we acquired WPHI-FM for approximately $20.0
million, providing us with an opportunity to apply our operating strategy in
another top-30 African-American market. Although WPHI-FM is a Class A facility
operating at the equivalent of 3 kW, we believe it adequately reaches at least
90% of African-Americans in Philadelphia. In the Fall 1998 Arbitron Survey,
WPHI-FM achieved a 3.3 share in the 12-plus age demographic and had solidly
positioned itself as the number two Young Urban Contemporary station in the
market behind WUSL-FM.
12
<PAGE>
DETROIT, MICHIGAN
The Detroit market is estimated to be the seventh largest radio market in
terms of MSA population. In 1998, this market had advertising revenue estimated
to be $225.1 million, making it the 11th largest radio market in terms of
advertising revenue. Detroit is the fifth largest African-American market with
an MSA population of approximately 4.5 million in 1996 (approximately 22.5% of
which was African-American). Detroit experienced annual radio revenue growth of
8.4% between 1991 and 1996, and radio revenue in Detroit is expected to continue
growing at an annual pace of 7.5% between 1997 and 2001 (Source: BIA 1998 Fourth
Edition).
1998/(1)/ FALL 1998/(2)/
--------- --------------
WDTJ-FM
Audience share (12-plus).......... 3.4 3.3
Audience share rank (12-plus)..... 12 13
Audience share (18-34)............ 5.8 5.4
Audience share rank (18-34)....... 4 5
Revenue share..................... 2.0 n/a
Revenue rank...................... n/a n/a
- ------------------------
As used in this table, "n/a" means not available or not applicable.
(1) Audience share and audience share rank data are based on Arbitron Survey
four book averages for the year indicated ending with the Fall Arbitron
Survey. Revenue share and rank data are based on the Radio Revenue Report
by Hungerford for 1998.
(2) Fall 1998 Arbitron Survey.
WDTJ-FM and WCHB-AM. On June 30, 1998, Radio One acquired Bell Broadcasting
Company ("Bell Broadcasting"), which owns two radio stations, WDTJ-FM (formerly
WCHB-FM) and WCHB-AM, located in the Detroit, Michigan market and one radio
station, WJZZ-AM, located in Kingsley, Michigan. Radio One paid approximately
$34.2 million in cash and the cost of certain improvements to the stations.
WDTJ-FM is a Young Urban Contemporary station similar to our WERQ-FM in
Baltimore and WKYS-FM in Washington, D.C. WCHB-AM's facilities are currently
being upgraded from 25 kW to 50 kW. In the future, we may dispose of the station
located in Kingsley, Michigan because that station is not integral to the Bell
Broadcasting operation and is located a substantial distance from Detroit.
WWBR-FM. On December 28, 1998, Radio One acquired Allur-Detroit, Inc.
("Allur-Detroit"), for approximately $26.5 million in cash. Allur-Detroit owns
WWBR-FM licensed to Mt. Clemens, Michigan, which is part of the Detroit MSA.
Allur-Detroit's stockholders included Syndicated Communications Venture
Partners, II, L.P. ("Syncom Venture Partners"), an affiliate of one of Radio
One's stockholders, Syncom Capital Corporation ("Syncom"). On January 16, 1999,
we changed the format of WWBR-FM to Adult Contemporary. WWBR-FM is the first
station owned by Radio One that primarily targets a non-African-American
audience.
13
<PAGE>
ATLANTA, GEORGIA
The Atlanta market is estimated to be the 13th largest radio market in terms
of MSA population. In 1998, this market had radio advertising revenue estimated
to be $242.2 million, making it the 10th largest radio market in terms of
advertising revenue. In 1996, Atlanta had the seventh largest African-American
population in the United States with an MSA population of approximately 3.6
million (approximately 25.7% of which was African-American). Due to a rapidly
growing local economy, the Atlanta market has one of the country's fastest
growth rates in terms of radio revenue. Atlanta experienced annual radio revenue
growth of 12.1% between 1991 and 1998, and radio revenue in Atlanta is expected
to continue growing at an average annual rate of 8.2% between 1997 and 2001.
(Source: BIA 1998 Fourth Edition)
On March 30, 1999, Radio One acquired Radio One of Atlanta, Inc. ("ROA"), an
affiliate of Radio One, in exchange for shares of Radio One Common Stock. Radio
One also assumed and retired approximately $16.3 million of indebtedness of
ROA and Dogwood Communications, Inc. ("Dogwood"). Prior to the acquisition, ROA
owned approximately 33% of Dogwood. On March 30, 1999, Radio One acquired the
remaining approximate 67% of Dogwood for $3.6 million. Founded in 1995, ROA owns
and operates WHTA-FM. Dogwood owns WAMJ-FM which, prior to ROA's acquisition of
100% of Dogwood, ROA operated under a local marketing agreement ("LMA"). Upon
the completion of these acquisitions, ROA became a wholly-owned subsidiary of
Radio One, and Dogwood became a wholly owned subsidiary of ROA. See Item 13 -
"Certain Relationships and Related Transactions."
<TABLE>
<CAPTION>
1996/(1)/ 1997/(1)/ 1998/(1)/ FALL 1998/(2)/
---------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
WHTA-FM
Audience share (12-plus)............ 4.9 5.0 4.7 4.5
Audience share rank (12-plus)....... 9 9 9 9
Audience share (18-34).............. 8.0 8.0 8.6 8.3
Audience share rank (18-34)......... 5 4 4 4
Revenue share....................... 2.2% 2.9% 3.5% n/a
Revenue rank........................ 12 12 12 n/a
WAMJ-FM/(3)/
Audience share (12-plus).................................. 2.2 1.8
Audience share rank (12-plus)............................. 15 17
Audience share (25-54).................................... 3.1 2.5
Audience share rank (25-54)............................... 13 14
Revenue share............................................. 1.1% n/a
Revenue rank.............................................. n/a n/a
</TABLE>
- ------------------------------------------
As used in this table, "n/a"means not available or not applicable.
(1) Audiences share and audience share rank data are based on Arbitron Survey
four book averages for the years indicated ending with the Fall Arbitron
Survey. Revenue share and rank data are based on the Radio Revenue Report
by Miller Kaplan for 1998, 1997 and 1996, as applicable. Revenue share for
WAMJ-FM represents its net broadcast revenue as a percentage of the market
radio revenue reported by Miller Kaplan for December 1998, as adjusted for
WAMJ-FM's net broadcast revenue.
(2) Fall 1998 Arbitron Survey.
(3) WAMJ-FM commenced broadcasting in December 1997.
14
<PAGE>
WHTA-FM. In 1995, ROA acquired WHTA-FM (formerly WQUL-FM) from Design Media,
Inc. for approximately $4.8 million. WHTA-FM was a 6 kW Class A facility
licensed to Griffin, Georgia, a community 40 miles southwest of the Atlanta
market. Prior to selling the station, Design Media received a construction
permit to upgrade the station to Class C3 and changed its community of license
to Fayetteville, Georgia. In conjunction with Radio One's management, Design
Media moved the station's transmitter site 20 miles closer to Atlanta. In July
1995, ROA launched a new Young Urban Contemporary music format that has
consistently garnered a 4.5 to 5.0 share of the 12-plus age demographic. WHTA-FM
remains consistently ranked in the top three stations in its primary target
group, the 12-17 age demographic, and in the top five stations among its
secondary target group, the 18-34 age demographic, ranking number four in the
Fall 1998 Arbitron Survey with an 8.3 share.
WAMJ-FM. In March 1997, ROA entered into an agreement with Dogwood to provide
financing for a new 6 kW Class A radio station that had been assigned to
Roswell, Georgia, a community approximately twenty miles north of downtown
Atlanta. ROA received an approximate 33% ownership stake, along with an option
to purchase 100% of the station. ROA also entered into an LMA allowing ROA to
operate the station in the Atlanta market. On December 16, 1997, ROA launched an
R&B oldies format on WAMJ-FM targeting the 25-54 age demographic. In November
1998, Dogwood received an FCC construction permit to upgrade WAMJ's signal to
Class C3. WAMJ-FM began operating at 25 kW in December 1998, greatly improving
its penetration of the Atlanta market and giving the station total coverage of
the Atlanta metropolitan area.
In Atlanta, Radio One competes directly against Infinity's Urban Contemporary
station, WVEE-FM, and against Midwestern Broadcasting's Urban Adult Contemporary
station, WALR-FM. However, Radio One owns more FM radio stations targeting
African-Americans in Atlanta than any other entity.
ST. LOUIS, MISSOURI
The St. Louis market is estimated to be the 19th largest radio market in terms
of MSA population. In 1998, this market had advertising revenue estimated to be
$116.5 million, making it the 18th largest radio market in terms of advertising
revenue. St. Louis is the 16th largest African-American market with an MSA
population of approximately 2.6 million in 1996 (approximately 17.2% of which
was African-American). St. Louis experienced annual radio revenue growth of 8.8%
between 1991 and 1996, and radio revenue in St. Louis is expected to continue
growing at an annual rate of 6.9% between 1997 and 2001. (Source: BIA 1998
Fourth Edition)
On November 23, 1998, Radio One entered into an agreement to acquire the
assets of WFUN-FM, licensed to Bethalto, Illinois for approximately $13.6
million in cash. We expect to move WFUN-FM to a broadcast tower site closer to
downtown St. Louis, reformat the station and upgrade its signal from 6 kW to 25
kW.
The FCC approved of Radio One's acquisition of the assets of WFUN-FM on
January 26, 1999. The FCC's action became a final action on March 10, 1999.
15
<PAGE>
CLEVELAND, OHIO
The Cleveland market is estimated to be the 23rd largest radio market in terms
of MSA population and advertising revenue. In 1998, this market had advertising
revenue estimated to be $96.7 million. Cleveland is the 17th largest African-
American market with an MSA population of approximately 2.1 million
(approximately 18.7% of which was African-American). Cleveland experienced
annual radio revenue growth of 7.9% between 1991 and 1996, and radio revenue in
Cleveland is expected to continue growing at an annual pace of 6.9% between 1997
and 2001. (Source: BIA 1998 Fourth Edition)
On March 29, 1999, Radio One entered into an asset purchase agreement with
Clear Channel Communications to acquire WENZ-FM and WERE-AM for approximately
$20.0 million in cash.
WENZ-FM is licensed to Cleveland, Ohio, and is currently programming an
Alternative Rock format. WENZ-FM garnered 2.4 share in the Fall 1998 Arbitron
Survey of the market's 12-plus age demographic.
WERE-AM is licensed to Cleveland, Ohio, and is currently programming a News
Talk format. WERE-AM achieved a 0.4 share in the Fall 1998 Arbitron Survey of
the market's 12-plus age demographic.
Consummation of the acquisition of radio stations WENZ-FM and WERE-AM is
subject to the receipt of prior FCC approval. An application for FCC consent to
the acquisition of radio stations WENZ-FM and WERE-AM was filed on February 8,
1999, and we anticipate that initial approval will be granted before May 1,
1999, after the petition to deny period has elapsed, but there can be no
assurance that FCC approval for the acquisition will be obtained.
RICHMOND, VIRGINIA
Richmond is estimated to be the 57th largest radio market in terms of MSA
population. In 1998, this market had radio advertising revenue estimated to be
$45.8 million, making it the 46th largest radio market in terms of advertising
revenue. Richmond is the 19th largest African-American market with an MSA
population of approximately 937,000 in 1996 (approximately 30.0% of which was
African-American). Richmond experienced annual radio revenue growth of 5.7%
between 1991 and 1996, and radio revenue in Richmond is expected to continue
growing at an annual rate of 6.5% between 1997 and 2001. (Source: BIA 1998
Fourth Edition)
Radio One believes that Richmond is a particularly attractive market due to
its proximity to Radio One headquarters in the Washington, DC area. Due to this
proximity, Radio One believes that it can leverage its regional advertiser
relationships and its regionally located management and on-air talent in the
Richmond market. We have entered into agreements or letters of intent to acquire
six FM and one AM radio stations in three separate transactions. Upon completion
of these acquisitions, we believe we will be well positioned as a strong
provider of urban-oriented programming to Richmond's African-American market. We
will also be the second provider of Country programming and will have additional
signals available for other format opportunities and underserved demographics in
the Richmond market.
On February 10, 1999, Radio One entered into an asset purchase agreement to
acquire WDYL-FM, licensed to Chester, Virginia for approximately $4.6 million in
cash. WDYL-FM, currently a Religious format station, is in the Richmond,
Virginia market.
On February 26, 1999, Radio One entered into an asset purchase agreement to
acquire WKJS-FM, licensed to Crewe, Virginia, and WSOJ-FM, licensed to
Petersburg, Virginia, for approximately $12.0 million in cash, subject to
purchase price adjustments. Both stations, currently urban format stations, are
in the Richmond, Virginia market.
WKJS-FM, licensed to Crewe, Virginia, is a 100 kW station and generally covers
the entire Richmond market. The station changed its format from Oldies to Urban
Adult Contemporary in March 1998 and has since experienced a significant ratings
increase. WKJS-FM's ratings increased from a 3.1 share in the 12-plus age
demographic in the
16
<PAGE>
Winter 1998 Arbitron Survey to an 8.2 share in the 12-plus age demographic in
the Fall 1998 Arbitron Survey. In the 25-54 age demographic, WKJS-FM earned a
10.6 share in the Fall 1998 Arbitron Survey, ranking it number one, tied with
one other station.
WSOJ-FM, licensed to Petersburg, Virginia, primarily covers Petersburg,
located in the southern portion of the Richmond metropolitan area. A Young Urban
Contemporary station, WSOJ-FM earned a 3.2 share in the 12-plus age demographic
in the Fall 1998 Arbitron Survey. WKJS-FM and WSOJ-FM have been operated and
sold in combination for most of 1998.
On February 24, 1999, Radio One entered into a letter of intent to purchase
WCDX-FM, WPLZ-FM, WJRV-FM and WGCV-AM, for $34.0 million. WCDX-FM, a Young Urban
Contemporary station licensed to Mechanicsville, Virginia, covers the entire
Richmond metropolitan area. WCDX-FM has averaged a 10.1 share of the 12-plus age
demographic for the last 2 years and is currently ranked number two overall in
the 12-plus age demographic, tied with another station with an 8.8 share,
according to the Fall 1998 Arbitron Survey. WCDX-FM is also ranked number one in
the 18-34 age demographic and number four in the 25-54 age demographic.
WCDX-FM's sister station, WPLZ-FM, currently programs an Urban Oldies format
and earned a 4.8 share of the 12-plus age demographic in the Fall 1998 Arbitron
Survey. WPLZ-FM, licensed to Petersburg, Virginia, primarily covers the southern
Richmond metropolitan area. The two stations have historically been sold in
combination and have been the market leaders in terms of urban radio revenue
share. WJRV-FM, licensed to Richmond, Virginia, recently changed formats from
Smooth Jazz to Country, in order to challenge WKHK-FM, the leading country radio
station in Richmond. WJRV-FM earned a 1.5 share of the 12-plus age demographic
in the Fall 1998 Arbitron Survey after approximately 3 months in the Country
format. WGCV-AM is a Religious formatted station, licensed to Petersburg,
Virginia, that does not currently have any significant audience or revenue
share.
Consummation of the acquisition of these radio stations in Richmond is subject
to the receipt of prior FCC approval. An application for FCC consent to the
acquisition of WDYL-FM was filed on February 18, 1999, and we anticipate that
initial approval of the acquisition will be granted by May 1, 1999, after the
petition to deny period has elapsed, but there can be no assurance that FCC
approval for the acquisition will be obtained. An application for FCC consent to
the acquisitions of WKJS-FM and WSOJ-FM was filed on March 5, 1999, and we
anticipate that initial approval of the acquisitions will be granted by June 1,
1999, after the petition to deny period has elapsed, but there can be no
assurance that FCC approval of the acquisitions will be obtained. An application
for FCC consent to the acquisitions of WJRV-FM, WCDX-FM, WPLZ-FM and WGCV-AM is
expected to be filed in August 1999, and we anticipate that initial approval of
the acquisitions will be granted in October 1999, after the petition to deny
period has elapsed, but there can be no assurance that FCC approval for the
acquisitions will be obtained. In addition, the acquisitions of WRJV-FM, WCDX-
FM, WPLZ-FM and WGCV-AM will undergo review by the Justice Department pursuant
to the requirements of the HSR Act. There can be no assurance that in connection
with such review the Justice Department will not require a restructuring of the
acquisitions.
ADVERTISING REVENUE
Substantially all of Radio One's net broadcast revenue is generated from the
sale of local and national advertising for broadcast on our radio stations.
Additional net broadcast revenue is generated from network compensation payments
and other miscellaneous transactions. Local sales are made by the sales staffs
located in our markets. National sales are made by firms specializing in radio
advertising sales on the national level, in exchange for a commission from Radio
One that is based on a percentage of our net broadcast revenue from the
advertising obtained. Approximately 67.4% of our net broadcast revenue for the
fiscal year ended December 31, 1998, was generated from the sale of local
advertising and 30.3% from sales to national advertisers, with the balance of
net broadcast revenue being derived from network advertising, tower rental
income and ticket and other revenue related to special events hosted by Radio
One.
We believe 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
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on (i) a radio station's audience share within the demographic 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 to consider advertising with the radio station, and are used by
Radio One to chart audience growth, set advertising rates and adjust
programming.
STRATEGIC DIVERSIFICATION
Radio One will continue to evaluate potential radio acquisitions in African-
American markets. We are exploring opportunities in other forms of media to
apply our expertise in marketing to African-Americans. Such opportunities could
include outdoor advertising in urban environments, an urban-oriented Internet
strategy, an urban-oriented radio network, music production, publishing and
other related businesses.
We recently entered into an exclusive programming agreement with XM Satellite
Radio, Inc. to provide African-American talk and music programming to be
broadcast on XM Satellite's satellite digital audio radio service, which is
expected to be available in 2000.
We have also invested, together with most publicly-traded radio companies, in
a recent private placement for USA Digital Radio, Inc., a leading developer of
in-band on-channel digital audio broadcast technology. This technology could
enable radio broadcasters to convert from analog to digital broadcasting within
the existing frequency allocation of their AM and FM stations. In conjunction
with this investment, Alfred C. Liggins, III, the Chief Executive Officer and
President of Radio One, became a board member of USA Digital Radio, Inc.
Additionally, we have recently invested in PNE Media Holdings, LLC, a
privately-held outdoor advertising company with a presence in several of the
markets in which we own radio stations.
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COMPETITION
The radio broadcasting industry is highly competitive. Radio One's stations
compete for audiences and advertising revenue with other radio stations and with
other media such as television, newspapers, direct mail and outdoor advertising.
Audience ratings and advertising revenue are subject to change and any adverse
change in a market could adversely affect our net broadcast revenue in that
market. If a competing station converts to a format similar to that of one of
our stations, or if one of our competitors strengthens its operations, our
stations could suffer a reduction in ratings and advertising revenue. Other
radio companies which are larger and have more resources may also enter markets
where we operate. Although we believe our stations are well positioned to
compete, we cannot assure you that our stations will maintain or increase their
current ratings or advertising revenue.
The radio broadcasting industry is also subject to rapid technological change,
evolving industry standards and the emergence of new media technologies. Several
new media technologies are being developed, including the following: (i) audio
programming by cable television systems, direct broadcast satellite systems,
Internet content providers and other digital audio broadcast formats; (ii)
satellite digital audio radio service, which could result in the introduction of
several new satellite radio services with sound quality equivalent to that of
compact discs; and (iii) in-band on-channel digital radio, which could provide
multi-channel, multi-format digital radio services in the same band width
currently occupied by traditional AM and FM radio services. We recently entered
into a programming agreement with a satellite digital audio radio service and
have also invested in a developer of digital audio broadcast technology.
However, we cannot assure you that these arrangements will be successful or
enable us to adapt effectively to these new media technologies. We also cannot
assure you that we will continue to have the resources to acquire other new
technologies or to introduce new services that could compete with other new
technologies.
ANTITRUST
An important part of our growth strategy is the acquisition of additional
radio stations. After the passage of the Telecommunications Act of 1996, the
Justice Department has become more aggressive in reviewing proposed acquisitions
of radio stations and radio station networks. The Justice Department is
particularly aggressive when the proposed buyer already owns one or more radio
stations in the market of the station it is seeking to buy. Recently, the
Justice Department has challenged a number of radio broadcasting transactions.
Some of those challenges ultimately resulted in consent decrees requiring, among
other things, divestitures of certain stations. In general, the Justice
Department has more closely scrutinized radio broadcasting acquisitions that
result in local market shares in excess of 40% of radio advertising revenue.
Similarly, the FCC staff has announced new procedures to review proposed radio
broadcasting transactions even if the proposed acquisition otherwise complies
with the FCC's ownership limitations. In particular, the FCC may invite public
comment on proposed radio transactions that the FCC believes, based on its
initial analysis, may present ownership concentration concerns in a particular
local radio market.
FEDERAL REGULATION OF RADIO BROADCASTING
The radio broadcasting industry is subject to extensive and changing
regulation by the FCC of programming, technical operations, employment and other
business practices. The FCC regulates radio broadcast stations pursuant to the
Communications Act. 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; establishes
technical requirements for certain 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.
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The Communications Act prohibits the 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 limits and other FCC 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 regulations, and the rulings of the FCC. You should refer to
the Communications Act and these FCC rules and rulings for further information
concerning the nature and extent of federal regulation of radio broadcast
stations.
A licensee's failure to observe the requirements of the Communications Act or
FCC rules and policies may result in the imposition of various sanctions,
including admonishment, fines, the grant of ``short`` (less than the maximum
eight-year) renewal terms, the grant of a license with conditions or, for
particularly egregious violations, the denial of a license renewal application,
the revocation of an FCC license or the denial of FCC consent to acquire
additional broadcast properties. 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 revenue for
our radio broadcast stations or affect our 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 including proposals
to grant free air time to candidates, 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
creation of a new low power radio broadcast service; the implementation of
digital audio broadcasting on both a satellite and terrestrial basis; changes in
broadcast cross-interest, multiple ownership, foreign ownership, cross-ownership
and ownership attribution policies; 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.
Radio One cannot predict what changes, if any, might be adopted, nor can we
predict what other matters might be considered in the future, nor can we judge
in advance what impact, if any, the implementation of any particular proposals
or changes might have on our 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 by the licensee 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 term less than the maximum
otherwise permitted, or hold an evidentiary hearing. In addition, the
Communications Act authorizes the filing of petitions to deny a license renewal
application during
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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 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,
Radio One's licenses have been renewed without any conditions or sanctions
imposed. However, there can be no assurance that the licenses of each station
owned by Radio One will be renewed or will be renewed without conditions or
sanctions.
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 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 FCC recently has proposed to divide Class C stations into two
subclasses based on antenna height. Stations not meeting the minimum height
requirement within a three-year transition period would be downgraded
automatically to the new Class C0 category.
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The following table sets forth with respect to each of Radio One's radio
stations as of March 30, 1999: (i) the market, (ii) the radio station call
letters, (iii) the year of acquisition, (iv) the class of FCC license, (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) AI
POWER (AM) (AM) EXPIRATION
---------- ----------
STATION YEARS OF FCC IN IN DATE OF
------- -------- --- -- -- -------
CALL LETTERS ACQUISITION CLASS KILOWATTS(2) METERS(3) FREQUENCY LICENSE
------------ ----------- ----- ------------ --------- --------- -------
MARKET(1)
- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Washington, D.C. WOL-AM 1980 C 1.0 52.1 1450 kHz 10/01/2003
WMMJ-FM 1987 A 2.9(4) 146.0 102.3 MHz 10/01/2003
WKYS-FM 1995 B 24.0 215.0 93.9 MHz 10/01/2003
WYCB-AM 1998 C 1.0 50.9 1340 kHz 10/01/2003
Baltimore WWIN-AM 1992 C 1.0 61.0 1400 kHz 10/01/2003
WWIN-FM 1992 A 3.0 91.0 95.9 MHz 10/01/2003
WOLB-AM 1993 D 1.0 85.4 1010 kHz 10/01/2003
WERQ-FM 1993 B 37.0 174.0 92.3 MHz 10/01/2003
Atlanta WHTA-FM 1999 C3 7.9 175.0 97.5 MHz 04/01/2004
WAMJ-FM 1999 C3 25.0 98.0 107.5 MHz 04/01/2004
Philadelphia WPHI-FM 1997 A 0.3(5) 305.0 103.9 MHz 08/01/2006
Detroit WDTJ-FM 1998 B 20.0 221.0 105.9 MHz 10/01/2004
WCHB-AM 1998 B 25.0(6) 49.4 1200 kHz 10/01/2004
WJZZ-AM(7) 1998 D 50.0 59.7 1210 kHz 10/01/2004
WWBR-FM 1998 B 50.0 152.0 102.7 MHz 10/01/2004
</TABLE>
___________________
(1) A broadcast station's market may be different from its community of
license.
(2) 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 antenna and
the HAAT of the radio station's antenna.
(3) 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.
(4) The FCC issued a construction permit to substitute a non-directional
antenna for a directional antenna on September 11, 1998.
(5) WPHI-FM operates at a power equivalent to 3 kW at 100 meters.
(6) On October 30, 1996, the FCC issued a construction permit to operate with a
power of 50 kW day and 15 kW night and we began testing on March 4, 1999.
(7) WJZZ-AM is licensed to Kingsley, Michigan, which is located outside of
Traverse City, Michigan. The station is temporarily off the air.
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 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.
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To obtain the FCC's prior consent to assign or transfer a broadcast license,
appropriate applications must be filed with the FCC. If the application to
assign or transfer the license involves a substantial change in ownership or
control of the licensee (e.g., the transfer of more than 50% of the voting
stock), the application must be placed on public notice for a period of 30 days
during which petitions to deny the application may be filed by interested
parties, including members of the public. Informal objections may be filed any
time up until the FCC acts upon the application. If an assignment application
does not involve new parties, or if a transfer of control application does not
involve a ``substantial change'' in ownership or control, it is a pro forma
application, which is not subject to the public notice and 30-day petition to
deny procedure. The pro forma application is nevertheless subject to informal
objections that may be filed any time up until the FCC acts on the application.
If the FCC grants an assignment or transfer application, interested parties have
30 days from public notice of the grant to seek reconsideration of that grant.
The FCC usually has an additional ten days to set aside such grant on its own
motion. When ruling on an assignment or transfer application, the FCC is
prohibited from considering whether the public interest might be served by an
assignment or transfer to any party other than the assignee or transferee
specified in the application.
Under the Communications Act, a broadcast license may not be granted to or
held by any corporation that has more than 20% 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
or held by any corporation directly or indirectly controlled by any other
corporation of which more than 25% of its capital stock is owned of record or
voted by non-U.S. citizens or entities or their representatives, or foreign
governments or their representatives or by non-U.S. corporations, if the FCC
finds the public interest will be served by the refusal or revocation of such
license. These restrictions apply in modified form to other forms of business
organizations, including partnerships and limited liability companies. Thus, the
licenses for Radio One's stations could be revoked if more than 25% of Radio
One's outstanding capital stock is issued to or for the benefit of non-U.S.
citizens.
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 interests 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
under FCC policies are considered ``insulated'' from ``material involvement'' in
the management or operation of the media-related activities of the partnership.
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 voting 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. A time brokerage agreement with another radio
station in the same market creates an attributable interest in the brokered
radio station as well 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.
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. However, the FCC's rules
also specify other exceptions to these general principles for attribution.
However, 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 holding voting stock from ten to twenty percent, (iii) continue the
single 50% stockholder exception, and/or (iv) attribute non-voting stock or
perhaps only when combined with other rights such as voting shares or
contractual relationships. More recently, the FCC has solicited comment on
proposed rules that would (i) treat an otherwise
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non-attributable ownership equity or debt interest in a licensee as an
attributable interest where the interest holder is a program supplier or the
owner of a broadcast station in the same market and the equity and/or debt
holding is greater than a specified benchmark and (ii) in certain circumstances,
treat the licensee of a broadcast station that sells advertising time of another
station in the same market pursuant to a joint sales agreement as having an
attributable interest in the station whose advertising is being sold.
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, and the FCC defined market will not
necessarily be the same market used by Arbitron or other surveys, or for
purposes of the HSR Act. Under these ``cross-ownership'' rules, Radio One,
absent waivers, would not be permitted to own a radio broadcast station and
acquire an attributable interest in any daily newspaper or television broadcast
station (other than a low-powered television station) in the same market where
we then owned any radio broadcast station, and Radio One's stockholders,
officers or directors, absent a waiver, could not hold an attributable interest
in a daily newspaper or television broadcast station in those same markets. The
FCC is currently reviewing the ban on common ownership of a radio station and a
daily newspaper in the same market. 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 Communications Act and
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:
. In a radio market with 45 or more commercial radio stations, a party may
own, operate or control up to eight commercial radio stations, not more
than five of which are in the same service (AM or FM).
. In a radio market with between 30 and 44 (inclusive) commercial radio
stations, a party may own, operate or control up to seven commercial radio
stations, not more than four of which are in the same service (AM or FM).
. In a radio market with between 15 and 29 (inclusive) commercial radio
stations, a party may own, operate or control up to six commercial radio
stations, not more than four of which are in the same service (AM or FM).
. In a radio market with 14 or fewer commercial radio stations, a party may
own, operate or control up to five commercial radio stations, not more than
three 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.
The FCC is currently reviewing the effect of local market ownership
limitations on competition and diversity in the broadcast industry to determine
if a recommendation to repeal or modify the rules should be made to Congress.
The FCC staff has also notified the public of its intention to review
transactions that comply with numerical ownership limits but that might involve
undue concentration of market share.
Because of these multiple and cross-ownership rules, if a stockholder, officer
or director 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
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or daily newspapers. If an attributable stockholder, officer or director of
Radio One violates any of these ownership rules, we may be unable to obtain from
the FCC one or more authorizations needed to conduct our 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 Radio One where the vote of such person or entity is sufficient
to affirmatively direct the affairs of Radio One, another stockholder, unless
serving as an officer and/or director, generally would not hold an attributable
interest in Radio One. However, as described above, the FCC is currently
evaluating whether to continue the exception for a single majority stockholder
of more than 50% of a licensee's voting stock. As of March 30, 1999, no single
stockholder held more than 50% of the total voting power of our Common Stock.
Under its ``cross-interest'' policy, the FCC considers ``meaningful''
relationships among competing media outlets that serve ``substantially the same
area,'' even if the ownership rules do not specifically prohibit the
relationship. Under this policy, the FCC may consider whether to prohibit one
party from holding an attributable interest and a substantial non-attributable
interest (including non-voting stock, limited partnership and limited liability
company interests) in a media outlet in the same market, or from entering into a
joint venture or having common key employees with competitors. The cross-
interest policy does not necessarily prohibit all of these interests, but
requires that the FCC consider whether, in a particular market, the
``meaningful'' relationships between competitors could have a significant
adverse effect upon economic competition and program diversity. In a rule making
proceeding concerning the attribution rules, the FCC has sought comment on,
among other things, (i) whether the cross-interest policy should be applied only
in smaller markets, and (ii) whether non-equity financial relationships, such as
debt, when combined with multiple business relationships, such as local
marketing agreements or joint sales arrangements, raise concerns under the
cross-interest policy.
Programming and Operations. The Communications Act requires broadcasters to
serve the ``public interest.'' Since the late 1980s, the FCC 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 of license. Nevertheless, a broadcast licensee continues to
be required to 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 pay
regulatory and application fees, and 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).
The FCC has always required that licensees not discriminate in hiring
practices, develop and implement programs designed to promote equal employment
opportunities and submit reports to the FCC on these matters annually and in
connection with each license renewal application. The FCC's employment rules, as
they related to outreach efforts for recruitment of minorities, however, were
recently struck down as unconstitutional by the U.S. Court of Appeals for the
D.C. Circuit. The FCC has proposed revising the rules to adopt outreach efforts
that are constitutional.
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.
From time to time, complaints may be filed against Radio One's radio stations
alleging violations of these or other rules. In addition, the FCC recently has
proposed to establish a system of random audits to ensure and verify licensee
compliance with FCC rules and regulations. 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.
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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 ultimately
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 enters into 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 station's 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 a joint sales arrangement
accompanied by debt financing. Also, as described above, FCC rules prohibit a
radio broadcast station 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.
Joint Sales Agreements. Over the past few years, a number of radio stations
have entered into cooperative arrangements commonly known as joint sales
agreements or JSAs. While these agreements may take varying forms, under the
typical JSA, a station licensee obtains, for a fee, the right to sell
substantially all of the commercial advertising on a separately-owned and
licensed station in the same market. The typical JSA also customarily involves
the provision by the selling party of certain sales, accounting and services to
the station whose advertising is being sold. The typical JSA is distinct from a
local marketing agreement in that a JSA normally does not involve programming.
The FCC has determined that issues of joint advertising sales should be left
to enforcement by antitrust authorities, and therefore does not generally
regulate joint sales practices between stations. Currently, stations for which
another licensee sells time under a JSA are not deemed by the FCC to be an
attributable interest of that licensee. However, in connection with its ongoing
rulemaking proceedings concerning the attribution rules, the FCC is considering
whether JSAs should be considered attributable interests or within the scope of
the FCC's cross-interest policy, particularly when JSAs contain provisions for
the supply of programming services and/or other elements typically associated
with local marketing agreements.
RF Radiation. In 1985, the FCC adopted rules based on a 1982 American
National Standards Institute (``ANSI'') standard 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 limits. In
1992, ANSI adopted a new standard for RF exposure that, in some respects, was
more restrictive in the amount of environmental RF exposure permitted. The FCC
has since adopted more restrictive radiation limits which became effective
October 15, 1997, and which are based in part on the revised ANSI standard.
26
<PAGE>
Digital Audio Radio Service. The FCC allocated spectrum to a new technology,
digital audio radio service (``DARS''), to deliver satellite-based audio
programming to a national or regional audience and issued regulations for a DARS
service in early 1997. DARS 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. The nationwide reach of satellite
DARS could allow niche programming aimed at diverse communities that Radio One
is targeting. 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. Two companies that hold licenses for
authority to offer multiple channels of digital, satellite-delivered S-Band
aural services could compete with conventional terrestrial radio broadcasting.
The licensees will be permitted to sell advertising and lease channels in these
media. The FCC's rules require that these licensees launch and begin operating
at least one space station by 2001 and be fully operational by 2003.
The FCC has established a new Wireless Communications Service (``WCS'') in the
2305-2320 and 2345-2360 MHz bands (the ``WCS Spectrum'') and awarded licenses.
Licensees are generally permitted to provide any fixed, mobile, radio location
services, or digital satellite radio service using the WCS Spectrum.
Implementation of DARS would provide an additional audio programming service
that could compete with Radio One's radio stations for listeners, but the effect
upon Radio One cannot be predicted.
These satellite radio services use technology that may permit higher sound
quality than is possible with conventional AM and FM terrestrial radio
broadcasting.
Low Power Radio Broadcast Service. The FCC recently adopted a Notice of
Proposed Rulemaking seeking public comment on a proposal to establish two
classes of a low power radio service both of which would operate in the existing
FM radio band: a primary class with a maximum operating power of 1 kW and a
secondary class with a maximum power of 100 watts. These proposed low power
radio stations would have limited service areas of 8.8 miles and 3.5 miles,
respectively. The FCC also has sought public comment on the advisability of
establishing a very low power secondary ``microbroadcasting'' service with a
maximum power limit of one to ten watts. These ``microradio'' stations would
have a service radius of only one to two miles. The service would target ``niche
markets'' and be possibly supported by advertising revenue. Existing licensees,
like Radio One, would be prohibited from owning or having a relationship with
these new stations. Implementation of a low power radio service or
microbroadcasting would provide an additional audio programming service that
could compete with Radio One's radio stations for listeners, but the effect upon
Radio One cannot be predicted.
SUBSIDIARIES AND RELATED ENTITIES
Radio One has title to most of the assets used in the operations of our radio
stations. The FCC licenses for the radio stations in all cases are or will be
held by direct or indirect wholly-owned subsidiaries of Radio One. In the case
of all of the Baltimore stations, three of the Washington, D.C. stations, the
Philadelphia station, the St. Louis station, the Cleveland stations and the
Richmond stations, the FCC licenses are or will be held by Radio One Licenses,
Inc., a Delaware corporation and a wholly-owned Restricted Subsidiary of Radio
One. Radio One Licenses, Inc. holds no other material assets. WYCB Acquisition
Corporation, a Delaware corporation and a wholly-owned Unrestricted Subsidiary,
holds title to all of the outstanding capital stock of BHI, a District of
Columbia corporation and an Unrestricted Subsidiary. The FCC licenses for WYCB-
AM are held by BHI which also holds the assets used in the operation of that
station. Bell Broadcasting, a Michigan corporation and a wholly-owned Restricted
Subsidiary, holds the assets used in the operation of WCHB-AM, WDTJ-FM and WJZZ-
AM. Bell Broadcasting holds title to all of the outstanding capital stock of
Radio One of Detroit, Inc., a Delaware corporation and a Restricted Subsidiary.
The FCC licenses for WCHB-AM, WDTJ-FM and WJZZ-AM are held by Radio One of
Detroit, Inc. Radio One of Detroit, Inc. holds no other material assets.
Allur-Detroit, a Delaware corporation and a wholly-owned Restricted
Subsidiary, holds the assets used in the operation of station WWBR-FM. Allur-
Detroit holds title to all of the outstanding capital stock of Allur Licenses,
Inc., a Delaware corporation and a Restricted Subsidiary. The FCC licenses for
WWBR-FM are held by Allur Licenses, Inc. Allur Licenses, Inc. holds no other
material assets.
27
<PAGE>
ROA, a Delaware corporation and a wholly-owned Restricted Subsidiary, holds
the assets used in the operation of station WHTA-FM and some assets used in the
operation of station WAMJ-FM. ROA holds title to all of the outstanding capital
stock of ROA Licenses, Inc., a Delaware corporation and a Restricted Subsidiary.
The FCC licenses for WHTA-FM are held by ROA Licenses, Inc. ROA Licenses, Inc.
holds no other material assets. Dogwood, a Delaware corporation and a wholly-
owned Restricted Subsidiary, holds some of the assets used in the operation of
station WAMJ-FM. Dogwood holds title to all of the outstanding capital stock of
Dogwood Licenses, Inc., a Delaware corporation and a Restricted Subsidiary. The
FCC licenses for WAMJ-FM are held by Dogwood Licenses, Inc.
EMPLOYEES
As of February 28, 1999, Radio One employed 454 people. Radio One's employees
are not unionized. We have not experienced any work stoppages and believe
relations with our 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, in each of our markets we employ one
General Manager who is responsible for all of Radio One's radio stations located
in such market and Radio One's Vice President of Programming oversees
programming for all of Radio One's Urban-oriented FM radio stations.
INDUSTRY SEGMENTS
We consider radio broadcasting to be our only business segment.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements that have been made pursuant
to the provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are not historical facts, but rather are based on our
current expectations, estimates and projections about Radio One's industry, our
beliefs and assumptions. Words such as ``anticipates,'' ``expects,''
``intends,'' ``plans,'' ``believes,'' ``seeks,'' ``estimates'' and similar
expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and other factors, some of which are beyond our control,
are difficult to predict and could cause actual results to differ materially
from those expressed or forecasted in the forward-looking statements. These
risks and uncertainties are described in the ``Risk Factors'' section of Radio
One's Registration Statement on Form S-1 (File No. 333-74351) and elsewhere in
this document. We caution you not to place undue reliance on these forward-
looking statements, which reflect our management's view only as of the date of
this report. We are not obligated to update these statements or publicly release
the result of any revisions to them to reflect events or circumstances after the
date of this report or to reflect the occurrence of unanticipated events.
28
<PAGE>
ITEM 2. PROPERTIES AND FACILITIES
PROPERTIES
The following chart sets forth the principal real property and radio related
facilities owned or leased by Radio One as of March 30, 1999.
<TABLE>
<CAPTION>
PROPERTY ADDRESS TYPE OF FACILITY AND USE OWNED OR LEASED TENANT/OWNER APPROXIMATE SIZE
(EXPIRATION DATE) (SQUARE FEET)
- ------------------------ -------------------------- ------------------------- ----------------- ---------------------------
<S> <C> <C> <C> <C>
5900 Princess Garden Corporate Office, Leased (expires 12/31/11) Radio One 21,546
Parkway, WKYS-FM, WOL-AM, WMMJ-FM,
1st, 7/th/ and 8th Floors WYCB-AM Studio
Lanham, MD
4001 Nebraska Avenue, N.W. WKYS-FM Transmitter Leased (expires 11/30/01) Radio One Tower and transmitter
Washington, D.C. space
62 Pierce Street, N.E. WOL-AM Transmitter Leased (expires 3/31/01) Radio One Tower and transmitter
Washington, D.C. space
4400 Massachusetts Avenue, WMMJ-FM Transmitter Leased (expires 4/30/04) Radio One Leased Tower space (+) 200
N.W. Washington, D.C.
100 St. Paul Street WWIN-AM/FM, WERQ-FM, Leased (expires 10/31/03) Radio One 8,000
Baltimore, MD WOLB-AM Studio
Greenmount Avenue and 29th WWIN-AM Transmitter Leased (expires 8/31/01) Radio One 225
St.
Baltimore, MD
(Waverly Towers)
1315 W. Hamburg Street WOLB-AM Transmitter Leased (expires 12/31/00) Radio One Tower and transmitter
Baltimore, MD space
7 St. Paul Street Satellite Dish Space Leased (expires 4/22/04) Radio One 200
Baltimore, MD
100 Old York Road WPHI-FM, Studio Leased (expires 10/31/03) Radio One 5,661
Jenkintown, PA
Domino Lane and Fowler WPHI-FM Transmitter Leased (expires 6/29/06) Radio One Tower and transmitter
Street space
Philadelphia, PA
2501 Hawkins Point Road WWIN-FM Transmitter Owned Radio One 16,800
Baltimore City, MD
2709 Boarman Avenue WERQ-FM Transmitter Owned Radio One 24,920
(4334-4338 Park Heights
Ave.)
Baltimore, MD
Walker Mill Road WYCB-AM Transmitter Leased (expires 11/99) BHI Tower and transmitter
District Heights, MD space
2994 East Grand River WDTJ-FM/WCHB-AM, Studio Leased (expires 6/30/99) Bell Broadcasting 3,000
Detroit, MI 48202
24600 Greenfield Road WDTJ-FM Transmitter Leased (expires 3/31/04) Bell Broadcasting Tower and transmitter
Oak Park, MI space
32790 Henry Huff Road WCHB-AM Office Site Owned Bell Broadcasting 80 acres
Romulus, MI
York Road WJZZ-AM Transmitter Owned Bell Broadcasting
Kingsley, MI
Huron Township, MI WCHB-AM Transmitter Owned Bell Broadcasting 80 acres
850 Stephenson Highway WWBR-FM Studio Leased (expires 2/1/02) Allur-Detroit 5,766
Troy, MI
21340 Pitko Street WWBR-FM Transmitter Leased (expires 12/31/08) Allur-Detroit Tower and transmitter
Mt. Clemens, MI space
</TABLE>
29
<PAGE>
<TABLE>
OWNED OR LEASED APPROXIMATE SIZE
PROPERTY ADDRESS TYPE OF FACILITY AND USE (EXPIRATION DATE) TENANT/OWNER (SQUARE FEET)
- ------------------------ -------------------------- ------------------------- ----------------- ---------------------------
<S> <C> <C> <C> <C>
Tyrone Cook Road, #1 WHTA-FM Transmitter Leased (expires 12/6/09) ROA Tower and transmitter
Tyrone, GA space
75 Piedmont Avenue WHTA-FM, WAMJ-FM Studio Leased (expires 1/31/05) ROA 11,600
Atlanta, GA
1050 Crown Pointe WAMJ-FM Transmitter Leased (expires 8/31/01) Dogwood Tower and transmitter
Atlanta, GA space
</TABLE>
The real property owned or leased by Radio One is the subject of a security
interest held pursuant to the terms of our amended and restated credit agreement
(the "Credit Agreement") dated as of February 26, 1999, under which we may
borrow $100 million on a revolving basis (the "Bank Credit Facility").
We own substantially all of our other equipment, consisting principally of
studio equipment and office equipment. The towers, antennae and other
transmission equipment used by our radio stations are generally in good
condition, although opportunities to upgrade facilities are periodically
reviewed.
We believe that the facilities for our radio stations and office space in
Washington, D.C., Baltimore, Atlanta, Philadelphia and Detroit are generally
suitable and of adequate size for their current and intended purposes other than
for routine modifications and expansions which may be required from time to time
but would not be expected to have a material adverse effect on us or our
financial position or performance. We believe we will be able to obtain suitable
facilities for the radio stations we are acquiring in St. Louis, Cleveland and
Richmond on reasonable terms.
30
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Radio One is involved from time to time in various routine legal and
administrative proceedings and threatened legal and administrative proceedings
incidental to the ordinary course of our business. In the opinion of our
management, the resolution of such matters will not have a material adverse
effect on our business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to our stockholders for vote during the fourth
quarter of 1998.
31
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for our common stock. As of
March 30, 1999, there were 96.24 shares of our Class A Common Stock outstanding
held of record by four persons; 147.04 shares of Class A Common Stock issuable
upon exercise of the Recapitalization Warrants and Contingent Warrants issued by
us as of February 25, 1999; and 2.37 shares of Class A Common Stock issuable
upon exercise of warrants issued in connection with our acquisition of ROA. In
addition, there were 84.36 shares of our Class B Common Stock outstanding held
of record by three persons and 1.55 shares of Class B Common Stock issuable upon
exercise of warrants issued in connection with our acquisition of ROA. Lastly,
there were 93.803 shares of our Class C Common Stock outstanding held of record
by four persons.
DIVIDENDS
We did not declare any dividends on our common stock during fiscal 1997 or
fiscal 1998. Holders of shares of common stock are entitled to receive such
dividends as may be declared by our Board of Directors out of funds legally
available for such purpose. The payment of dividends is currently restricted by
(i) the Credit Agreement governing our Bank Credit Facility, the Indenture, as
supplemented and amended, dated as of May 15, 1997, among Radio One, Radio One
Licenses, Inc., and the United States Trust Company of New York (the
"Indenture"), under which our 12% Senior Subordinated Notes due 2004 ("12% Notes
due 2004") were issued (the "12% Notes Offering") , and (ii) the Preferred
Stockholders' Agreement dated May 14, 1997, among Catherine L. Hughes, Alfred C.
Liggins, III, Jerry A. Moore III, Alta Subordinated Debt Partners III, L.P.
("Alta"), BancBoston Investments, Inc. ("BancBoston"), Syncom, Alliance
Enterprise Corporation ("Alliance"), Alfred C. Liggins, III, as assignee of
Greater Philadelphia Venture Capital Corporation, Inc. ("Greater Philadelphia"),
Opportunity Capital Corporation ("Opportunity"), Medallion Capital, Inc., as
assignee of Capital Dimensions Venture Fund, Inc. ("Capital"), TSG Ventures Inc.
("TSG"), and Fulcrum Venture Capital Corporation ("Fulcrum").
RECENT SALES OF UNREGISTERED SECURITIES
We did not sell any unregistered securities during fiscal 1998.
32
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table contains selected historical consolidated financial data
with respect to Radio One. The selected historical consolidated financial data
have been derived from the Consolidated Financial Statements of Radio One for
each of the fiscal years for the five year period ended December 31, 1998, which
have been audited by Arthur Andersen LLP, independent public accountants. The
selected historical consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included elsewhere in this Form 10-K, and the Consolidated
Financial Statements of Radio One incorporated by reference to our current
Report on Form 8-K filed March 12, 1999 (File No. 333-30795; Film No. 99564256).
The following table includes information regarding broadcast cash flow,
EBITDA, and after-tax cash flow. Broadcast cash flow consists of operating
income before depreciation, amortization, non-cash compensation expense, local
marketing agreement fees and corporate expenses. EBITDA consists of operating
income before depreciation, amortization, and local marketing agreement fees.
After-tax cash flow consists of income before income tax benefit (expense) and
extraordinary items, minus net gain on sale of assets (net of tax) and the
current income tax provision, plus depreciation and amortization expense.
Although broadcast cash flow, EBITDA, and after-tax cash flow are not measures
of performance or liquidity calculated in accordance with GAAP, we believe that
these measures are useful to an investor in evaluating Radio One because these
measures are widely used in the broadcast industry as a measure of a radio
broadcasting company's performance. Nevertheless, broadcast cash flow, EBITDA
and after-tax 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. Moreover, because broadcast cash flow, EBITDA and
after-tax cash flow are not measures calculated in accordance with GAAP, these
performance measures are not necessarily comparable to similarly titled measures
employed by other companies.
33
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED/(1)/
-----------------------------------------------------
DECEMBER 25, DECEMBER 31,
1994 1995 1996 1997 1998
-------------- ------ ------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net broadcast revenue ...................... $15,541 $21,455 $23,702 $32,367 $46,109
Station operating expenses ................. 8,506 11,736 13,927 18,848 24,501
Corporate expenses ......................... 1,128 1,995 1,793 2,155 2,800
Depreciation and amortization .............. 2,027 3,912 4,262 5,828 8,445
-------- -------- -------- -------- --------
Operating income ......................... 3,880 3,812 3,720 5,536 10,363
Interest expense/(2)/ ...................... 2,665 5,289 7,252 8,910 11,455
Other income (expense), net ................ 38 89 (77) 415 358
Income tax benefit (expense)/(3)/ .......... (30) -- -- -- 1,575
-------- -------- -------- -------- --------
Income (loss) before extraordinary item .. 1,223 (1,388) (3,609) (2,959) 841
Extraordinary loss ......................... -- 468 -- 1,985 --
-------- -------- -------- -------- --------
Net income (loss) ........................ $ 1,223 $(1,856) $(3,609) $(4,944) $ 841
======== ======== ======== ======== ========
OTHER DATA:
Broadcast cash flow......................... $ 7,035 $ 9,719 $ 9,775 $13,519 $21,608
Broadcast cash flow margin/(4)/............. 45.3% 45.3% 41.2% 41.8% 46.9%
EBITDA (before non-cash compensation)....... 5,907 7,724 7,982 11,364 18,808
After-tax cash flow......................... 2,763 2,524 806 2,869 7,248
Cash interest expense/(5)/.................. 2,356 5,103 4,815 4,413 7,192
Capital expenditures........................ 639 224 252 2,035 2,236
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents............................................................. $ 4,455
Intangible assets, net................................................................ 127,639
Total assets.......................................................................... 153,856
Total debt (including current portion and deferred interest).......................... 131,739
Preferred stock....................................................................... 26,684
Total stockholders' deficit........................................................... 24,859
</TABLE>
(1) Year-to-year comparisons are significantly affected by Radio One's
acquisition of various radio stations during the periods covered. See
''Management's Discussion and Analysis of Financial Condition and Results of
Operations.'' Prior to the fiscal year ended December 31, 1996, Radio One'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, we changed our
fiscal year end to December 31.
(2) 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.
(3) From January 1, 1996 to May 19, 1997, Radio One elected to be treated as an
S corporation for U.S. federal and state income tax purposes and, therefore,
generally was not subject to income tax at the corporate level during that
period.
(4) Broadcast cash flow margin is defined as broadcast cash flow divided by net
broadcast revenue.
(5) Cash interest expense 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.
34
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with "Selected
Financial Data" and the Consolidated Financial Statements and the notes thereto
incorporated by reference to Radio One's Report on Form 8-K (File No. 333-30795;
Film No. 99564256).
INTRODUCTION
The net broadcast revenue of Radio One is derived from local and national
advertisers and, to a much lesser extent, ticket and other revenue related to
special events sponsored by Radio One throughout the year. Our 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. We strive to control
these expenses by centralizing certain functions such as finance, accounting,
legal, human resources and management information systems and the overall
programming management function, as well as using our multiple stations, market
presence and purchasing power to negotiate favorable rates with certain vendors
and national representative selling agencies. Depreciation and amortization of
costs associated with the acquisition of the stations and interest carrying
charges are significant factors in determining Radio One's overall
profitability.
Radio One's net broadcast revenue is affected primarily by the advertising
rates our 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) developed 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. In 1998, approximately
67.4% of Radio One's revenue was generated from local advertising and 30.3% was
generated from national spot advertising. The balance of 1998 revenue was
generated primarily from network advertising, tower rental income and ticket and
other revenue related to Radio One sponsored events.
The performance of an individual radio station or cluster of radio stations in
a particular market is customarily measured by its ability to generate net
broadcast revenue and broadcast cash flow, although broadcast cash flow is not a
measure utilized under generally accepted accounting principles ("GAAP").
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 GAAP, nor as a
measure of Radio One'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 net broadcast revenue in the
period in which such expenses are incurred. We generally incur 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 on a quarterly basis.
In the broadcasting industry, radio stations often utilize trade (or barter)
agreements to reduce expenses by exchanging advertising time for goods or
services. In order to maximize cash revenue from our spot inventory, we minimize
the use of trade agreements and have reduced trade revenue to approximately 1.2%
of our gross revenue in 1998, down from approximately 4.2% in 1996.
Radio One calculates "same station" growth over a particular period by
comparing performance of stations owned (or operated under an LMA) during the
current period with the performance of the same stations for the corresponding
period in the prior year. However, no station will be included in such a
comparison unless it has been
35
<PAGE>
owned (or operated under an LMA) for at least one month of every quarter
included in each of the current and corresponding prior-year periods.
From January 1, 1996, to December 31, 1998, Radio One acquired six radio
stations. On May 19, 1997, Radio One acquired WPHI-FM (formerly WDRE-FM), in
Philadelphia, for approximately $20.0 million (after having operated the station
under an LMA since February 8, 1997). On March 16, 1998, Radio One, through an
Unrestricted Subsidiary, acquired BHI, owner and operator of WYCB-AM, in
Washington, D.C., for approximately $3.8 million. On June 30, 1998, Radio One
acquired Bell Broadcasting, owner and operator of WDTJ-FM (formerly WCHB-FM) and
WCHB-AM in Detroit, and WJZZ-AM in Kingsley, Michigan, for approximately $34.2
million. On December 28, 1998, Radio One acquired Allur-Detroit, owner and
operator of WWBR-FM, in Detroit, for approximately $26.5 million.
The consolidated financial statements of Radio One incorporated by reference
to our current report on Form 8-K filed March 12, 1999 (File No. 333-30795; Film
No. 99564256) set forth the results of operations of: WPHI-FM for approximately
11 months of fiscal year 1997 (including the LMA period) and for fiscal year
1998; WYCB-AM from March 16, 1998, through the end of fiscal year 1998; Bell
Broadcasting from July 1, 1998, through the end of fiscal year 1998; and Allur-
Detroit from December 29, 1998, through the end of fiscal year 1998. The
discussion below concerning results of operations reflects the operations of
radio stations Radio One owned and/or managed by us during the periods
presented. As a result of the acquisition of WPHI-FM in May 1997 (with an LMA
for this station beginning in February 1997), WYCB-AM in March 1998, Bell
Broadcasting in June 1998, and Allur-Detroit in December 1998, Radio One's
historical financial data prior to such times are not directly comparable to
Radio One's historical financial data for subsequent periods.
36
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
The following table summarizes Radio One's historical consolidated results of
operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1997 1998
-------- -------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
STATEMENT OF OPERATIONS:
Net broadcast revenue $23,702 $32,367 $46,109
Station operating expenses 13,927 18,848 24,501
Corporate expenses 1,793 2,155 2,800
Depreciation and amortization 4,262 5,828 8,445
------- ------- --------
Operating income 3,720 5,536 10,363
Interest expense 7,252 8,910 11,455
Other income (expense), net (77) 415 358
-- ------ ------- --------
Loss before benefit for income taxes and extraordinary item (3,609) (2,959) (734)
Income tax benefit -- -- 1,575
Income (loss) before extraordinary item (3,609) (2,959) 841
Extraordinary loss -- 1,985 --
-------- -------- --------
Net income (loss) $(3,609) $(4,944) $ 841
======== ======== ========
Broadcast cash flow $ 9,775 $13,519 $21,608
Broadcast cash flow margin 41.2% 41.8% 46.9%
EBITDA $ 7,982 $11,364 $18,808
After-tax cash flow 806 2,869 7,248
</TABLE>
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997
Net Broadcast Revenue. Net broadcast revenue increased to approximately $46.1
million for the fiscal year ended December 31, 1998, from approximately $32.4
million for the fiscal year ended December 31, 1997, or 42.3%. Approximately
$3.8 million of the increase was attributable to stations acquired during 1998.
On a same station basis, net revenue for the period increased approximately
30.6% to approximately $42.3 million in 1998 from approximately $32.4 million in
1997. This increase was the result of continuing broadcast revenue growth in
Radio One's Washington, D.C., Baltimore, and Philadelphia markets as we
benefitted from ratings increases at certain of our radio stations, improved
power ratios at these stations and radio market growth.
Station Operating Expenses. Station operating expenses excluding depreciation
and amortization increased to approximately $24.5 million for the fiscal year
ended December 31, 1998, from approximately $18.8 million for the fiscal year
ended December 31, 1997, or 30.3%. Approximately $2.5 million of the increase
was attributable to stations acquired during 1998. On a same station basis,
station operating expenses for the period increased approximately 17.0% to
approximately $22.0 million in 1998 from approximately $18.8 million in 1997.
This increase was primarily related to increases in sales commissions and
license fees due to significant revenue growth, as well as additional
programming costs related to ratings gains at some of our larger radio stations.
Corporate Expenses. Corporate expenses increased to approximately $2.8
million for the fiscal year ended December 31, 1998, from approximately $2.2
million for the fiscal year ended December 31, 1997, or 27.3%. This increase was
due primarily to growth in the corporate staff consistent with our overall
expansion, annual costs associated with the 12% Notes due 2004 and costs
associated with our public reporting requirements.
37
<PAGE>
Depreciation and Amortization. Depreciation and amortization increased to
approximately $8.4 million for the fiscal year ended December 31, 1998, from
approximately $5.8 million for the fiscal year ended December 31, 1997, or
44.8%. This increase was due primarily to our asset growth as well as our
acquisitions in 1998.
Operating Income. Operating income increased to approximately $10.4 million
for the fiscal year ended December 31, 1998, from approximately $5.5 million for
the fiscal year ended December 31, 1997, or 89.1%. This increase was
attributable to the increases in broadcast revenues partially offset by higher
operating expenses and higher depreciation and amortization expenses as
described above.
Interest Expense. Interest expense increased to approximately $11.5 million
for the fiscal year ended December 31, 1998, from approximately $8.9 million for
the fiscal year ended December 31, 1997, or 29.2%. This increase was primarily
due to the 12% Notes Offering, the retirement of our approximately $45.6 million
bank credit facility and borrowings under our Bank Credit Facility associated
with the Bell Broadcasting acquisition.
Other Income. Other income decreased to $358,000 for the fiscal year ended
December 31, 1998, from $415,000 for the fiscal year ended December 31, 1997, or
13.7%. This decrease was primarily attributable to lower interest income due to
lower cash balances as we used a portion of our cash balances to help fund the
Bell Broadcasting acquisition.
Loss before Benefit from Income Taxes. Loss before benefit from income taxes
decreased to $734,000 for the fiscal year ended December 31, 1998, from
approximately $3.0 million for the fiscal year ended December 31, 1997, or
75.5%. This decrease was due to higher operating income partially offset by
higher interest expense and lower other income. The income tax benefit of
approximately $1.6 million for the year ended December 31, 1998, was the result
of reversing our valuation allowance recorded in prior years related to our net
operating loss carryforward and other deferred tax assets, offset by an income
tax provision of $483,000 as we had net income for tax reporting purposes as a
result of non-deductible amortization expense for income tax purposes. Certain
intangible assets acquired as a result of the Bell Broadcasting acquisition
maintained their old income tax basis because the Bell Broadcasting acquisition
was a stock purchase.
Net Income (Loss). Net income increased to $841,000 for the fiscal year ended
December 31, 1998, from a net loss of approximately $4.9 million for the fiscal
year ended December 31, 1997. The increase was due to higher operating income
and an income tax benefit, partially offset by higher interest expense as
described above and an approximate $2.0 million extraordinary loss related to
the refinancing of debt.
Broadcast Cash Flow. Broadcast cash flow increased to approximately $21.6
million for the fiscal year ended December 31, 1998, from approximately $13.5
million for the fiscal year ended December 31, 1997, or 60.0%. Approximately
$1.3 million of the increase was attributable to stations acquired during 1998.
On a same station basis, broadcast cash flow for the period increased
approximately 50.4% to approximately $20.3 million in 1998 from approximately
$13.5 million in 1997. This increase was attributable to the increase in net
broadcast revenue partially offset by higher station operating expenses as
described above.
Our broadcast cash flow margin increased to approximately 46.9% for the fiscal
year ended December 31, 1998, from 41.8% for the fiscal year ended December 31,
1997. On a same station basis, broadcast cash flow margin for the period
increased to approximately 48.0% in 1998 from approximately 41.8% in 1997. This
increase was the result of strong revenue gains in our more mature markets
partially offset by slower expense growth in those markets. The lower actual
broadcast cash flow margin versus that reported on a same station basis for 1998
was the result of our recent entrance into the Detroit market where we acquired
underperforming stations with profit margins lower than those of many of the
radio stations we own in markets in which we have operated for a longer period
of time.
EBITDA. EBITDA increased to approximately $18.8 million for the fiscal year
ended December 31, 1998, from approximately $11.4 million for the fiscal year
ended December 31, 1997, or 64.9%. This increase was
38
<PAGE>
attributable to the increase in net broadcast revenue partially offset by higher
station operating and corporate expenses as described above.
After-Tax Cash Flow. After-tax cash flow increased to approximately $7.2
million for the fiscal year ended December 31, 1998, from approximately $2.9
million for the fiscal year ended December 31, 1997, or 148.3%. This increase
was attributable to higher net income and depreciation and amortization as
described above.
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
Net Broadcast Revenue. Net broadcast revenue increased to approximately $32.4
million for the fiscal year ended December 31, 1997, from approximately $23.7
million for the fiscal year ended December 31, 1996, or 36.7%. Approximately
$2.6 million of the increase was attributable to the station acquired during
1997. On a same station basis, net revenue for the period increased
approximately 25.7% to approximately $29.8 million in 1997 from approximately
$23.7 million in 1996. This increase was primarily the result of significant net
broadcast revenue growth in our Washington, D.C. and Baltimore markets as we
benefitted from ratings increases at our larger radio stations as well as radio
market growth.
Station Operating Expenses. Station operating expenses excluding depreciation
and amortization increased to approximately $18.8 million for the fiscal year
ended December 31, 1997, from approximately $13.9 million for the fiscal year
ended December 31, 1996, or 35.3%. Approximately $2.4 million of the increase
was attributable to stations acquired during 1997. On a same station basis,
station operating expenses for the period increased approximately 18.0% to
approximately $16.4 million in 1997 from approximately $13.9 million in 1996.
This increase was due to higher sales, programming and administrative costs
associated with the significant net broadcast revenue growth and ratings gains
at our radio stations.
Corporate Expenses. Corporate expenses increased to approximately $2.2
million for the fiscal year ended December 31, 1997, from approximately $1.8
million for the fiscal year ended December 31, 1996, or 22.2%. This increase was
due primarily to growth in the corporate staff consistent with our overall
expansion, annual costs associated with the 12% Notes due 2004 and the costs
associated with our public reporting requirements.
Depreciation and Amortization. Depreciation and amortization increased to
approximately $5.8 million for the fiscal year ended December 31, 1997, from
approximately $4.3 million for the fiscal year ended December 31, 1996, or
34.9%. This increase was due primarily to our acquisition of WPHI-FM (formerly
WDRE-FM) in 1997.
Operating Income. Operating income increased to approximately $5.5 million
for the fiscal year ended December 31, 1997, from approximately $3.7 million for
the fiscal year ended December 31, 1996, or 48.6%. This increase was
attributable to the increases in net broadcast revenue partially offset by
higher operating expenses, higher depreciation and amortization expenses and
start-up losses incurred earlier in 1997 related to the acquisition of WPHI-FM.
Interest Expense. Interest expense increased to approximately $8.9 million
for the fiscal year ended December 31, 1997, from approximately $7.3 million for
the fiscal year ended December 31, 1996, or 21.9%. This increase related
primarily to the 12% Notes Offering and the associated retirement of our $45.6
million bank credit facility at that time.
Other Income (Loss). Other income increased to approximately $415,000 for the
fiscal year ended December 31, 1997, from a loss of approximately $77,000 for
the fiscal year ended December 31, 1996. This increase was primarily
attributable to higher interest income due to higher cash balances associated
with our cash flow growth and capital raised in the 12% Notes Offering.
Loss before Benefit for Income Taxes. Loss before provision for income taxes
and extraordinary item decreased to approximately $3.0 million for the fiscal
year ended December 31, 1997, from approximately $3.6 million for the
39
<PAGE>
fiscal year ended December 31, 1996, or 16.7%. The decrease was due to higher
operating and other income partially offset by higher interest expense
associated with the 12% Notes Offering.
Net Loss. Net loss increased to approximately $4.9 million for the fiscal
year ended December 31, 1997, from approximately $3.6 million for the fiscal
year ended December 31, 1996, or 36.1%. This increase was due to a loss of
approximately $2.0 million on the early retirement of the indebtedness under our
bank credit facility with the proceeds from the 12% Notes Offering, as well as
the exchange of our 15% Subordinated Promissory Notes due 2004 for our Series A
15.0% Senior Cumulative Exchangeable Preferred and Series B 15.0% Senior
Cumulative Exchangeable Preferred Stock (together, the "Senior Preferred
Stock").
Broadcast Cash Flow. Broadcast cash flow increased to approximately $13.5
million for the fiscal year ended December 31, 1997, from approximately $9.8
million for the fiscal year ended December 31, 1996, or 37.8%. Approximately
$0.2 million of the increase was attributable to stations acquired during 1997.
On a same station basis, broadcast cash flow for the period increased
approximately 35.7% to approximately $13.3 million in 1998 from approximately
$9.8 million in 1997. This increase was attributable to the increases in net
broadcast revenue partially offset by higher station operating expenses.
Our broadcast cash flow margin increased to approximately 41.8% for the fiscal
year ended December 31, 1997 from 41.2% for the fiscal year ended December 31,
1996. On a same station basis, broadcast cash flow margin for the period
increased to approximately 44.6% in 1997 from approximately 41.2% in 1996. This
increase was the result of strong revenue gains in our more mature markets
partially offset by slower expense growth in those markets. The lower actual
broadcast cash flow margin versus that reported on a same station basis for 1997
is the result of our entry into the Philadelphia market where we acquired an
underperforming station with profit margins lower than those of many of the
radio stations we own in markets in which we have operated for a longer period
of time.
EBITDA. EBITDA increased to approximately $11.4 million for the fiscal year
ended December 31, 1997, from approximately $8.0 million for the fiscal year
ended December 31, 1996, or 42.5%. This increase was attributable to the
increase in net broadcast revenue partially offset by higher operating and
corporate expenses.
After-Tax Cash Flow. After-tax cash flow increased to approximately $2.9
million for the fiscal year ended December 31, 1997, from approximately $806,000
for the fiscal year ended December 31, 1996, or 259.8%. This increase was
attributable to higher net income and depreciation and amortization as described
above.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of liquidity is cash provided by operations and, to the
extent necessary, undrawn commitments available under the Bank Credit Facility.
Our ability to borrow in excess of the commitments set forth in the Credit
Agreement is limited by the terms of the Indenture and our preferred stock.
Additionally, such terms place restrictions on Radio One with respect to the
sale of assets, liens, investments, dividends, debt repayments, capital
expenditures, transactions with affiliates, consolidation and mergers, and the
issuance of equity interests among other things.
We have used a significant portion of our capital resources to consummate
acquisitions. These acquisitions were or will be funded from (i) the Bank Credit
Facility, (ii) the proceeds of the offering of our common stock and New
Preferred Stock (as defined below), and (iii) internally generated cash flow. A
portion of the net proceeds from these offerings will be used to repay our
outstanding indebtedness under the Bank Credit Facility.
Radio One's balance of cash and cash equivalents was approximately $4.5
million as of December 31, 1998, and approximately $8.5 million as of December
31, 1997. This decrease in cash resulted primarily from our use of approximately
$9.5 million of our then available cash to fund partially the Bell Broadcasting
acquisition, offset by an increase in cash from operations. The balance of the
purchase price and expenses related to the Bell Broadcasting acquisition was
funded with approximately $25.4 million drawn on our $32.5 million Bank Credit
Facility that we
40
<PAGE>
entered into concurrent with the closing of the acquisition of Bell
Broadcasting. We subsequently increased the Bank Credit Facility to $57.5
million from which we drew down an additional $24.0 million to fund partially
the acquisition of Allur-Detroit. On December 31, 1998, approximately $8.1
million was available to be drawn down from the Bank Credit Facility. On
February 26, 1999, we entered into the Credit Agreement under which we may
borrow up to $100 million on a revolving basis from a group of banking
institutions. Immediately following the acquisition of ROA, approximately $67.0
million was outstanding under our Bank Credit Facility.
On March 12, 1999, we filed a registration statement on Form S-1 in connection
with the Common Stock Offering. On March 19, 1999, we filed a registration
statement on Form S-1 in connection with the Preferred Stock Offering. The
proceeds from the Common Stock Offering and the Preferred Stock Offering will be
used in part to increase availability under our Bank Credit Facility. This
availability is expected to be used in part to fund pending acquisitions. The
amount needed to fund the pending acquisitions is approximately $94.2 million.
In the event the Common Stock Offering and the Preferred Stock Offering are not
consummated, we believe we have adequate liquidity and access to other financing
sources to fund these acquisitions.
Net cash flow from operating activities increased to approximately $9.3
million for the fiscal year ended December 31, 1998, from approximately $4.9
million for the fiscal year ended December 31, 1997, or 89.8%. This increase was
primarily due to higher net income (versus a net loss in 1997) and non-cash
expenses. Non-cash expenses of depreciation and amortization increased to
approximately $8.4 million for fiscal year ended December 31, 1998, from
approximately $5.8 million for the fiscal year ended December 31, 1997, or
44.8%, due to our recent acquisitions, as well as leasehold improvements made to
our new headquarters and Washington, D.C. radio studios in the second half of
1997. Non-cash expenses of amortization of debt financing costs, unamortized
discount and deferred interest increased to approximately $4.1 million for the
fiscal year ended December 31, 1998, from approximately $3.3 million for the
fiscal year ended December 31, 1997, or 24.2%, due to the 12% Notes Offering. We
also incurred a non-cash expense of approximately $2.0 million related to the
loss on extinguishment of debt during the fiscal year ended December 31, 1997.
Net cash flow used in investing activities increased to approximately $61.2
million for the fiscal year ended December 31, 1998, compared to approximately
$23.2 million for the fiscal year ended December 31, 1997, or 163.8%. During the
fiscal year ended December 31, 1998, we acquired Bell Broadcasting for
approximately $34.2 million plus the cost of additional assets and expenses
related to the transaction, and acquired Allur-Detroit for approximately $26.5
million. Additionally, we made purchases of capital equipment totaling
approximately $2.2 million. During the fiscal year ended December 31, 1997, we
acquired WPHI-FM for approximately $20.0 million and made purchases of capital
equipment totaling approximately $2.0 million.
Net cash flow from financing activities was approximately $47.8 million for
the fiscal year ended December 31, 1998. During the fiscal year ended December
31, 1998, Radio One entered into a $57.5 million Bank Credit Facility, of which,
approximately $49.4 million was used to finance partially the acquisitions of
Bell Broadcasting and Allur-Detroit. In conjunction with this facility, we
incurred approximately $1.0 million in deferred debt financing costs.
Additionally, during the fiscal year ended December 31, 1998, a wholly-owned
Unrestricted Subsidiary of Radio One financed the acquisition of WYCB-AM with a
promissory note due to the seller for approximately $3.8 million. Net cash flow
from financing activities was approximately $25.1 million for the fiscal year
ended December 31, 1997. During the fiscal year ended December 31, 1997, we
completed the 12% Notes Offering and raised net proceeds of approximately $72.8
million. We used approximately $19.1 million of these proceeds to acquire WPHI-
FM (formerly WDRE-FM) and approximately $45.6 million of the proceeds to retire
the outstanding indebtedness under our then existing bank credit facility. In
conjunction with the 12% Notes Offering we incurred approximately $2.1 million
in deferred debt financing costs. As a result, cash and cash equivalents
decreased by approximately $4.0 million during the fiscal year ended December
31, 1998, compared to an increase of approximate $6.8 million during the fiscal
year ended December 31, 1997.
We continuously review, and are currently reviewing, opportunities to acquire
additional radio stations, primarily in the top 30 African-American markets. As
of the date of this report, other than the pending transactions,
41
<PAGE>
we have no written or oral understandings, letters of intent or contracts to
acquire radio stations. We anticipate that any future radio station acquisitions
would be financed through funds generated from operations, equity financings,
permitted debt financings, debt financings through Unrestricted Subsidiaries or
a combination of these sources. However, there can be no assurance that
financing from any of these sources, if available, will be available on
favorable terms.
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 Radio One's indebtedness, to fund anticipated
capital expenditures and working capital requirements and to enable us to comply
with the terms of our debt agreements. Our ability to meet our debt service
obligations and reduce our total debt, and our ability to refinance the 12%
Notes due 2004, at or prior to their scheduled maturity date in 2004, will
depend upon our future performance which, in turn, will be subject to general
economic conditions and to financial, business and other factors, including
factors beyond our control. For 1999, we anticipate maintenance capital
expenditures to be between $1.0 million and $2.0 million and total capital
expenditures to be between $4.0 million and $6.0 million. During 1997, Radio One
converted from an S corporation to a C corporation.
IMPACT OF INFLATION
We believe that inflation has not had a material impact on our results of
operations for each of our fiscal years in the three-year period ended December
31, 1998. However, there can be no assurance that future inflation would not
have an adverse impact on our operating results and financial condition.
SEASONALITY
Seasonal net broadcast revenue fluctuations are common in the radio
broadcasting industry and are due primarily to fluctuations in advertising
expenditures by local and national advertisers. Radio One's first fiscal quarter
generally produces the lowest net broadcast revenue for the year.
YEAR 2000 COMPLIANCE
Radio One has commenced a process to ensure Year 2000 compliance of all
hardware, software, and ancillary equipment that are date dependent. This
process involves four phases:
Phase I -- Inventory and Data Collection. This phase involves an
identification of all systems that are date dependent. This
phase was completed during the first quarter of 1998.
Phase II -- Compliance Identification. This phase involves Radio One
identifying and beginning to replace critical systems that
cannot be updated or certified as compliant. We commenced this
phase in the first quarter of 1999 and expect to complete the
substantial majority of this phase before the end of the second
quarter of 1999. To date, we have verified that our accounting,
payroll, and local wide area network hardware and software
systems are substantially compliant. In addition, we have
determined that most of our personal computers and PC
applications are compliant. We are currently reviewing our
security systems and other miscellaneous systems.
Phase III -- Test, Fix, and Verify. This phase involves testing all systems
that are date dependent and upgrading all non-compliant
systems. We expect to complete this phase during the third
quarter of 1999.
Phase IV -- Final Testing, New Item Compliance. This phase involves a
review of failed systems for compliance and re-testing as
necessary. We expect to complete this phase by the end of the
third quarter of 1999.
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<PAGE>
To date, we have no knowledge that any of our major systems are not Year 2000
ready or will not be Year 2000 ready by the end of the third quarter of 1999. We
have not incurred significant expenditures and believe we will achieve
substantial Year 2000 readiness without the need to acquire significant new
hardware, software or systems. As part of our expansion over the past two years,
we have undertaken significant build-outs, upgrades and expansions to our radio
station studios, business offices and technology infrastructure. These
enhancement efforts are continuing in all of the markets in which we have
recently acquired radio stations and will expand into the new markets in which
we will be acquiring radio stations. We believe that most, if not all, of the
new equipment installed in conjunction with these recent build-outs is Year 2000
compliant. Based upon our experience to date, we estimate the remaining costs to
achieve Year 2000 readiness will be approximately $100,000, independent of the
costs associated with the previously-mentioned expansions which are being
undertaken in the normal course of our business development. All costs directly
related to preparing for Year 2000 readiness will be expensed as incurred. We
are not aware of any Year 2000 problems that would have a material effect on our
operations. We are also not aware of any non-compliance by our suppliers that is
likely to have material impact on our business. Nevertheless, we cannot assure
you that our critical systems, or the critical systems of our suppliers, will be
Year 2000 ready.
Radio One does not intend to develop any contingency plans to address possible
failures by itself or its vendors related to Year 2000 compliance. Radio One
does not believe that such contingency plans are required because it believes
that Radio One and its significant vendors will be Year 2000 compliant before
January 2000.
43
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We have no quantitative or qualitative market risk to report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Radio One required by this item are
incorporated by reference to Radio One's current report on Form 8-K filed March
12, 1999 (File No. 333-30795; Film No. 99564256).
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
44
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the directors, executive officers and other
significant personnel of Radio One 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. With the exception of Ms. Sneed, none of the persons
named below have employment agreements with Radio One.
<TABLE>
<CAPTION>
AGE AS OF
MARCH 31,
NAME 1999 POSITION
- ------------------------------ ---------- ------------------------------------------------------------
<S> <C> <C>
Catherine L. Hughes 51 Chairperson of the Board of Directors and Secretary
Alfred C. Liggins, III/(1)/ 34 Chief Executive Officer, President, Treasurer, and Director
Scott R. Royster 34 Executive Vice President and Chief Financial Officer
Mary Catherine Sneed 47 Chief Operating Officer
Linda J. Eckard 41 General Counsel
Steve Hegwood 37 Vice President of Programming
Leslie J. Hartmann 37 Corporate Controller
Terry L. Jones /(2)/ 52 Director
Brian W. McNeill /(2)/ 43 Director
</TABLE>
(1) Mr. Alfred C. Liggins, III, is the son of Ms. Catherine L. Hughes
(2) Member of the Audit and Compensation Committees
Ms. Hughes has been Chairperson of the Board of Directors and Secretary 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 company in 1980.
Since 1980, Ms. Hughes has worked in various capacities for Radio One including
President, General Manager, General Sales Manager and talk show host. She began
her career in radio as General Sales Manager of WHUR-FM, the Howard University-
owned, urban-contemporary radio station. Ms. Hughes is also the mother of Mr.
Liggins, Radio One's Chief Executive Officer, President, Treasurer and director.
Mr. Liggins has been Chief Executive Officer since 1997, and President,
Treasurer and a director of Radio One since 1989. Mr. Liggins joined Radio One
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 Radio
One's Washington, D.C. operations. After becoming President, Mr. Liggins
engineered Radio One's expansion into other markets. Mr. Liggins is a graduate
of the Wharton School of Business/Executive M.B.A. Program. Mr. Liggins is the
son of Ms. Hughes, Radio One's Chairperson and Secretary.
Mr. Royster has been Executive Vice President of Radio One since 1997 and
Chief Financial Officer of Radio One since 1996. Prior to joining Radio One, 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 Radio One 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. Mr. Royster is a graduate of Duke University and
Harvard Business School.
Ms. Sneed has been Radio One's Chief Operating Officer since January 1998 and
General Manager of ROA since 1995. Prior to joining Radio One, she held various
positions with Summit Broadcasting including Executive Vice President of the
Radio Division, and Vice President of Operations from 1992 to 1995. Ms. Sneed is
a graduate of Auburn University.
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<PAGE>
Ms. Eckard has been General Counsel of Radio One since January 1998. Prior to
joining Radio One as General Counsel, Ms. Eckard represented Radio One as
outside counsel from July 1995 until assuming her current position. Ms. Eckard
was a partner in the Washington, D.C. office of Davis Wright Tremaine LLP, a
Seattle-based law firm from August 1997 to January 1998. Her practice focused on
transactions and FCC regulatory matters. Prior to joining Davis Wright Tremaine
LLP, Ms. Eckard was a shareholder of Roberts & Eckard, P.C., a firm that she co-
founded in April 1992. Ms. Eckard is a graduate of Gettysburg College and a
graduate of the National Law Center at George Washington University and the
University of Glasgow. Ms Eckard is admitted to the District of Columbia Bar and
the United States Supreme Court Bar.
Mr. Hegwood has been the Vice President of Programming for Radio One and
Program Director of WKYS-FM since 1995. From 1990 to 1995, Mr. Hegwood was
Program Director of WJLB-FM in Detroit, Michigan.
Ms. Hartmann has been Controller of Radio One since 1997. Prior to joining
Radio One, she served as Vice President and Market Controller for Bonneville
International Corporation in Phoenix, Arizona from 1991 to 1997. Ms. Hartmann is
a graduate of the University of California and has an M.B.A. degree from the
University of Phoenix.
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 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
earned an M.B.A. from the Amos Tuck School at Dartmouth College.
ITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS
Non-officer directors of Radio One 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 Radio One. Officers
of Radio One who serve as directors do not receive compensation for their
services as directors other than the compensation they receive as officers of
Radio One.
EXECUTIVE COMPENSATION
The following information relates to compensation of Radio One's Chief
Executive Officer and each of its most highly compensated executive officers
(the ''Named Executives'') for the fiscal years ended December 31, 1998, 1997
and 1996 (as applicable):
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION
- ------------------------------------------------------- ------ ------------- --------- -------------
<S> <C> <C> <C> <C>
Catherine L. Hughes.................................... 1998 $ 225,000 $100,000 $12,281
Chairperson of the Board of Directors and Secretary 1997 193,269 50,000 3,050
1996 150,000 31,447 18,321
Alfred C. Liggins, III................................. 1998 225,000 100,000 3,567
Chief Executive Officer, President, Treasurer and 1997 193,269 50,000 3,125
Director 1996 150,000 -- 19,486
Scott R. Royster 1998 165,000 50,000 n/a
Executive Vice President and Chief Financial Officer 1997 148,077 25,000 n/a
1996 55,577/(1)/ -- n/a
Mary Catherine Sneed................................... 1998 200,000 50,000 n/a
Chief Operating Officer
Linda J. Eckard........................................ 1998 150,000 25,000 n/a
General Counsel
</TABLE>
(1) Mr. Royster provided consulting services for Radio One in July 1996 and
joined Radio One 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.
Ms. Mary Catherine Sneed Employment Agreement. Effective December 8, 1997,
Radio One entered into a two-year employment agreement with Ms. Sneed pursuant
to which she was hired to serve as Radio One's Chief Operating Officer. The
employment agreement provides that Ms. Sneed will receive an annual base salary
of $220,000 and an annual cash bonus of up to $50,000, contingent upon the
satisfaction of certain performance criteria. Radio One could incur certain
severance obligations under the employment agreement in the event that Ms.
Sneed's employment is terminated. If, during the term of the employment
agreement, Radio One terminates Ms. Sneed's employment without just cause or
following a change of control of Radio One, Ms. Sneed will continue to receive
her base salary for a period of twelve months, during the first six months of
which she will be subject to certain non-compete restrictions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Radio One has formed a Compensation Committee of the Board of Directors of
Radio One, and all of the directors serving on such Compensation Committee are
directors who are not employees of Radio One. The Compensation Committee is
comprised of Messrs. Terry L. Jones and Brian W. McNeill. No member of our
Compensation Committee has a relationship that would constitute an interlocking
relationship with executive officers or directors of another entity. See Item 13
- - "Certain Relationships and Related Transactions."
47
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of our common stock by: (i) each person (or group of affiliated
persons) known by us to be the beneficial owner of more than 5% of any class of
common stock; (ii) each Named Executive; (iii) each of our directors; and (iv)
all of our directors and officers as a group. Unless otherwise indicated in the
footnotes below, each stockholder possesses sole voting and investment power
with respect to the shares listed. This information is based on share ownership
as of March 30, 1999.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
COMMON STOCK/(1)/ COMMON STOCK/(1)/ COMMON STOCK/(1)/
------------------- -------------------- -------------------
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
NAME OF BENEFICIAL OWNER OF SHARES OF CLASS OF SHARES OF CLASS OF SHARES OF CLASS
- -------------------------------------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Catherine L. Hughes/(2)/ -- -- 25.00 29.10% 50.00 53.30%
Alfred C. Liggins, III/(2)/ 0.97 0.47% 60.58 70.51 41.63 44.39
Scott R. Royster/(2)/ -- -- -- -- 1.50 1.60
Mary Catherine Sneed/(2)/ 7.01 3.38 -- -- -- --
Terry L. Jones/(3)/ 60.16 29.00 -- -- -- --
Brian W. McNeill/(4)/ 44.54 21.47 -- -- -- --
Alta Subordinated Debt Partners III, 44.54 21.47 -- -- -- --
L..P./(5)(12)/
Alliance Enterprise 18.70 9.02 -- -- -- --
Corporation/(6)(12)/
BancBoston Investments, Inc./(7)(12)/ 20.15 9.71 -- -- -- --
Medallion Capital, Inc./(8)(12)/ 15.24 7.35 -- -- -- --
Fulcrum Venture Capital 15.61 7.53 -- -- -- --
Corporation/(9)(12)/
Syncom Capital Corporation/(10)(12)/ 60.16 29.00 -- -- -- --
Allied Capital Corporation/(11)(12)/ 14.32 6.90 -- -- -- --
All Directors and Named Executives as 112.68 54.32% 85.58 99.62% 93.13 99.29%
a group (6 persons)
</TABLE>
(1) The number of shares of each class of common stock does not include the
shares of any other class of common stock issuable upon conversion of that
class of common stock. The table gives effect to the exercise of the
Recapitalization Warrants and Contingent Warrants to purchase 147.04 shares
of Class A Common Stock issued by Radio One as of February 25, 1999, and
warrants to purchase 3.92 shares of Common Stock issued in connection with
acquisition of ROA on March 30, 1999 (the "Warrants"). 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 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). The Warrants are subject to the terms of a
Standstill Agreement dated as of June 30, 1998, among Radio One, the
subsidiaries of Radio One, Credit Suisse First Boston, the Trustee, and the
other parties named therein (the "Standstill Agreement") which provides,
among other things, that for so long as the Credit Agreement, if any, or the
12% Notes due 2004 are outstanding, the Warrants are collectively only
exercisable for up to 65% 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 of the Warrants.
(2) 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. The shares of Class B Common Stock are subject to
a voting agreement between Ms. Hughes and Mr. Liggins with respect to the
election of Radio One's directors. Pursuant to that agreement, Ms. Hughes
controls the right to vote approximately 12 of the shares of Class B Common
Stock held by Mr. Liggins. The business address for Ms. Hughes, Mr.
Liggins, Mr. Royster and Ms. Sneed is c/o Radio One, 5900 Princess Garden
Parkway, 8th Floor, Lanham, Maryland 20706.
(3) Represents an aggregate of 60.16 shares of Class A Common Stock held by
Syncom or issuable upon exercise of Warrants 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 Class A Common Stock and
Senior Preferred Stock held by Syncom by virtue of his affiliation with
Syncom. Mr. Jones disclaims beneficial ownership in such shares.
(4) Represents an aggregate of 44.54 shares of Class A Common Stock held by Alta
or issuable upon exercise of Warrants held by Alta. Mr. McNeill is a
general partner of Alta, 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 Class A Common Stock
48
<PAGE>
and Senior Preferred Stock held by Alta by virtue of his affiliation with
Alta. Mr. McNeill disclaims any beneficial ownership of such shares.
(5) The principal address of Alta is c/o Burr, Egan, Deleage & Co., One Post
Office Square, Boston, MA 02109.
(6) The principal address of Alliance Enterprise Corporation is 12655 N.
Central Expressway, Suite 710, Dallas, TX 75243.
(7) The principal address of BancBoston Investments, Inc. is 100 Federal
Street, 32nd Floor, Boston, MA 02110.
(8) The principal address of Medallion Capital, Inc. is 7831 Glenroy Road,
Suite 480, Minneapolis, MN 55439.
(9) The principal address of Fulcrum Venture Capital Corporation is 300
Corporate Point, Suite 380, Culver City, CA 90230.
(10) The principal address of Syncom Capital Corporation is 8401 Colesville
Road, Suite 300, Silver Spring, MD 20910.
(11) The principal address of Allied Capital Corporation is 1919 Pennsylvania
Avenue, NW, Washington, D.C. 20006-3434.
(12) Such person is a holder of shares of Senior Preferred Stock, as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF
SERIES A PREFERRED SERIES B PREFERRED
NAME OF STOCKHOLDER STOCK HELD STOCK HELD
----------------------------------------------- -------------------- -------------------
<S> <C> <C>
Alfred C. Liggins, III 2,359.67 --
Alta Subordinated Debt Partners III, L.P. -- 72,139.57
Alliance Enterprise Corporation 9,126.55 --
BancBoston Investments, Inc. -- 49,249.44
Medallion Capital, Inc. 37,258.14 --
Fulcrum Venture Capital Corporation 9,650.09 --
Syncom Capital Corporation. 13,595.69 --
Allied Capital Corporation* 4,000.00 --
</TABLE>
* Represents a warrant to purchase, subject to certain conditions,
4,000 shares of Series A Preferred Stock.
49
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MABLETON OPTION
Mr. Liggins, the Chief Executive Officer and President of Radio One, has a
right, which he obtained in 1997, (the ''Mableton Option'') to acquire an
interest in a construction permit for an FM radio station licensed to Mableton,
Georgia (the ''Mableton Station'') which is in the Atlanta MSA. Mr. Liggins and
the principals of Syncom, Herbert P. Wilkins, Terry L. Jones and Duane McKnight,
have reached an agreement in principle to provide initial funding to satisfy the
requirements of the Mableton Option. Terry L. Jones is also a member of Radio
One's Board of Directors. Mr. Liggins has also proposed that Radio One, most
likely through ROA, enter into an LMA with respect to the Mableton Station, or
otherwise participate in the operations and financing of the Mableton Station.
Any such arrangement will be on terms at least as favorable to Radio One as any
such transaction with an unaffiliated third party.
OFFICE LEASE
Radio One leases office space located at 100 St. Paul Street, Baltimore,
Maryland from Chalrep Limited Partnership, a limited partnership controlled by
Ms. Hughes and Mr. Liggins. The annual rent for the office space is $152,400.
Radio One's management believes that the terms of this lease are not materially
different than if the agreement were with an unaffiliated third party.
MR. LIGGINS' LOAN
Radio One has extended an unsecured loan to Mr. Liggins in the amount of
$380,000, which bears interest at an annual rate of 5.56% and is evidenced by a
demand promissory note dated as of June 30, 1998. As of March 1, 1999, the
aggregate outstanding principal and interest amount on this loan was $386,386.
The purpose of the loan was to repay a loan that Mr. Liggins obtained from
NationsBank, Texas, N.A. in 1997 to purchase an additional interest in Radio
One.
MUSIC ONE, INC.
Ms. Hughes and Mr. Liggins own a music company called Music One, Inc. Radio
One sometimes engages in promoting the recorded music product of Music One, Inc.
Radio One estimates that the dollar value of such promotion is nominal.
ALLUR-DETROIT, INC.
Allur-Detroit leases the transmitter site for WWBR-FM from American Signaling
Corporation for approximately $84,000 per year. American Signaling Corporation
is a wholly-owned subsidiary of Syncom Venture Partners. Radio One's management
believes that the terms of this lease are not materially different than if the
agreement were with an unaffiliated third party.
XM SATELLITE, INC.
Radio One and XM Satellite Radio, Inc. have entered into a Programming Partner
Agreement whereby Radio One will provide programming to XM Satellite Radio, Inc.
for distribution over satellite-delivered channels. Worldspace, Inc. holds 20%
of the stock of XM Satellite Radio, Inc. Syncom Venture Partners owns
approximately 1.25% of the stock of Worldspace, Inc. Terry L. Jones, a director
of Radio One, is also a director of Worldspace, Inc.
50
<PAGE>
RADIO ONE OF ATLANTA, INC.
On March 30, 1999, Radio One acquired all of the outstanding capital stock of
ROA. ROA's stockholders included Alta, Syncom Venture Partners, and Alfred C.
Liggins, III. Mr. Brian W. McNeill, a general partner of Alta, is also a member
of Radio One's Board of Directors. Terry L. Jones, a general partner of the
general partner of Syncom Venture Partners, is also a member of Radio One's
Board of Directors and is the President of Syncom and Syncom I.
Radio One issued shares of Common Stock and warrants to purchase shares of
common stock in exchange for the outstanding capital stock of ROA. Alta, Syncom
Venture Partners and Mr. Liggins received a majority of such shares in exchange
for their shares and warrants in ROA. In connection with this transaction, Mr.
Liggins was paid a fee of approximately $1.2 million for arranging the
acquisition. Also, as part of this transaction, Radio One assumed and retired
debt and accrued interest of approximately $16.3 million of ROA and Dogwood.
Of this amount, approximately $12.0 million was paid to Allied Capital
Corporation, approximately $1.3 million was paid to Syncom Venture Partners, and
approximately $2.0 million was paid to Alta.
The Board of Directors authorized the formation of an ad-hoc committee to
oversee the valuation of ROA. The ad-hoc committee members are Catherine L.
Hughes of Radio One, Sanford Anstey of BancBoston Investments, Inc. and Dean
Pickerell of Medallion Capital, Inc. (formerly Capital Dimensions Venture Fund,
Inc.). The committee is comprised of members of the Board of Directors of, and
investors in, Radio One that do not have an interest in ROA.
The ad-hoc committee recommended approval of the acquisition of ROA based upon
its determination that the acquisition was fair to Radio One and its
stockholders.
MS. SNEED'S LOAN
ROA has extended an unsecured loan to Mary Catherine Sneed, Chief Operating
Officer of Radio One, in the original amount of $262,539, which bears interest
at an annual rate of 5.56% and is evidenced by a demand promissory note. As of
February 28, 1999, the aggregate outstanding principal and interest amount on
this loan was $ 262,539. The purpose of this loan was to pay Ms. Sneed's tax
liability with respect to incentive stock grants of ROA stock received by Ms.
Sneed.
51
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
The following consolidated financial statements of Radio One are incorporated
in this report by reference to Radio One's Current Report on Form 8-K filed
March 12, 1999 (File No. 333-30795; Film No. 99564256):
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1998
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998
Consolidated Statements of Changes in Stockholders' Deficit for the
years ended December 31, 1996, 1997 and 1998
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998
Notes to Consolidated Financial Statements
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by us during the fourth quarter of the
fiscal year ended December 31, 1998.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- --------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1/(5)/ Amended and Restated Certificate of Incorporation of Radio One,
Inc., as of February 25, 1999.
3.2/(5)/ Amended and Restated By-laws of Radio One, Inc., as of February 25,
1999.
4.1/(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/(2)/ First Supplemental Indenture dated as of June 30, 1998, to
Indenture dated as of May 15, 1997, by and among Radio One, Inc.,
as Issuer and United States Trust Company of New York, as Trustee,
by and among Radio One, Inc., Bell Broadcasting Company, Radio One
of Detroit, Inc., and United States Trust Company of New York, as
Trustee.
4.3/(3)/ Second Supplemental Indenture dated as of December 23, 1998, to
Indenture dated as of May 15, 1997, by and among Radio One, Inc.,
as Issuer and United States Trust Company of New York, as Trustee,
by and among Radio One, Inc., Allur-Detroit, Allur Licenses, Inc.,
and United States Trust Company of New York, as Trustee.
4.4/(1)/ 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.
</TABLE>
___________________
(1) Incorporated by reference to Radio One's Annual Report on Form 10-K for the
period ended December 31, 1997 (File No. 333-30795; Film No. 98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K filed
July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K filed
January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q for
the period ended June 30, 1998 (File No. 333-30795; Film No. 98688998).
(5) Incorporated by reference to Radio One's Registration Statement on Form S-1
(File No. 333-74351).
52
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
4.5/(1)/ 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.
4.6/(1)/ 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.
4.7/(4)/ Standstill Agreement dated as of June 30, 1998 among Radio One,
Inc., the subsidiaries of Radio One, Inc., United States Trust
Company of New York and the other parties thereto.
10.1/(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/(1)/ Purchase Option Agreement dated February 3, 1997 between National
Life Insurance Company and Radio One, Inc. for the premises
located at 5900 Princess Garden Parkway, Lanham, Maryland.
10.3/(1)/ Office Lease commencing November 1, 1993 between Chalrep Limited
Partnership and Radio One, Inc., with respect to the property
located at 100 St. Paul Street, Baltimore, Maryland.
10.4/(1)/ Preferred Stockholders' Agreement dated as of May 14, 1997 among
Radio One, Inc., Radio One Licenses, Inc. and the other parties
thereto.
10.5/(4)/ First Amendment to Preferred Stockholders' Agreement dated as of
June 30, 1998 among Radio One, Inc., Radio One Licenses, Inc.,
and the other parties thereto.
10.6/(5)/ Second Amendment to Preferred Stockholders' Agreement dated as of
November 23, 1998 among Radio One, Inc., Radio One Licenses, Inc.
and the other parties thereto.
10.7/(5)/ Third Amendment to Preferred Stockholders' Agreement dated as of
December 23, 1998 among Radio One, Inc., Radio One Licenses, Inc.
and the other parties thereto.
10.8/(5)/ Fourth Amendment to Preferred Stockholders' Agreement dated as of
December 31, 1998 among Radio One, Inc., Radio Once Licenses,
Inc. and the other parties thereto.
10.9/(1)/ 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.
10.10/(1)/ Amended and Restated Warrant of Radio One, Inc. dated as of May
19, 1997, issued to Syncom Capital Corporation.
10.11/(1)/ Amended and Restated Warrant of Radio One, Inc. dated as of May
19, 1997, issued to Alliance Enterprise Corporation.
10.12/(1)/ Amended and Restated Warrant of Radio One, Inc. dated as of May
19, 1997, issued to Greater Philadelphia Venture Capital
Corporation, Inc.
</TABLE>
_______________________
(1) Incorporated by reference to Radio One's Annual Report on Form 10-K for the
period ended December 31, 1997 (File No. 333-30795; Film No. 98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K filed
July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K filed
January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q for
the period ended June 30, 1998 (File No. 333-30795; Film No. 98688998).
(5) Incorporated by reference to Radio One's Registration Statement on Form S-1
(File No. 333-74351).
53
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- --------------------------------------------------------------------------------------------------
<S> <C> <C>
10.13/(1)/ Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Opportunity Capital Corporation.
10.14/(1)/ Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Capital Dimensions Venture Fund, Inc.
10.15/(1)/ Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to TSG Ventures Inc.
10.16/(1)/ Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Fulcrum Venture Capital Corporation.
10.17/(1)/ Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Alta Subordinated Debt Partners III, L.P.
10.18/(1)/ Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to BancBoston Investments, Inc.
10.19/(1)/ Amended and Restated Warrant of Radio One, Inc. dated as of May 19,
1997, issued to Grant M. Wilson.
10.20/(4)/ Credit Agreement dated June 30, 1998 among Radio One, Inc., as the
borrower and NationsBank, N.A., as Documentation Agent and Credit
Suisse First Boston as the Agent.
10.21/(5)/ First Amendment to Credit Agreement dated as of December 23, 1998
among Radio One, as the borrower, and NationsBank, N.A., as
Documentation Agent and Credit Suisse First Boston as the Agent.
10.22/(1)/ Management Agreement dated as of August 1, 1996 by and between
Radio One, Inc. and Radio One of Atlanta, Inc.
10.23/(1)/ 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.
10.24/(1)/ 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 Corporation, as amended.
10.25/(1)/ Time Management and Services Agreement dated March 17, 1998, among
WYCB Acquisition Corporation, Broadcast Holdings, Inc., and Radio
One, Inc.
10.26/(1)/ Stock Purchase Agreement dated December 23, 1997, between the
shareholders of Bell Broadcasting Company and Radio One, Inc.
10.27/(1)/ Option and Stock Purchase Agreement dated November 19, 1997, among
Allied Capital Financial Corporation, G. Cabell Williams III,
Broadcast Holdings, Inc. and WYCB Acquisition Corporation.
10.28/(1)/ Amended and Restated Warrant of Radio One, Inc., dated January 9,
1998, issued to TSG Ventures L.P.
10.29/(1)/ Stock Purchase Warrant of Radio One, Inc., dated March 16, 1998
issued to Allied Capital Financial Corporation.
</TABLE>
_____________________
(1) Incorporated by reference to Radio One's Annual Report on Form 10-K for the
period ended December 31, 1997 (File No. 333-30795; Film No. 98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K filed
July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K filed
January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q for
the period ended June 30, 1998 (File No. 333-30795; Film No. 98688998).
(5) Incorporated by reference to Radio One's Registration Statement on Form S-1
(File No. 333-74351).
54
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------------------------
<S> <C> <C>
10.30/1)/ Amended and Restated Credit Agreement dated May 19, 1997 among
several lenders, NationsBank of Texas, N.A. and Radio One, Inc.
10.31/(1)/ First Amendment to Credit Agreement dated December 31, 1997 among
several lenders, NationsBank of Texas, N.A. and Radio One, Inc.
10.32/(1)/ Amendment to Preferred Stockholders' Agreement dated as of December
31, 1997 among Radio One, Inc., Radio One Licenses, Inc. and the
other parties thereto.
10.33/(1)/ Assignment and Assumption Agreement dated October 23, 1997, between
Greater Philadelphia Venture Capital Corporation, Inc. and Alfred
C. Liggins, III.
10.34/(1)/ Agreement dated February 20, 1998 between WUSQ License Limited
Partnership and Radio One, Inc.
10.35/(4)/ Amended and Restated Warrant of Radio One, Inc. dated as of June
30, 1998 issued to Capital Dimensions Venture Fund Inc.
10.36/(4)/ Amended and Restated Warrant of Radio One, Inc. dated as of June
30, 1998 issued to Fulcrum Venture Capital Corporation.
10.37/(4)/ Amended and Restated Warrant of Radio One, Inc. dated as of June
30, 1998 issued to Syncom Capital Corporation.
10.38/(4)/ Amended and Restated Warrant of Radio One, Inc. dated as of June
30, 1998 issued to Alfred C. Liggins, III.
10.39/(4)/ Amended and Restated Warrant of Radio One, Inc. dated as of June
30, 1998 issued to TSG Ventures L.P.
10.40/(4)/ Amended and Restated Warrant of Radio One, Inc. dated as of June
30, 1998 issued to Alliance Enterprise Corporation.
10.41/(4)/ Amended and Restated Warrant of Radio One, Inc. dated as of June
30, 1998 issued to Alta Subordinated Debt Partners III, L.P.
10.42/(4)/ Amended and Restated Warrant of Radio One, Inc. dated as of June
30, 1998 issued to BancBoston Investments Inc.
10.43/(4)/ Amended and Restated Warrant of Radio One, Inc. dated as of June
30, 1998 issued to Grant M. Wilson.
10.44 Stock Purchase Agreement dated as of October 26, 1998, by and
between Radio One and Syndicated Communications Venture Partners,
II, L.P.
21.1/(5)/ Subsidiaries of Radio One, Inc.
23.1 Consent of Arthur Andersen, L.L.P.
27.1/(5)/ Financial Data Schedule
</TABLE>
___________________
(1) Incorporated by reference to Radio One's Annual Report on Form 10-K for the
period ended December 31, 1997 (File No. 333-30795; Film No. 98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K filed
July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K filed
January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q for
the period ended June 30, 1998 (File No. 333-30795; Film No. 98688998).
(5) Incorporated by reference to Radio One's Registration Statement on Form S-1
(File No. 333-74351).
55
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on March 31, 1999.
RADIO ONE, INC.
/s/ Scott R. Royster
By:________________________________________
Name: Scott R. Royster
Title: Executive Vice President, Chief
Financial Officer and Principal
Accounting Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant in the
capacities indicated on March 31, 1999.
/s/ Catherine L. Hughes
___________________________________________
Name: Catherine L. Hughes
Title: Chairperson, Director and Secretary
/s/ Alfred C. Liggins, III
___________________________________________
Name: Alfred C. Liggins, III
Title: Chief Executive Officer, President
and Director
/s/ Terry L. Jones
___________________________________________
Name: Terry L. Jones
Title: Director
/s/ Brian W. McNeill
___________________________________________
Name: Brian W. McNeill
Title: Director
56
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... S-2
Schedule II - Valuation and Qualifying Account............................. S-3
</TABLE>
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Radio One, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated balance sheets and statements of operations, changes in
stockholders' deficit and cash flows of Radio One, Inc. and subsidiaries (the
Company) included by reference in this Form 10-K and have issued our report
thereon dated March 11, 1999. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
in the accompanying index is the responsibility of the Company's management and
is presented for purposes of complying with the Securities Exchange Commission's
rules and is not part of the basic financial statements. This schedule has 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.
/s/ ARTHUR ANDERSEN, LLP
Baltimore, Maryland,
March 11, 1999
S-2
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, and 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Additions Acquired Balance
Beginning Charged to from at End
Description of Year Expense Acquisitions Deductions of Year
----------- ------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
1996................................. $ 669 $ 628 $ -- $ 532 $ 765
1997................................. 765 894 -- 755 904
1998................................. 904 1,942 258 1,861 1,243
TAX VALUATION RESERVE:
1996................................. 1,067 -- -- 1,067 --
1997................................. -- 2,058 -- -- 2,058
1998................................. 2,058 -- -- 2,058 --
</TABLE>
S-3
<PAGE>
________________________________________________________________________________
STOCK PURCHASE AGREEMENT
________________________________________________________________________________
by and among
THE SHAREHOLDER OF ALLUR-DETROIT, INC.
and
RADIO ONE, INC.
for the sale and purchase of
STATION WWBR(FM)
Dated as of October 26, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. RULES OF CONSTRUCTION...................................................................... 1
---------------------
1.1. DEFINED TERMS.................................................................. 1
-------------
1.2. OTHER DEFINITIONS.............................................................. 6
-----------------
1.3. NUMBER AND GENDER.............................................................. 6
-----------------
1.4. HEADINGS AND CROSS-REFERENCES.................................................. 7
-----------------------------
1.5. COMPUTATION OF TIME............................................................ 7
-------------------
2. FCC APPLICATION AND CLOSING................................................................ 7
---------------------------
2.1. FCC APPLICATION................................................................ 7
---------------
2.2. FINAL CLOSING DATE............................................................. 8
3. INITIAL ESCROW DEPOSIT..................................................................... 8
----------------------
4. PURCHASE PRICE AND METHOD OF PAYMENT....................................................... 8
------------------------------------
4.1. CONSIDERATION.................................................................. 8
-------------
4.2. PAYMENT AT CLOSING............................................................. 8
------------------
4.3. POST CLOSING ESCROW FUND....................................................... 10
------------------------
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SHAREHOLDER REGARDING THE COMPANY............. 11
------------------------------------------------------------------------------
5.1. EXISTENCE, POWER AND IDENTITY.................................................. 11
-----------------------------
5.2. BINDING EFFECT................................................................. 11
--------------
5.3. NO VIOLATION................................................................... 12
------------
5.4. GOVERNMENTAL AUTHORIZATIONS.................................................... 12
---------------------------
5.5. CONTRACTS...................................................................... 13
---------
5.6. INSURANCE...................................................................... 13
---------
5.7. FINANCIAL STATEMENTS........................................................... 13
--------------------
5.8. EMPLOYEES...................................................................... 14
---------
5.9. EMPLOYEE BENEFIT PLANS......................................................... 15
----------------------
5.10. REAL PROPERTY.................................................................. 18
-------------
5.11. ENVIRONMENTAL PROTECTION....................................................... 18
------------------------
5.12. COMPLIANCE WITH LAW............................................................ 19
-------------------
5.13. LITIGATION..................................................................... 20
----------
5.14. INSOLVENCY PROCEEDINGS......................................................... 21
----------------------
5.15. SALES AGREEMENTS............................................................... 21
----------------
5.16. LIABILITIES.................................................................... 21
-----------
5.17. SUFFICIENCY OF ASSETS.......................................................... 21
---------------------
5.18. CERTAIN INTERESTS AND RELATED PARTIES.......................................... 21
-------------------------------------
5.19. TAXES.......................................................................... 22
-----
5.20. BROKER......................................................................... 22
------
5.21. SUBSIDIARIES................................................................... 22
------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5.22. STOCK.......................................................................... 22
-----
5.23. PROPERTY....................................................................... 23
--------
5.24. CORPORATE RECORDS.............................................................. 23
-----------------
5.25. DIVIDENDS AND OTHER DISTRIBUTIONS.............................................. 23
---------------------------------
5.26. PROMOTIONAL RIGHTS............................................................. 23
------------------
5.27. INDEBTEDNESS................................................................... 24
------------
5.28. NO MISLEADING STATEMENTS....................................................... 24
------------------------
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SHAREHOLDER REGARDING THE SHARES.............. 24
-----------------------------------------------------------------------------
6.1. BINDING EFFECT................................................................. 24
---------------
6.2. NO VIOLATION................................................................... 25
------------
6.3. OWNERSHIP OF STOCK............................................................. 25
------------------
6.4. COOPERATION.................................................................... 25
-----------
7. BUYER'S REPRESENTATIONS, WARRANTIES AND COVENANTS.......................................... 25
-------------------------------------------------
7.1. EXISTENCE AND POWER............................................................ 26
-------------------
7.2. BINDING EFFECT................................................................. 26
--------------
7.3. NO VIOLATION................................................................... 26
------------
7.4. LITIGATION..................................................................... 26
----------
7.5. LICENSEE QUALIFICATIONS........................................................ 26
-----------------------
7.6. BROKER......................................................................... 27
------
8. COVENANTS WITH RESPECT TO CONDUCT OF THE COMPANY AND SHAREHOLDER........................... 27
----------------------------------------------------------------
8.1. ACCESS......................................................................... 27
------
8.2. MATERIAL ADVERSE CHANGES; FINANCIAL STATEMENTS................................. 27
----------------------------------------------
8.3. CONDUCT OF BUSINESS............................................................ 27
-------------------
8.4. DAMAGE......................................................................... 30
------
(A) RISK OF LOSS.................................................. 30
------------
(B) FAILURE OF BROADCAST TRANSMISSIONS............................ 31
----------------------------------
(C) RESOLUTION OF DISAGREEMENTS................................... 31
---------------------------
8.5. ADMINISTRATIVE VIOLATIONS...................................................... 31
------------------------
8.6. CONTROL OF STATION. ........................................................... 32
------------------
8.7. COOPERATION WITH RESPECT TO FINANCIAL AND TAX
---------------------------------------------
MATTERS........................................................................ 32
-------
8.8. CLOSING OBLIGATIONS............................................................ 32
-------------------
8.9. ENVIRONMENTAL ASSESSMENT....................................................... 32
------------------------
9. CONDITIONS PRECEDENT....................................................................... 33
--------------------
9.1. MUTUAL CONDITIONS.............................................................. 33
-----------------
(A) APPROVAL OF TRANSFER OF CONTROL
-------------------------------
APPLICATION................................................... 33
-----------
(B) ABSENCE OF LITIGATION......................................... 33
---------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
9.2. ADDITIONAL CONDITIONS TO BUYER'S OBLIGATION.................................. 33
-------------------------------------------
(A) REPRESENTATIONS AND WARRANTIES.................................. 33
------------------------------
(B) COMPLIANCE WITH CONDITIONS...................................... 34
--------------------------
(C) DISCHARGE OF LIENS.............................................. 34
------------------
(D) THIRD-PARTY CONSENTS............................................ 34
--------------------
(E) ESTOPPEL CERTIFICATES........................................... 34
---------------------
(F) NO MATERIAL ADVERSE CHANGE...................................... 34
--------------------------
(G) FINANCIAL STATEMENTS............................................ 35
--------------------
(H) CASH AND ACCOUNTS RECEIVABLE
----------------------------
CALCULATION..................................................... 35
-----------
(I) SALES AND CUSTOMER INFORMATION.................................. 35
------------------------------
(J) OPINION OF COMPANY'S COUNSEL.................................... 35
----------------------------
(K) PREFERRED STOCK................................................. 37
---------------
(L) CLOSING DOCUMENTS. ............................................. 37
-----------------
(M) RESIGNATION OF DIRECTORS AND OFFICERS........................... 37
-------------------------------------
(N) STOCK CERTIFICATES.............................................. 38
------------------
(O) CORPORATE RECORDS............................................... 38
-----------------
(P) BANK ACCOUNTS/INSURANCE POLICIES................................ 38
--------------------------------
(Q) WARRANT......................................................... 38
-------
(R) LEASE........................................................... 38
-----
(S) ACCOUNTS PAYABLE................................................ 38
----------------
(T) TRADE BALANCE................................................... 38
-------------
(U) LICENSES........................................................ 38
--------
(V) RADIOFREQUENCY RADIATION........................................ 38
------------------------
(W) TAXES........................................................... 39
-----
(X) COMPENSATION.................................................... 39
------------
(Y) CONFIDENTIAL INFORMATION........................................ 39
------------------------
(Z) RELEASES........................................................ 39
--------
(AA) FAIRNESS OPINION................................................ 39
----------------
9.3. ADDITIONAL CONDITIONS TO COMPANY'S AND
-------------------------------------
SHAREHOLDER'S OBLIGATION..................................................... 39
------------------------
(A) REPRESENTATIONS AND WARRANTIES.................................. 39
------------------------------
(B) COMPLIANCE WITH CONDITIONS...................................... 40
--------------------------
(C) PAYMENT......................................................... 39
-------
(D) CLOSING DOCUMENTS............................................... 39
----------------
10. INDEMNIFICATION/POST-CLOSING OBLIGATIONS................................................... 40
----------------------------------------
10.1. OBLIGATIONS OF SHAREHOLDER.............................................. 40
--------------------------
10.2. OBLIGATIONS OF BUYER.................................................... 41
--------------------
10.3. PROCEDURE FOR INDEMNIFICATION........................................... 41
-----------------------------
10.4. REMEDIES CUMULATIVE..................................................... 43
-------------------
10.5. NOTICE.................................................................. 43
------
10.6. THRESHOLD CONCERNING SECTIONS 10.1 AND 10.2............................. 43
-------------------------------------------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
10.7. SURVIVAL OF REPRESENTATIONS.................................................. 43
---------------------------
10.8. TAX RETURNS.................................................................. 43
-----------
(A) PREPARATION AND FILING OF RETURNS FOR
-------------------------------------
PRE-CLOSING PERIODS.................................................. 43
-------------------
(B) PREPARATION AND FILING OF RETURNS FOR
-------------------------------------
POST-CLOSING PERIODS................................................. 44
--------------------
10.9. ALLOCATION OF TAX LIABILITY.................................................. 44
---------------------------
10.10. COOPERATION WITH RESPECT TO FINANCIAL AND TAX
---------------------------------------------
MATTERS...................................................................... 44
-------
10.11. NONDISCLOSURE AND CONFIDENTIALITY............................................ 45
---------------------------------
11. DEFAULT AND REMEDIES....................................................................... 45
--------------------
11.1. OPPORTUNITY TO CURE.......................................................... 45
-------------------
11.2. SHAREHOLDER'S REMEDIES. ..................................................... 46
----------------------
11.3. BUYER'S REMEDIES. ........................................................... 46
----------------
12. TERMINATION OF AGREEMENT................................................................... 47
------------------------
12.1. TERMINATION OF AGREEMENT..................................................... 47
------------------------
(A) MUTUAL CONSENT.......................................................... 47
--------------
(B) CONDITIONS TO BUYER'S PERFORMANCE NOT
-------------------------------------
MET..................................................................... 47
---
(C) CONDITIONS TO SELLER'S PERFORMANCE NOT
--------------------------------------
MET..................................................................... 47
---
(D) MATERIAL BREACH......................................................... 47
---------------
(E) BANKRUPTCY; RECEIVERSHIP................................................ 47
-----------------------
(F) FCC APPROVAL............................................................ 48
------------
13. GENERAL PROVISIONS......................................................................... 48
------------------
13.1. FEES......................................................................... 48
----
13.2. NOTICES. .................................................................... 48
-------
13.3. ASSIGNMENT. ................................................................. 49
----------
13.4. EXCLUSIVE DEALINGS. ......................................................... 49
------------------
13.5. THIRD PARTIES. .............................................................. 50
-------------
13.6. INDULGENCES. ................................................................ 50
-----------
13.7. PRIOR NEGOTIATIONS. ......................................................... 50
------------------
13.8. EXHIBITS AND SCHEDULES....................................................... 50
----------------------
13.9. ENTIRE AGREEMENT; AMENDMENT. ............................................... 50
---------------------------
13.10. COUNSEL/INTERPRETATION. .................................................... 50
----------------------
13.11. GOVERNING LAW, JURISDICTION.................................................. 50
---------------------------
13.12. SEVERABILITY................................................................. 51
------------
13.13. COUNTERPARTS................................................................. 51
------------
13.14. FURTHER ASSURANCES........................................................... 51
------------------
</TABLE>
iv
<PAGE>
TABLE OF EXHIBITS
EXHIBIT 1 INITIAL ESCROW AGREEMENT
EXHIBIT 2 POST CLOSING ESCROW AGREEMENT
v
<PAGE>
TABLE OF SCHEDULES
SCHEDULE 5.1 COMPANY DOCUMENTS
SCHEDULE 5.3 VIOLATIONS
SCHEDULE 5.4 GOVERNMENTAL AUTHORIZATIONS
SCHEDULE 5.5 CONTRACTS (MATERIAL CONTRACTS DESIGNATED WITH
AN ASTERISK)
SCHEDULE 5.6 INSURANCE POLICIES
SCHEDULE 5.7(b) OBLIGATIONS AND LIABILITIES SINCE 6/30/98
SCHEDULE 5.7(c) BANK ACCOUNTS
SCHEDULE 5.8 EMPLOYEES
SCHEDULE 5.9 EMPLOYEE BENEFIT PLANS
SCHEDULE 5.10 DESCRIPTION OF REAL PROPERTY
SCHEDULE 5.13 LITIGATION
SCHEDULE 5.15 SALES AGREEMENTS
SCHEDULE 5.18 INTERESTS OF RELATED PARTIES
SCHEDULE 5.22 RIGHTS TO STOCK
SCHEDULE 5.23 TANGIBLE PERSONAL PROPERTY
SCHEDULE 5.26 INTELLECTUAL PROPERTY
SCHEDULE 6.3 RIGHTS TO STOCK
vi
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement")is entered into as of this
26th day of October, 1998, by and among Syndicated Communications Venture
Partners II, L.P., a Delaware limited partnership(hereinafter referred to as
"Seller" or "Shareholder") and Radio One, Inc., a Delaware corporation
("Buyer").
RECITALS
WHEREAS, Seller will be the sole shareholder of Allur-Detroit, Inc., a
Delaware Corporation ("Company") at the time of Closing.
WHEREAS, Company currently has 1,050 shares of Preferred Stock issued and
outstanding which shall be redeemed by Company simultaneously at the Closing and
therefore shall be considered Company treasury stock for purposes of this
Agreement.
WHEREAS, Company is the licensee of Station WWBR(FM), Mt. Clemens, Michigan
operating on a frequency of 102.7 MHz (the "Station").
WHEREAS, Buyer desires to obtain, and Seller desires to sell to Buyer all
of the issued and outstanding shares of the capital stock of the Company.
NOW, THEREFORE, in consideration of the foregoing and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and, intending to be legally bound hereby, the parties agree as
follows:
1. RULES OF CONSTRUCTION.
---------------------
1.1. DEFINED TERMS. As used in this Agreement, the following terms shall
-------------
have the following meanings:
"ACCOUNTS RECEIVABLE" means the cash accounts receivable of Company arising
from Company's operation of the Station prior to Closing.
"ACCOUNTS PAYABLE" means the liabilities of Company for services received
or goods acquired arising from Company's operation of the Station in the normal
course of business prior to Closing for which Company has received a bill, but
for which payment is not past due.
1
<PAGE>
"ADMINISTRATIVE VIOLATION" means those violations described in Section 8.5
hereof.
"BUSINESS" means the business of Company consisting primarily of the
operation of the Station.
"BUYER" means Radio One, Inc., a Delaware corporation.
"BUYER DOCUMENTS" means those documents, agreements and instruments to be
executed and delivered by Buyer in connection with this Agreement as described
in Section 7.2.
"CLOSING" means the consummation of the Transaction (as hereinafter
defined).
"CLOSING DATE" means the date on which the Closing takes place, as
determined pursuant to Section 2.2.
"CODE" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"COMMISSION" means the Federal Communications Commission.
"COMMUNICATIONS ACT" shall mean the Communications Act of 1934, as amended.
"COMPANY" means Allur-Detroit, Inc., a Delaware corporation.
"COMPANY DOCUMENTS" means those documents, agreements and instruments to be
executed and delivered by Company in connection with this Agreement as described
in Section 5.1.
"CONTINGENT LIABILITY" means the amount of Five Hundred Thousand Dollars
($500,000) that Seller owes to Buyer upon a sale of the Shares held by Seller or
the assets of the Company.
"CONTRACTS" means those contracts, leases and other agreements listed or
described in Schedule 5.5 which are in effect on the date hereof and which Buyer
has agreed to assume.
"ENCUMBRANCE" means any claim, charge, easement, encumbrance, security
interest, lien, option or pledge imposed by agreement or law, except for any
restrictions on transfer generally arising under any applicable federal or state
securities law.
2
<PAGE>
"ENVIRONMENTAL LAW" means any law, rule, order, decree or regulation of any
Governmental Authority relating to pollution or protection of human health and
the environment, including any law or regulation relating to emissions,
discharges, releases or threatened releases of Hazardous Substances (as
hereinafter defined) into ambient air, surface water, groundwater, land or other
environmental media, and including without limitation all laws, regulations,
orders, and rules pertaining to occupational health and safety.
"FCC LICENSES" means all licenses, pending applications, permits and other
authorizations issued by the Commission for the operation of the Station listed
on Schedule 5.4.
"FINAL ORDER" means any action that shall have been taken by the Commission
(including action duly taken by the Commission's staff, pursuant to delegated
authority) which shall not have been reversed, stayed, enjoined, set aside,
annulled or suspended; with respect to which no timely request for stay,
petition for rehearing, appeal or certiorari or sua sponte action of the
--- ------
Commission with comparable effect shall be pending; and as to which the time for
filing any such request, petition, appeal, certiorari or for the taking of any
such sua sponte action by the Commission shall have expired or otherwise
--- ------
terminated.
"FINANCIAL STATEMENTS" means Company's audited and unaudited financial
statements, income statements, and balance sheets as described in Section 5.7.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or other
political subdivision thereof, and any agency, court or other entity that
exercises executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"HAZARDOUS SUBSTANCES" means any hazardous, dangerous or toxic waste,
substance or material, as those or similar terms are defined in or for purposes
of any applicable federal, state or local Environmental Law, and including
without limitation any asbestos or asbestos-related products, petroleum, oils or
petroleum-derived compounds, CFCS, or PCBs.
"IMPROVEMENTS" means all buildings, structures, fixtures, and other
improvements now or hereafter actually or constructively attached to the Real
Property, and all modifications, additions, restorations, or replacements of the
whole or any part thereof.
3
<PAGE>
"INDEBTEDNESS" means any debt or indebtedness, whether evidenced by a note
or otherwise, whether secured or unsecured, in each case for borrowed money.
"INDEMNIFICATION BASKET" means the amount described in Section 10.6.
"INITIAL ESCROW AGENT" means Wilmington Trust Company.
"INITIAL ESCROW AGREEMENT" means the escrow agreement described in Section
3, the form of which is attached as Exhibit 1.
"INITIAL CASH ESCROW DEPOSIT" means Five Hundred Thousand Dollars
($500,000).
"INITIAL ESCROW DEPOSIT" means the monies deposited with the Initial Escrow
Agent as described in Section 3.
"KNOWLEDGE OF BUYER" means the actual knowledge, after reasonable inquiry
of Buyer's senior management, and the books and records of Buyer.
"KNOWLEDGE OF COMPANY" means, the actual knowledge, after reasonable
inquiry of Company's senior management, and the books and records of the
Station, and the actual knowledge of Shareholder of Company.
"LAW" means any constitutional provision, statute or other law, rule,
regulation, or interpretation of any Governmental Authority and any order,
including any order of any Governmental Authority.
"LOSS" means any action, cost, damage, disbursement, expense, liability,
loss, deficiency, diminution in value, obligation, penalty or settlement of any
kind or nature, whether foreseeable or unforeseeable, including but not limited
to, interest or other carrying costs, penalties, reasonable legal, accounting
and other professional fees and expenses incurred in the investigation,
collection, prosecution and defense of claims and amounts paid in settlement,
that may be imposed on or otherwise incurred or suffered by the specified
person.
"MATERIAL CONTRACTS" means those leases, contracts and agreements
specifically designated in Schedule 5.5 as being "Material Contracts."
4
<PAGE>
"POST CLOSING ESCROW ACCOUNT" shall mean the account specified in Section
4.3 created pursuant to the Post Closing Escrow Agreement.
"POST CLOSING ESCROW AGENT" means Wilmington Trust Company.
"POST CLOSING ESCROW AGREEMENT" shall mean the agreement specified in
Section 4.3 by and among Shareholder, Buyer and the Post Closing Escrow Agent,
dated as of the Closing Date, substantially in the form of Exhibit 2 hereto.
"POST CLOSING ESCROW FUND" shall mean the sum of One Million Dollars
($1,000,000), which will be deposited in the Post Closing Escrow Account by
Buyer from the Purchase Price in accordance with the Post Closing Escrow
Agreement and the terms hereof.
"POST CLOSING ESCROW TERMINATION DATE" shall have the meaning specified in
Section 4.3.
"PREFERRED STOCK" means the 1,050 shares of stock which will be redeemed
prior to Closing and become treasury stock.
"PURCHASE PRICE" shall mean the total consideration for the Shares, as
described in Section 4.1.
"REAL PROPERTY" means that certain real property owned, leased or under
contract by the Company and used in the operation of the Station as described in
Section 5.10.
"SALES AGREEMENTS" means agreements entered into by Company for the sale of
time on the Station for cash, as described in Section 5.15.
"SHAREHOLDER" means that entity named in the preamble to this Agreement and
also referred to herein as Seller.
"SHARES" means all the issued and outstanding capital stock of the Company
to be acquired at Closing consisting of 400 shares of Common Stock of the
Company.
"SPECIFIED EVENT" means those broadcast transmission failures described in
Section 8.4(b).
"STUDIO SITE" means the real estate located at 850 Stephenson Highway,
Troy, Michigan, that is currently used as the Station's studio and office
facilities.
5
<PAGE>
"TANGIBLE PERSONAL PROPERTY" means all tangible personal property and
fixtures used or useful in the operation of the Business, including the property
and assets listed or described in Schedule 5.23, together with supplies,
inventory, spare parts and replacements thereof and improvements and additions
thereto made between the date hereof and the Closing Date.
"TRADE AGREEMENTS" means agreements entered into by Company for the sale of
time on the Station in exchange for merchandise or services.
"TRADE BALANCE" means the difference between the aggregate value of time
owed pursuant to the Trade Agreements and the aggregate value of goods and
services to which the Station is entitled prior to Closing pursuant to the Trade
Agreements, as computed in accordance with the Station's customary bookkeeping
practices. The Trade Balance is "negative" if the value of time owed exceeds
the value of goods and services to which the Station is entitled. The Trade
Balance is "positive" if the value of time owed is less than the value of goods
and services to which the Station is entitled.
"TRANSACTION" means the sale and purchase and assignments and assumptions
contemplated by this Agreement and the respective obligations of Company,
Shareholder and Buyer set forth herein.
"TRANSFER OF CONTROL APPLICATION" means the application on FCC Form 315
that Shareholder, Company and Buyer shall join in and file with the Commission
requesting its consent to the transfer of control of Company to Buyer.
"WWBR(FM) TRANSMITTER SITE" means the real estate located at Clinton,
Michigan that is currently used as the Station's transmitter site.
1.2. OTHER DEFINITIONS. Other capitalized terms used in this Agreement
-----------------
shall have the meanings ascribed to them herein.
1.3. NUMBER AND GENDER. Whenever the context so requires, words used in
-----------------
the singular shall be construed to mean or include the plural and vice versa,
----------
and pronouns of any gender shall be construed to mean or include any other
gender or genders.
1.4. HEADINGS AND CROSS-REFERENCES. The headings of the Sections and
-----------------------------
Paragraphs hereof, the Table of Contents, the Table of Exhibits, and the Table
of Schedules have been included for
6
<PAGE>
convenience of reference only, and shall in no way limit or affect the meaning
or interpretation of the specific provisions of this Agreement. All cross-
references to Sections or Paragraphs herein shall mean the Sections or
Paragraphs of this Agreement unless otherwise stated or clearly required by the
context. All references to Schedules herein shall mean the Schedules to this
Agreement. Words such as "herein" and "hereof" shall be deemed to refer to this
Agreement as a whole and not to any particular provision of this Agreement
unless otherwise stated or clearly required by the context. The term "including"
means "including without limitation."
1.5. COMPUTATION OF TIME. Whenever any time period provided for in this
-------------------
Agreement is measured in "business days" there shall be excluded from such time
period each day that is a Saturday, Sunday, recognized federal legal holiday, or
other day on which the Commission's offices are closed and are not reopened
prior to 5:30 p.m. Washington, D.C. time. In all other cases all days shall be
counted.
2.0 FCC APPLICATION AND CLOSING.
---------------------------
2.1. FCC APPLICATION. Within ten (10) business days after execution of
---------------
this Agreement, Company, Shareholder and Buyer will join in filing the Transfer
of Control Application. Each of the parties diligently shall take or cooperate
in the taking of all steps which are reasonably necessary or appropriate to
expedite the prosecution and grant of the Application. No party by commission
or omission shall put in jeopardy its qualifications as a Commission licensee,
or impair the routine processing of the Transfer of Control Application.
Shareholder will use its best efforts and otherwise cooperate with Buyer in
responding to any information requested by the FCC related to the Transfer of
Control Application and in defending against any petition, complaint or
objection which may be filed against the Transfer of Control Application. In
the event the Transfer of Control Application as tendered is rejected for any
reason, the party liable for the rejection shall take all reasonable steps to
cure the basis for rejection and Company, Shareholder and Buyer shall jointly
resubmit the Transfer of Control Application. Company and Buyer shall share
equally in the amount of any Commission filing fees.
2.2. FINAL CLOSING DATE. Closing of the Transaction shall take place at
------------------
the offices of Kirkland & Ellis, Washington, D.C. on a mutually agreeable date
and time which is no more than ten (10) business days after public notice of the
FCC's approval of the Transfer of Control Application. Buyer, at its sole
option, may
7
<PAGE>
purchase up to four (4) additional thirty (30) day extensions of time in which
to close the Transaction by paying the sum of One Hundred Fifty Thousand Dollars
($150,000) payable by certified check or cash in advance for each such extension
or no such extension shall be granted.
3.0 INITIAL ESCROW DEPOSIT. Simultaneous with the execution of this Agreement,
----------------------
Buyer shall deposit with Wilmington Trust Company ("Initial Escrow Agent"), a
cash deposit of Five Hundred Thousand Dollars ($500,000) (the "Initial Cash
Escrow Deposit"). The Initial Cash Escrow Deposit shall be held in an interest-
bearing account with a federally insured financial institution and the Initial
Cash Escrow Deposit shall be disbursed by Initial Escrow Agent pursuant to the
terms of an escrow agreement in the form attached hereto as Exhibit 1 (the
"Initial Escrow Agreement"), which Initial Escrow Agreement has been entered
into by Company, Shareholder, Buyer and Initial Escrow Agent simultaneously
herewith. The fees, if any, of the Initial Escrow Agent shall be borne equally
between Company on the one hand, and Buyer on the other hand.
4.0 PURCHASE PRICE AND METHOD OF PAYMENT.
------------------------------------
4.1. CONSIDERATION. The total consideration for the Shares shall be
-------------
Twenty-Seven Million Dollars ($27,000,000) (the "Purchase Price"), payable as
set forth in this Section 4.
4.2. PAYMENT AT CLOSING. At Closing, in consideration for acquisition of
------------------
the Shares held by Shareholder which are fully paid for and nonassessable and
will be duly endorsed to Buyer, Buyer shall pay:
(a) Twenty Six Million Dollars ($26,000,000) to Shareholder by
certified check or wire transfer of same day funds pursuant to wire transfer
instructions which shall be delivered by Shareholder to Buyer at least five (5)
business days prior to Closing. Of that $26,000,000, Five Hundred Thousand
Dollars ($500,000) shall come from the Initial Cash Escrow Deposit and Five
Hundred Thousand Dollars ($500,000) shall come from cancellation of the
Contingent Liability and such contingency shall be satisfied upon a sale of the
Shares to Buyer.
(b) One Million Dollars ($1,000,000) to the Post Closing Escrow Fund
described in Section 4.3.
(c) The parties acknowledge that in addition to acquiring the
Shares, Buyer will acquire all cash, cash equivalents
8
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or similar types of investments and all Accounts Receivable that exist as of the
Closing Date up to the aggregate amount of One Million Dollars
($1,000,000)("Cash/Receivable Maximum") and any insurance proceeds from
settlement and insurance claims made by Company, provided however, up until the
-------- -------
day preceding the Closing Date Seller shall have
the right to use all revenues of Company to reduce any outstanding liabilities,
obligations, claims, costs or expenses arising from the operation of the Station
prior to Closing. Shareholder will be entitled to receive all cash, cash
equivalents or similar types of investments and all Accounts Receivable that
exist as of the Closing Date and that are in excess of the Cash/Receivable
Maximum, if collected by Buyer within six (6) months of Closing. Buyer agrees to
use commercially reasonable efforts to collect all outstanding Accounts
Receivable of Company within said six (6) months. The parties agree to proceed
to Closing based on an estimate of the Cash/Receivable Maximum contained in the
pre-closing balance sheet prepared by Company and delivered to Buyer pursuant to
Section 9.2(h); provided, however, that the parties recognize that no such
-------- -------
determination shall constitute a waiver of any rights of Buyer under this
Agreement, including without limitation, the representations and warranties set
forth in Section 5.7. Within thirty (30) days of Closing, Buyer will deliver a
post-closing balance sheet as of the Closing Date. If Shareholder does not
contest the calculations contained in the post-closing balance sheet, then the
post-closing balance sheet shall be considered final. Shareholder shall notify
Buyer in writing within ten (10) days of receiving the post-closing balance
sheet if it contests the calculations contained in the post-closing balance
sheet. If Shareholder and Buyer cannot reach an agreement within twenty (20)
days of receiving Shareholder's notice, the parties agree to retain the
independent accounting firm of Price Waterhouse within twenty (20) days
thereafter or in the event that Price Waterhouse is unavailable to serve as such
then to retain the accounting firm of Ernst & Young LLP (whichever of such
accounting firms is applicable, the "Accountants"). Buyer and Shareholder shall
each assist and cooperate fully in the prompt determination of the correct
values and Shareholder shall promptly provide the Accountants and Buyer with
full access to such books and records as Buyer or the Accountants may request to
make such determination. All fees of the Accountants under this Agreement shall
be paid equally by Buyer and Shareholder and any determination of the
Accountants provided by this Agreement shall be binding and conclusive on the
parties. The Accountants shall make all determinations under this Agreement as
promptly as practicable and in any event within 20 days following receipt by the
Accountants of all relevant work papers. If the post-closing balance sheet as
agreed to by the parties or prepared by the Accountants shows an
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<PAGE>
amount below the Cash/Receivable Maximum, then Buyer shall have no further
obligation to Shareholder. If the post-closing balance sheet shows an amount
above the Cash/Receivable Maximum, then Buyer shall institute a procedure, such
procedure to be disclosed to Shareholder, to ensure that once Buyer has actually
received funds equal to the Cash/Receivable Maximum, that any funds in excess of
the Cash/Receivable Maximum be paid to Shareholder.
4.3. POST CLOSING ESCROW FUND.
------------------------
(a) At the Closing, Buyer, Shareholder and Post Closing Escrow Agent
shall enter into the Post Closing Escrow Agreement in substantially the form of
Exhibit 2 into which Buyer shall deposit One Million Dollars ($1,000,000) (the
"Post Closing Escrow Fund") in an account (the "Post Closing Escrow Account")
constituting a portion of the Purchase Price being reserved to meet certain
obligations of Shareholder. The Post Closing Escrow Fund shall be held and
invested in accordance with the terms of the Post Closing Escrow Agreement which
shall provide that Six Hundred Fifty Thousand Dollars ($650,000), less any
claims which have been paid or are still in dispute, be released twelve (12)
months after Closing and Three Hundred Fifty Thousand Dollars ($350,000), less
any claims which have been paid or are still in dispute, be released eighteen
(18) months after Closing (the "Post Closing Escrow Termination Date").
(b) Disbursements from the Post Closing Escrow Account may be made
from time to time pursuant to the terms of the Post Closing Escrow Agreement
with respect to indemnification obligations pursuant to Section 10.1 hereof
after submission to the Post Closing Escrow Agent of a payment notice (the
"Payment Notice") substantially in the form attached to the Post Closing Escrow
Agreement.
(c) All interest earned on the Post Closing Escrow Fund shall be
paid to Shareholder.
(d) The fees, if any, of the Post-Closing Escrow Agent shall be
borne equally between Shareholder on the one hand, and Buyer on the other hand.
5.0 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SHAREHOLDER REGARDING COMPANY.
--------------------------------------------------------------------------
Shareholder hereby makes to and for the benefit of Buyer, the following
representations, warranties and covenants:
10
<PAGE>
5.1. EXISTENCE, POWER AND IDENTITY. The Company is a corporation duly
-----------------------------
organized and validly existing under the laws of the State of Delaware and
licensed to do business in the State of Michigan with full corporate power and
authority (a) to own, lease and use its properties and assets, (b) to conduct
the business and operation of the Station as currently conducted and (c) to
execute and deliver this Agreement and each other document, agreement and
instrument to be executed and delivered by Company in connection with this
Agreement (collectively, the "Company Documents"), and to perform and comply
with all of the terms, obligations and covenants to be performed and complied
with by Company hereunder and thereunder and (d) true and correct copies of the
Company's Certificate of Incorporation and Bylaws are attached to Schedule 5.1.
The addresses of Company's operating locations and all of Company's additional
places of business, and of all places where any of the tangible personal
property of Company is now located, or has been located during the past 180
days, are correctly listed in Schedule 5.1. Except as set forth in Schedule
5.1, during the past five years, Company has not been known by or used, nor, to
the best of Company's knowledge, has any prior owner of the Station been known
by or used, any corporate, partnership, fictitious or other name in the conduct
of the Station's business or in connection with the ownership, use or operation
of the Station.
5.2. BINDING EFFECT. The execution, delivery and performance by Company
--------------
of this Agreement has been and Company Documents will be duly authorized by all
necessary corporate action, and copies of those authorizing resolutions,
certified by Company's Secretary shall be delivered to Buyer at Closing. No
other corporate action by Company is required for Company's execution, delivery
and performance of this Agreement or any of Company Documents. This Agreement
has been duly and validly executed and delivered by Company to Buyer and
constitutes a legal, valid and binding obligation of Company, enforceable
against Company in accordance with its terms, subject to bankruptcy,
reorganization, fraudulent conveyance, insolvency, moratorium and similar laws
relating to or affecting creditors, and other obligees' rights generally and the
exercise of judicial discretion in accordance with general equitable principles.
5.3. NO VIOLATION. Except as set forth on Schedule 5.3, none of (i) the
------------
execution, delivery and performance by Company of this Agreement or any of
Company Documents, (ii) the consummation of the Transaction, or (iii) Company's
compliance with the terms or conditions hereof will, with or without the giving
of notice or the lapse of time or both, conflict with, breach the terms or
conditions of, constitute a default under, or violate (a) Company's
11
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articles of incorporation or bylaws, (b) any judgment, decree, order, consent,
agreement, lease or other instrument (including any Material Contract, Sales
Agreement or Trade Agreement) to which Company is a party or by which Company or
its Business may be legally bound or affected, or (c) any law, rule, regulation
or ordinance of any Governmental Authority applicable to Company or its Business
or the operation of the Station.
5.4. GOVERNMENTAL AUTHORIZATIONS. Except for the FCC Licenses listed on
---------------------------
Schedule 5.4, no licenses, permits, or authorizations from any Governmental
Authority are required to own, use or operate the Station or to conduct the
Business as currently operated and conducted by Company. The FCC Licenses are
all the Commission authorizations held by Company with respect to the Station,
and are all the Commission authorizations used in or necessary for the lawful
operation of the Station as currently operated by Company. The FCC Licenses are
in full force and effect, are subject to no conditions or restrictions other
than those which appear on their face and are unimpaired by any acts or
omissions of Company, Company's officers, employees or agents. Company has
delivered true and complete copies of all FCC Licenses to Buyer. There is not
pending or, to the Knowledge of Company, threatened, any action by or before the
Commission or any other Governmental Authority to revoke, cancel, rescind or
modify any of the FCC Licenses (other than proceedings to amend Commission rules
of general applicability or otherwise affecting the broadcast industry
generally), and there is not now issued, outstanding or pending or, to the
Knowledge of Company, threatened, by or before the Commission or any other
Governmental Authority, any order to show cause, notice of violation, notice of
apparent liability, or notice of forfeiture or complaint against Company or
otherwise with respect to the Station. The Station is operating in material
compliance with all FCC Licenses, the Communications Act and the current rules,
regulations, policies and practices of the Commission. The Commission's most
recent renewals of the FCC Licenses were not challenged by any petition to deny
or any competing application. Company has no knowledge of any material facts
relating to it that, under the Communications Act or the current rules,
regulations, policies and practices of the Commission may cause the Commission
to deny Commission renewal of the FCC Licenses or deny Commission consent to the
Transaction.
5.5. CONTRACTS. Schedule 5.5 lists all Contracts on behalf of Company.
---------
Shareholder has provided Buyer copies of all such Contracts. The Contracts so
furnished to Buyer have not been amended or terminated and are in full force and
effect. Except for
12
<PAGE>
the Contracts listed on Schedule 5.5, as of the date hereof, Company is not a
party to nor bound by any Material Contract.
5.6. INSURANCE. Schedule 5.6 lists all insurance policies held by Company
---------
with respect to the Business and operation of the Station. Such insurance
policies are in full force and effect, all premiums with respect thereto are
currently paid and Company is in compliance with the terms thereof. Company has
not received any notice from any issuer of any such policies of its intention to
cancel, terminate, or refuse to renew any policy issued by it. Company will
maintain the insurance policies listed on Schedule 5.6 in full force and effect
through the Closing Date.
5.7. FINANCIAL STATEMENTS.
--------------------
(a) Shareholder has furnished Buyer with the audited Financial
Statements for the fiscal year 1997 and the unaudited Financial Statements for
the years, 1995 and 1996 as well as unaudited Financial Statements for June 30,
1998. The Financial Statements: (i) have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved and as compared with prior periods; and (ii)
fairly present Company's financial position, income, expenses, assets,
liabilities, Shareholder's equity and the results of operations of the Station
as of the dates and for the periods indicated. Since December 31, 1997, there
has been no material adverse change in the business, assets, properties or
condition (financial or otherwise) of the Business since the preparation of the
most recent annual Financial Statement. No event has occurred and, Company has
no knowledge that prior to Closing, any event will have occurred that would make
such Financial Statements misleading in any respect.
(b) Except as reflected in the balance sheets as of June 30, 1998,
including the notes thereto or otherwise disclosed in this Agreement or the
Schedules hereto, and except for the current liabilities and obligations
incurred in the ordinary course of business of the Station (not including for
this purpose any tort-like liabilities or breach of contract) since June 30,
1998, there exist no liabilities or obligations of Company, contingent or
absolute, matured or unmatured, known or unknown. Except as set forth on
Schedule 5.7(b) since June 30, 1998, (i) Company has not made any contract,
agreement or commitment or incurred any obligation or liability (contingent or
otherwise), except in the ordinary course of business and consistent with past
business practices, (ii) there has not been any discharge or satisfaction of any
obligation or liability owed by Company, which is not in the
13
<PAGE>
ordinary course of business or which is inconsistent with past business
practices, (iii) there has not occurred any sale of or loss or material injury
to the Business, or any adverse material change in the Business or in the
condition (financial or otherwise) of the Station, (iv) Company has operated the
Business in the ordinary course and (v) Company has not increased the salaries
or any other compensation of any of its employees or agreed to the payment of
any bonuses. The monthly balance sheets (i) have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved and as compared with prior periods; and (ii)
fairly present Company's financial position, income, expenses, assets,
liabilities, Shareholder's equity and the results of operations of the Station
as of the dates and for the periods indicated, subject to year end adjustments
which do not materially affect the operations of Company.
(c) Company maintains only the bank accounts as shown in Schedule
5.7(c) and no other bank accounts of any kind. Buyer has been provided with
bank statements, dated as indicated on Schedule 5.7(c), related to such accounts
(the "Bank Statements"). Except as shown on such Bank Statements or on Schedule
5.7(c), and, with respect to items which have not cleared as of the last Bank
Statements, as shown on the Company's cash receipts and disbursements journal,
there have been no material receipts or disbursements, whether by cash or check,
by the Company of any kind. Since the date of the last of the Bank Statements
furnished to Buyer by the Company, no checks have been issued for any purpose
other than in the ordinary course of business.
5.8. EMPLOYEES. Except as otherwise listed in Schedule 5.8, (i) no
---------
employee of Company is represented by a union or other collective bargaining
unit, no application for recognition as a collective bargaining unit has been
filed with the National Labor Relations Board, and, to the Knowledge of Company,
there has been no concerted effort to unionize any of Company's employees and
(ii) Company has no other written or oral employment agreement or arrangement,
plan or policy with any Company employee, and no written or oral agreement
concerning bonus, sick pay, termination, hospitalization, vacation pay,
severance pay, or retiree medical coverage. As of this date there is not and at
the time of Closing there will not be any consideration of whatever nature due
and owing by Company or Shareholder to any employee or former employee of the
Company, except as otherwise listed in Schedule 5.8. Included in Schedule 5.8 is
a list of all persons currently employed at Company together with an accurate
description of the terms and conditions of their respective employment as of the
date
14
<PAGE>
of this Agreement. Company will promptly advise Buyer of any significant changes
that occur prior to Closing with respect to such information.
5.9. EMPLOYEE BENEFIT PLANS.
----------------------
(a) Except as described in Schedule 5.9, neither the Company nor any
Affiliates (as defined below) have at any time established, sponsored,
maintained, or made any contributions to, or been parties to any contract or
other arrangement or been subject to any statute or rule requiring them to
establish, maintain, sponsor, or make any contribution to, (i) any "employee
pension benefit plan" (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended, and regulations thereunder ("ERISA"))
("Pension Plan"); (ii) any "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA) ("Welfare Plan"); or (iii) any deferred compensation,
severance pay, fringe benefit, retiree medical, bonus, stock option, stock
purchase, or other "employee benefit plan" within the meaning of ERISA Section
3(3), agreement, commitment, policy or arrangement whether oral or written, and
whether provided through the purchase of insurance or otherwise ("Other Plan")
for the benefit of any present or former officers, employees, agents, directors,
or independent contractors of Company. Shareholder has delivered to Buyer true
and complete copies of (1) each Pension Plan, Welfare Plan, and Other Plan (or,
in the case of unwritten Other Plans, descriptions thereof), (2) the most recent
annual report on Form 5500 filed with the Internal Revenue Service with respect
to each Pension Plan, Welfare Plan, and Other Plan, including all schedules
thereto and financial statements with attached opinions of independent
accountants (if required by applicable law), (3) summary plan descriptions with
respect to such plans, (4) each trust agreement and insurance or annuity
contract relating to any Pension Plan, Welfare Plan, or Other Plan, (5) the most
recent determination letter applicable to any such plan (if applicable). Except
as set forth in Schedule 5.9, there are no negotiations, demands, or proposals
that are pending or have been made which concern matters now covered, or that
would be covered by plans, agreements, or agreements of the type discussed in
this Section. Company and the Affiliates have no obligations or liabilities
(whether accrued, absolute, contingent, or unliquidated, whether or not known,
and whether due or to become due) with respect to any Pension Plan, Welfare Plan
or Other Plan that is not listed in Schedule 5.9. There are no actions (other
than routine claims for benefits) pending or, to the best of the Knowledge of
the Company, threatened against such plans or their assets, or arising out of
such plans, agreements or arrangements, and to the best of the Knowledge of
Company, no facts exist which
15
<PAGE>
could give rise to any such actions. There are no investigations or audits by
any Governmental Authority (including, but not limited to, the Internal Revenue
Service or the Department of Labor) involving any Pension Plan, Benefit Plan, or
Other Plan. No employee, officer or director of Company shall be entitled to any
additional benefits (under a Pension Plan, Welfare Plan, or Other Plan) or any
acceleration of the time of the payment or vesting of any Pension Plan as a
result of the transactions contemplated by this Agreement. For purposes of this
Section 5.9, the term "Affiliate" shall include all persons under common control
with Company within the meaning of Sections 4001(a)(14) or (b)(1) of ERISA or
any regulations promulgated thereunder, or Sections 414(b), (c), (m) or (o) of
the Internal Revenue Code of 1986, as amended (the "Code").
(b) Each plan or arrangement listed in Schedule 5.9 (and any related
trust or insurance contract pursuant to which benefits under such plans or
arrangements are funded or paid) has been administered in all respects in
material compliance with its terms and in both form and operation is in
compliance with applicable provisions of ERISA, the Code, the Consolidated
Omnibus Budget Reconciliation Act of 1986 and regulations thereunder, and other
applicable law. Each Pension Plan listed in Schedule 5.9 intended to be a tax-
qualified plan has been determined by the Internal Revenue Service to be
qualified under Section 401(a) and Section 501(a) of the Code, and nothing has
occurred or been omitted since the date of the last such determination that
resulted or could result in the revocation of such determination, and nothing
has occurred that resulted or could result in such Pension Plan's being subject
to the tax under Section 511 of the Code. Company and the Affiliates have made
all required contributions or payments to or under each plan or arrangement
listed in Schedule 5.9 on a timely basis and have made adequate provision for
reserves to meet contributions and payments under such plans or arrangements
that have not been made because they are not yet due.
(c) The consummation of this Agreement (and the employment by Buyer
of former employees of Company or any employees of an Affiliate) will not result
in any carryover liability to Buyer for taxes, penalties, interest or any other
claims resulting from any employee benefit plan (as defined in Section 3(3) of
ERISA) or Other Plan. With respect to any Pension Plan, Welfare Plan, or Other
Plan that is a "plan" within the meaning of Section 4975(e)(1) of the Code or an
"employee benefit plan" within the meaning of Section 3(3) of ERISA, no
"prohibited transaction" (within the meaning of Section 4975(c)(1) of the Code
or Section 406 of ERISA) has occurred. In addition, Company and each
16
<PAGE>
Affiliate make the following representations as to all of their Pension Plans:
(A) neither Company nor any Affiliate has become liable to the PBGC under ERISA
under which a lien could attach to the assets of Company or an Affiliate; (B)
Company and each Affiliate has not ceased operations at a facility so as to
become subject to the provisions of Section 4062(e) of ERISA; (C) neither
Company nor any Affiliate has made or will make prior to Closing a complete or
partial withdrawal from a multiemployer plan (as defined in Section 3(37) of
ERISA) so as to incur withdrawal liability as defined in Section 4201, of ERISA,
and (D) no Pension Plan of Company constitutes a "multiemployer plan," as
defined in Section 3(37) of ERISA, and (E) no Pension Plan is subject to Title
IV of ERISA, Section 302 of the ERISA, or Section 412 of the Code. All group
health plans maintained by Company and each Affiliate have been operated in
compliance with Section 4980B(f) of the Code. As of the Closing, no employee or
qualified beneficiary of Company or Affiliate is receiving or is eligible to
receive COBRA group health plan coverage under Section 4980B of the Code. Except
to the extent required under Section 4980B of the Code and, pursuant to
collective bargaining agreements, with respect to employees subject thereto who
have retired, Company has no written health or welfare benefits (through the
purchase of insurance or otherwise) for any retired or former employees of
Company. Company has made no written agreements, covenants or commitments to
provide retiree medical benefits, other than pursuant to collective bargaining
agreement, that cannot be terminated at the discretion of the employer. To the
best of the Knowledge of Company, there has been no act or omission by Company
that has given rise to or may give rise to fines, penalties, taxes, or related
charges under Section 502(c),(I), or (1) or Section 4071 of ERISA or Chapter 43
of the Code.
5.10. REAL PROPERTY.
-------------
Company has a valid lease to the real property described in Schedule
5.10 (hereinafter "Real Property"). Except as listed on Schedule 5.10, all of
the Improvements, and all heating and air conditioning equipment, plumbing,
electrical and other mechanical facilities, and the roof, walls and other
structural components which are part of, or located in, such Improvements, are
in good operating condition and repair, comply in all material respects with
applicable zoning laws and the building, health, fire and environmental
protection codes of all applicable governmental jurisdictions, and do not
require any repairs other than normal
17
<PAGE>
routine maintenance to maintain them in good condition and repair. None of the
Improvements have any structural defects. No portion of the Real Property
described in Schedule 5.10 is the subject of any condemnation or eminent domain
proceedings currently instituted or pending, and to the Knowledge of Company, no
such proceedings are threatened. There are no condemnation, zoning or other land
use regulations proceedings instituted or, to the Knowledge of Company, planned
to be instituted, which would materially affect the use and operations of the
Real Property for any lawful purpose, and Company has not received notice of any
special assessment proceedings materially affecting the Real Property. The Real
Property has direct and unobstructed access to all public utilities necessary
for the uses to which the Real Property is currently devoted by Company.
5.11. ENVIRONMENTAL PROTECTION.
------------------------
(a) There are no pending or, to the Knowledge of Company,
threatened actions, suits, claims, legal proceedings or any other proceedings,
arising from Company's or Shareholder's activities at or operation or occupation
of the Real Property, based on or relating to Hazardous Substances or
Environmental Law, or asserting any liabilities under Environmental Law against
Company or the Station.
(b) Seller has delivered to Buyer a copy of a Phase I Environmental
Site Assessment that was completed on the WWBR Transmitter Site and dated
December 13, 1996. Except as set forth in said report, Seller has no knowledge
of any conditions which could reasonably give rise to claims, expenses, losses,
liabilities, or governmental action against Buyer in connection with any
Hazardous Substances present at or disposed of at or from the Real Property,
including without limitation the following conditions arising out of, relating
to, resulting from, or attributable to, the assets, business, or operations of
Company at the Real Property: (i) the presence of any Hazardous Substances on
the Real Property, the release or threatened release of any Hazardous Substances
into the environment at or from the Real Property, or the migration or
threatened migration of Hazardous Substances onto, into, above or under the Real
Property; (ii) the off-site disposal of Hazardous Substances originating on or
from the Real Property or the Business or operations of Company; (iii) the
release or threatened release of any Hazardous Substances into any storm drain,
sewer, septic system or publicly owned treatment works; or (iv) any
noncompliance with federal, state or local requirements governing occupational
safety and health, or presence or release in the air and water supply systems of
the Real Property
18
<PAGE>
of any substances that pose a hazard to human health or an impediment to working
conditions.
(c) To the Knowledge of Company, Company is not under any
obligation, is not liable for, and has not been threatened with any obligation
or liability under Environmental Law for any investigation, corrective action,
remediation or monitoring of Hazardous Substances in, on, over under or at the
Real Property. None of the Real Property is listed or proposed for listing on
the National Priorities List pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.(S)9601 et seq.,
or any similar inventory of sites requiring investigation or remediation
maintained by any state. Company has not received any notice, whether oral or
written, from any Governmental Authority or third party of any actual or
threatened liabilities under Environmental Law with respect to the Real
Property, the Station, or the conduct of Company's business.
(d) Company has provided to Buyer all environmental reports,
assessments, audits, studies, investigations, data and other written
environmental information in its custody, possession or control concerning the
Real Property.
(e) The operation of the Station does not cause or result in
exposure of workers or the general public to levels of radio frequency radiation
in excess of the standards adopted by the FCC in 1996 and explained in OET
Bulletin 65, Edition 97-01.
5.12. COMPLIANCE WITH LAW. There is no outstanding complaint, citation,
-------------------
or notice issued by any Governmental Authority asserting that Company is in
violation of any law, regulation, rule, ordinance, order, decree or other
material requirement of any Governmental Authority (including any applicable
statutes, ordinances or codes relating to zoning and land use, health and
sanitation, environmental protection, occupational safety and the use of
electric power) affecting the Business or operations of the Station, and subject
to disclosures in the schedules hereto, Company is in material compliance with
all such laws, regulations, rules, ordinances, decrees, orders and requirements.
Without limiting the foregoing:
(a) The Station's transmitting and studio equipment is in material
respects operating in accordance with the terms and conditions of the FCC
Licenses, all underlying construction permits, and the rules, regulations,
practices and policies of the Commission, including all requirements concerning
equipment authorization and human exposure to radio frequency radiation.
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<PAGE>
(b) Company has, in the conduct of the Business, materially
complied with all applicable laws, rules and regulations relating to the
employment of labor, including those concerning wages, hours, equal employment
opportunity, collective bargaining, pension and welfare benefit plans, and the
payment of social security and similar taxes, and Company is not liable for any
arrears of wages or any tax penalties due to any failure to comply with any of
the foregoing.
(c) All ownership reports, employment reports, and other material
documents required to be filed by Company with the Commission or other
Governmental Authority have been filed; such reports and filings are accurate
and complete in all material respects; such items as are required to be placed
in the Station's local public inspection files have been placed in such files;
all proofs of performance and measurements that are required to be made by
Company with respect to the Station's transmission facilities have been
completed and filed at the Station; and all information contained in the
foregoing documents is true, complete and accurate.
(d) Company has paid to the Commission the regulatory fees due for
the FCC Licenses for the years 1994-98.
5.13. LITIGATION. Except for proceedings affecting radio broadcasters
----------
generally and except as set forth on Schedule 5.13, there is no litigation,
complaint, investigation, suit, claim, action or proceeding pending, or to the
Knowledge of Company, threatened before or by the Commission, any other
Governmental Authority, or any arbitrator or other person or entity relating to
the Business or the operations of the Station. Except as set forth on Schedule
5.13, there is no other litigation, action, suit, complaint, claim,
investigation or proceeding pending, or to the Knowledge of Company, threatened
that may give rise to any claim against the Business or Shares or adversely
affect Company's ability to consummate the Transaction as provided herein.
Company is not aware of any facts that could reasonably result in any such
proceedings.
5.14. INSOLVENCY PROCEEDINGS. No insolvency proceedings of any character,
----------------------
including bankruptcy, receivership, reorganization, composition or arrangement
with creditors, voluntary or involuntary, affecting Company, the Business or the
Station are pending or, to the Knowledge of Company, threatened. Company has
not made an assignment for the benefit of creditors.
20
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5.15. SALES AGREEMENTS. Except as set forth in Schedule 5.15, the Sales
----------------
Agreements in existence on the date hereof have been entered into in the
ordinary course of the Business, at rates consistent with Company's usual past
practices and each Sales Agreement is for a term no longer than 10 weeks or, if
longer, is terminable by the Company upon not more than 15 days notice.
5.16. LIABILITIES. There are no known liabilities or obligations of
-----------
Company relating to the Business or the Station, whether related to tax or non-
tax matters, due or not yet due, except as and to the extent set forth on the
most recent Financial Statements described in Section 5.7.
5.17. SUFFICIENCY OF ASSETS. The assets of the Business are and, on the
---------------------
Closing Date will be, sufficient to conduct the operation and business of the
Station in the manner in which they have been conducted and are being conducted
as of the date of this Agreement provided Buyer enters into leases for the
WWBR(FM) Transmitter Site and Studio Site currently being used by the Station to
conduct its operations.
5.18. CERTAIN INTERESTS AND RELATED PARTIES. Except as set forth in
-------------------------------------
Schedule 5.18, (i) no Shareholder has any material interest in any assets used
in or pertaining to the Business, nor is indebted or otherwise obligated to
Company; (ii) Company is not indebted or otherwise obligated to any Shareholder
or others except for amounts due under normal arrangements as to salary or
reimbursement of ordinary business expenses not unusual in amount or
significance; (iii) neither Company nor any Shareholder, officer or director of
Company has any interest whatsoever in any corporation, firm, partnership or
other business enterprise which has had any business transactions with Company
relating to the Business or the Station; and (iv) no Shareholder of Company has
entered into any transaction with Company relating to the Business or the
Station. Except as disclosed on Schedule 5.18, the consummation of the
transactions contemplated by this Agreement will not (either alone, or with the
occurrence of any termination or constructive termination of any arrangement, or
with the lapse of time, or both) result in any benefit or payment (severance or
other) arising or becoming due from Company to Shareholder.
5.19. TAXES. The Company has timely filed with all appropriate
-----
Governmental Authority all federal, state, commonwealth, foreign, local, and
other tax or information returns and tax reports (including, but not limited to,
all income tax, unemployment compensation, social security, payroll, sales and
use, profit, excise, privilege, occupation, property, ad valorem,
21
<PAGE>
franchise, license, school and any other tax under the laws of the United States
or of any state or any municipal entity or of any political subdivision with
valid taxing authority) due for all periods ended on or before the date hereof
or to become due before the Closing Date. Company has paid in full all federal,
state, commonwealth, foreign, local and other governmental taxes, estimated
taxes, interest, penalties, assessments and deficiencies (collectively, "Taxes")
including interest and penalties in connection with the foregoing which have
become due pursuant to such returns or without returns or pursuant to any
assessments received by Company. Such returns and forms are true, correct and
complete in all material respects, and Company has no liability for any Taxes in
excess of the Taxes shown on such returns. Company is not a party to any pending
action or proceeding and, to the Knowledge of Company, there is no action or
proceeding threatened by any Governmental Authority against Company for
assessment or collection of any Taxes, and no unresolved claim for assessment or
collection of any Taxes has been asserted against Company.
5.20. BROKER. There is no broker or finder or other person who would have
------
any valid claim against any of the parties to this Agreement for a commission or
brokerage fee or payment in connection with this Agreement or the transactions
contemplated hereby as a result of any agreement of or action taken by Company
or Shareholder.
5.21. SUBSIDIARIES. The Company does not have any subsidiaries, does not
------------
hold title to the stock of any other corporation, is not a party to any joint
venture agreement and does not have an interest in any general or limited
partnership or any other entity.
5.22. STOCK. The authorized capital stock of Company consists of 400
-----
shares of Common Stock and 1,050 shares of Preferred Stock. There are 400 shares
of issued and outstanding Common Stock all of which are owned by Shareholder,
and 1,050 shares of issued and outstanding Preferred Stock. These 1,050 shares
of Preferred Stock shall be redeemed by Company simultaneously with the Closing
and therefore will be Company treasury stock as of the Closing. Except as
described herein, there are no other shares of capital stock of the Company
either authorized or issued. At the Closing, Buyer will acquire good and
marketable title to and complete ownership of the Shares, free and clear of any
Encumbrance. There are no outstanding stock options or stock appreciation rights
granted by Company exercisable now or in the future. Except as set forth on
Schedule 5.22, Company has no outstanding subscriptions, warrants, calls,
commitments or agreements to issue or to repurchase any
22
<PAGE>
shares of its stock or other securities, including any right of conversion or
exchange under any outstanding security or other instrument. There are no
unsatisfied preemptive rights in respect of the Shares.
5.23. PROPERTY. Schedule 5.23 lists the tangible personal property of
--------
Company. Except for capital leases listed in Schedule 5.23, Company has and
will have at Closing good, marketable and indefeasible title to all of its
assets, free and clear of all Encumbrances of any nature whatsoever, except for
taxes, assessments, governmental charges or levies on its property, which such
assessments, governmental charges or levies shall not at the time be due and
delinquent except as permitted by agreement between the parties. Except as
disclosed separately in Schedule 5.23, the assets currently used in the Business
are in working condition and are in operation and use in the ordinary course of
the Business and are sufficient for the operation of the Business as currently
conducted.
5.24. CORPORATE RECORDS. The corporate records of Company have been made
-----------------
available to Buyer and accurately represent the status of Company.
5.25. DIVIDENDS AND OTHER DISTRIBUTIONS. There has been no dividend or
---------------------------------
other distribution by Company of cash, assets or securities of the Company
whether consisting of money, property or any other thing of value, declared,
issued or paid subsequent to June 30, 1998.
5.26. PROMOTIONAL RIGHTS. The Intellectual Property set forth on Schedule
------------------
5.26 includes all call signs and trademarks that Company holds title to and that
are used to promote or identify the Station. Except as set forth on Schedule
5.26, Company has no Knowledge of any infringement or unlawful or unauthorized
use of those promotional rights, including the use of any call sign, slogan or
logo by any broadcast or cable Station in the metropolitan Detroit area that may
be confusingly similar to those currently used by the Station. Except as set
forth on Schedule 5.26, to the Knowledge of Company, the operations of the
Station do not infringe, and no one has asserted to Company that such operations
infringe, any copyright, trademark, trade name, service mark or other similar
right of any other party.
5.27. INDEBTEDNESS. As of Closing, Company will have no Indebtedness and
------------
except as set forth in Schedule 5.23, there will be no Encumbrances on its
assets.
23
<PAGE>
5.28. NO MISLEADING STATEMENTS. No provision of this Agreement relating
------------------------
to Company, the Business, or Station or any other document, Schedule, Exhibit or
other information furnished by Company to Buyer in connection with the
execution, delivery and performance of this Agreement, or the consummation of
the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
required to be stated in order to make the statement, in light of the
circumstances in which it is made, not misleading. In connection with the
preparation of this Agreement and the documents, descriptions, opinions,
certificates, Exhibits, Schedules or written material prepared by Company and
appended hereto or delivered or to be delivered hereunder, Shareholder
represents and warrants that it has disclosed, and agree it will continue to
disclose to Buyer, any fact so as to ensure the continuing accuracy of the
representations and warranties contained in this Section 5. All Exhibits and
Schedules attached hereto are materially accurate and complete as of the date
hereof.
6.0 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SHAREHOLDER REGARDING THE
----------------------------------------------------------------------
SHARES. Shareholder hereby makes to and for the benefit of Buyer, the
- ------
following representations, warranties and covenants:
6.1. BINDING EFFECT. This Agreement has been duly and validly executed
---------------
and delivered by Shareholder to Buyer, Shareholder has the authority to enter
into and to execute this Agreement without further action or approval of any
party or Governmental Authority and it constitutes a legal, valid and binding
obligation of Shareholder, enforceable against it in accordance with its terms,
subject to bankruptcy, reorganization, fraudulent conveyance, insolvency,
moratorium and similar laws relating to or affecting creditors, and other
obligees' rights generally and the exercise of judicial discretion in accordance
with general equitable principles.
6.2. NO VIOLATION. None of (i) the execution, delivery and performance
------------
by Shareholder of this Agreement or any of Company Documents, (ii) the
consummation of the Transaction, or (iii) Shareholder's compliance with the
terms or conditions hereof will, with or without the giving of notice or the
lapse of time or both, conflict with, breach the terms or conditions of,
constitute a default under, or violate (a) organizational documents governing
Shareholder, (b) any judgment, decree, order, consent, agreement, lease or other
instrument to which Shareholder is a party or by which Shareholder may be
legally bound or affected, or (c) any law,
24
<PAGE>
rule, regulation or ordinance of any Governmental Authority applicable to
Shareholder.
6.3. OWNERSHIP OF STOCK. Shareholder holds title to 400 shares of
------------------
Common Stock. Such Shares are owned free and clear of any Encumbrances. The
Shares are validly issued, fully paid and nonassessable. There are no
outstanding stock options or stock appreciation rights granted by Shareholder to
any person or entity exercisable now or in the future. All Shares owned by
Shareholder shall be delivered to Buyer at Closing duly endorsed in blank.
Except as disclosed in Schedule 6.3, no Shareholder has any outstanding
subscriptions, warrants, calls, commitments or agreements to issue or to
repurchase any shares of its stock or other securities, including any right of
conversion or exchange under any outstanding security or other instrument.
There are no unsatisfied preemptive rights to which Shareholder is entitled and
any preemptive rights accorded Shareholder pursuant to the Certificate of
Incorporation or any other corporate document is hereby forever waived by
Shareholder for purposes of this Agreement. There are no Encumbrances on the
Shares.
6.4. COOPERATION. Shareholder acknowledges that this Agreement requires
-----------
that Company take or refrain from taking certain actions. Shareholder agrees to
take those steps which are necessary to cause Company to take or refrain from
taking those actions.
7.0 BUYER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. Buyer hereby makes to
-------------------------------------------------
and for the benefit of Company and Shareholder, the following representations,
warranties and covenants:
7.1. EXISTENCE AND POWER. Buyer is a corporation duly organized,
-------------------
validly existing and in good standing under the laws of the State of Delaware,
with full corporate power and authority to assume and perform this Agreement.
7.2. BINDING EFFECT. The execution, delivery and performance by Buyer
--------------
of this Agreement, and each other document, agreement and instrument to be
executed and delivered by Buyer in connection with this Agreement (collectively,
the "Buyer Documents") has been or will be duly authorized by all necessary
corporate action, and copies of those authorizing resolutions, certified by
Buyer's Secretary shall be delivered to Company at Closing. No other corporate
action by Buyer is required for Buyer's execution, delivery and performance of
this Agreement or any of the Buyer Documents. This Agreement has been, and each
of the Buyer Documents will be, duly and validly executed and delivered by Buyer
25
<PAGE>
to Shareholder and constitutes a legal, valid and binding obligation of Buyer,
enforceable in accordance with its terms, subject to bankruptcy, reorganization,
fraudulent conveyance, insolvency, moratorium and similar laws relating to or
affecting creditors' and other obligees' rights generally and the exercise of
judicial discretion in accordance with general equitable principles.
7.3. NO VIOLATION. None of (i) the execution, delivery and performance
------------
by Buyer of this Agreement or any of the Buyer Documents, (ii) the consummation
of the Transaction, or (iii) Buyer's compliance with the terms and conditions
hereof will, with or without the giving of notice or the lapse of time or both,
conflict with, breach the terms or conditions of, constitute a default under, or
violate (a) Buyer's certificate of incorporation or by-laws or (b) any judgment,
decree, order, consent agreement, lease or other instrument to which Buyer is a
party or by which Buyer is legally bound, provided, that, Buyer must obtain an
-------- ----
opinion from a nationally recognized investment bank that the purchase of the
Shares is fair to Buyer ("Fairness Opinion").
7.4. LITIGATION. There is no litigation, action, suit, complaint,
----------
proceeding or investigation, pending or, to the Knowledge of Buyer, threatened
that may adversely affect Buyer's ability to consummate the Transaction as
provided herein. Buyer is not aware of any facts that could reasonably result
in any such proceedings.
7.5. LICENSEE QUALIFICATIONS. To the Knowledge of Buyer there is no
-----------------------
fact that would, under the rules and regulations of the Commission, disqualify
Buyer from being the transferee of the Shares or the owner and operator of the
Station. Should Buyer become aware of any such fact, it will so inform Company,
and Buyer will use commercially reasonable efforts to remove any such
disqualification. Buyer will not take any action that Buyer knows, or has
reason to believe, would result in such disqualification.
7.6. BROKER. Buyer has not incurred any obligation for any finder's or
------
broker's or agent's fees or commissions or similar compensation in connection
with the Transaction contemplated hereby for which Company or Shareholder may
have any liability or obligation.
8.0 COVENANTS WITH RESPECT TO CONDUCT OF THE COMPANY AND SHAREHOLDER.
----------------------------------------------------------------
26
<PAGE>
8.1. ACCESS. Between the date hereof and the Closing Date, Company
------
shall give Buyer and representatives of Buyer reasonable access to the Business,
the Station, the employees of Company and the books and records of Company
relating to the Business and the operation of the Station. It is expressly
understood that, pursuant to this Section, Buyer, at its expense, shall be
entitled to conduct such engineering inspections of the Station, surveys of the
Studio Site and the WWBR(FM) Transmitter Site and such reviews of Company's
financial records as Buyer may desire, so long as the same do not unreasonably
interfere with Company's operation of the Business. No inspection or
investigation made by or on behalf of Buyer, or Buyer's failure to make any
inspection or investigation, shall affect Shareholder's representations,
warranties and covenants hereunder or be deemed to constitute a waiver of any of
those representations, warranties and covenants.
8.2. MATERIAL ADVERSE CHANGES; FINANCIAL STATEMENTS. Through the
----------------------------------------------
Closing Date:
(a) Shareholder or Company shall promptly notify Buyer of any event
of which they obtain knowledge which has caused or is likely to cause a material
adverse change to the Business.
(b) Shareholder or Company shall furnish to Buyer (i) monthly
Financial Statements for Company and (ii) such other reports as Buyer may
reasonably request relating to Company. Each of the financial statements
delivered pursuant to this Section 8.2(b) shall be prepared in accordance with
GAAP consistently applied during the periods covered (except as disclosed
therein).
(c) Shareholder or Company shall promptly furnish to Buyer all Tax
Returns or excerpts thereof filed with any Governmental Authority relating to
Company.
8.3. CONDUCT OF BUSINESS. Between the date that this Agreement is
-------------------
executed and the Closing Date, Shareholder and Company covenant and agree that
neither Company nor Shareholder shall without the prior written consent of
Buyer:
(a) conduct the Business in any manner except in the ordinary course
consistent with past practices;
(b) issue, sell or deliver, transfer, split, reclassify, combine or
otherwise adjust, or pledge any stock, bonds or other securities of which
Company is the issuer (whether authorized and unissued or held in treasury), or
grant or issue any options,
27
<PAGE>
warrants or other rights (including convertible securities) calling for the
issue thereof;
(c) borrow any funds or incur, assume or become subject to, whether
directly or by way of guarantee or otherwise, any obligation or liability
(absolute or contingent), except with respect to trade payables arising in the
ordinary course of business and consistent with past amounts and practice;
(d) mortgage or pledge any of Company's assets, tangible or
intangible;
(e) except in the ordinary course of business, sell, lease, exchange
or otherwise transfer, or agree to sell, lease, exchange or otherwise transfer,
any of Company's assets, property or rights or cancel any debts or claims;
(f) grant any right of first refusal, option or similar contract to
purchase any of the assets, property or rights used in the Business or held by
Company;
(g) except in the ordinary course of business or as required by Law,
make or agree to any material amendment to any FCC License relating to the
Business or to which Company is a party;
(h) except as required by law, adopt any profit-sharing, bonus,
deferred compensation, insurance, pension, retirement, severance or other
employee benefit plan, payment or arrangement or enter into any employment,
consulting or management contract;
(i) grant any increase in pay or bonuses to any employees of the
Station;
(j) merge or consolidate with any other corporation, acquire control
of any other corporation or business entity, or take any steps incident to, or
in furtherance of, any of such actions, whether by entering into an agreement
providing therefore or otherwise;
(k) make any tax election inconsistent with past practice or Buyer's
interests, or except as required by Law or GAAP, make any material alteration in
the manner of keeping its books, accounts or records, or in the accounting
practices therein reflected;
(l) solicit, either directly or indirectly, initiate, encourage or
accept any offer for the purchase or acquisition of
28
<PAGE>
the Business, Company or any of their respective assets by any party other than
Buyer;
(m) set aside or pay any dividend or make any distribution in
respect of the Shares or make any other distributions of Company's assets,
whether consisting of money, property or any other thing of value;
(n) amend or alter the Certificate of Incorporation or Bylaws or
other charter documents of Company;
(o) enter into, extend (except as required by the terms thereof) or
amend any Contract;
(p) except for an agreement to redeem the 1,050 shares of Preferred
Stock, enter into any other transactions involving liabilities or obligations of
more than $10,000 on the part of Company;
(q) terminate without comparable replacement or fail to renew any
insurance coverage applicable to the assets or properties of Company;
(r) compromise or settle any claims or rights for or having a value,
in excess of $10,000;
(s) take any action or fail to take any action that would cause the
Company or Shareholder to breach the representations, warranties and covenants
contained in this Agreement;
(t) make any charitable contributions in excess of Three Hundred
Thousand Dollars ($300,000);
(u) disburse in any manner any proceeds in excess of $5,000 from the
sale of the Company's assets;
(v) create any Accounts Receivable that are not bona fide or settle
---- ----
or compromise any Accounts Receivable except in the ordinary course of business
and consistent with past practice; or
(w) enter into any transaction which would constitute an Accounts
Payable except in the ordinary course of business and consistent with past
practice.
8.4. DAMAGE.
------
29
<PAGE>
(A) RISK OF LOSS. The risk of loss or damage, confiscation or
------------
condemnation of the Business, the Station and all associated assets shall be
borne by Company at all times prior to Closing. In the event of material loss or
damage, Company shall promptly notify Buyer thereof and use its best efforts to
repair, replace or restore the lost or damaged property to its former condition
as soon as possible. If the cost of repairing, replacing or restoring any lost
or damaged property is Fifty Thousand Dollars ($50,000) or less, and Company has
not repaired, replaced or restored such property prior to the Closing Date,
Closing shall occur as scheduled and Buyer may deduct from the Purchase Price
paid at Closing the amount necessary to restore the lost or damaged property to
its former condition net of any insurance proceeds paid or expected to be paid
in connection therewith which are delivered to Buyer. If the cost to repair,
replace, or restore the lost or damaged property exceeds Fifty Thousand Dollars
($50,000), and Company has not repaired, replaced or restored such property
prior to the Closing Date to the satisfaction of Buyer, Buyer may, at its
option:
(1) elect to consummate the Closing in which event Buyer may
deduct from the Purchase Price paid at Closing the amount necessary to restore
the lost or damaged property to its former condition in which event
notwithstanding any other provision contained herein to the contrary,
Shareholder shall be entitled to all proceeds under any applicable insurance
policies with respect to such claim; or
(2) elect to postpone the Closing, with prior consent of the
Commission if necessary, for such reasonable period of time (not to exceed
ninety (90) days) as is necessary for Company to repair, replace or restore the
lost or damaged property to its former condition.
If, after the expiration of such extension period the lost or
damaged property has not been fully repaired, replaced or restored to Buyer's
satisfaction, Buyer may terminate this Agreement, in which event the Initial
Escrow Deposit and all interest earned thereon shall be returned to Buyer and
the parties shall be released and discharged from any further obligation
hereunder, except that Buyer shall be entitled to demand current payment of the
Contingent Liability.
(B) FAILURE OF BROADCAST TRANSMISSIONS. Company shall give prompt
----------------------------------
written notice to Buyer if any of the following (a "Specified Event") shall
occur and continue for a period of more than four (4) hours: (i) the
transmission of regular
30
<PAGE>
broadcast programming of the Station in the normal and usual manner is
interrupted or discontinued; or (ii) the Station is operated at less than its
licensed antenna height above average terrain or at less than eighty percent
(80%) of its licensed effective radiated power. If, prior to Closing, the
Station has not operated at its licensed operating parameters for more than
thirty-six (36) hours (or, in the event of force majeure or utility failure
----- -------
affecting generally the market served by the Station, ninety-six (96) hours),
whether or not consecutive, during any period of thirty (30) consecutive days,
or if there are three (3) or more Specified Events each lasting more than four
(4) consecutive hours, then Buyer may, at its option: (i) terminate this
Agreement, or (ii) proceed in the manner set forth in Section 8.4(a)(1) or
8.4(a)(2). In the event of termination of this Agreement by Buyer pursuant to
this Section, the Initial Escrow Deposit together with all interest accrued
thereon shall be returned to Buyer and the parties shall be released and
discharged from any further obligation hereunder, except that Buyer shall be
entitled to demand current payment of the Contingent Liability.
(C) RESOLUTION OF DISAGREEMENTS. If the parties are unable to
---------------------------
agree upon the extent of any loss or damage, the cost to repair, replace or
restore any lost or damaged property, the adequacy of any repair, replacement,
or restoration of any lost or damaged property, or any other matter arising
under this Section, the disagreement shall be referred promptly to a qualified
consulting communications engineer mutually acceptable to Company and Buyer who
is a member of the Association of Federal Communications Consulting Engineers,
whose decision shall be final, and whose fees and expenses shall be paid one-
half each by Company, or by Shareholder if such resolution is initiated after
the Closing, and Buyer.
8.5. ADMINISTRATIVE VIOLATIONS. If Company receives any finding, order,
-------------------------
complaint, citation or notice prior to Closing which states that any aspect of
the Business' operation violates or may violate any rule, regulation or order of
the Commission or of any other Governmental Authority (an "Administrative
Violation"), including, any rule, regulation or order concerning environmental
protection, the employment of labor or equal employment opportunity, Company
shall promptly notify Buyer of the Administrative Violation, use its
commercially reasonable efforts to remove or correct the Administrative
Violation, and be responsible prior to Closing for the payment of all costs
associated therewith, including any fines or back pay that may be assessed.
31
<PAGE>
8.6. CONTROL OF STATION. The Transaction shall not be consummated until
------------------
after the Commission has given its written consent thereto and between the date
of this Agreement and the Closing Date, Shareholder shall control, supervise and
direct the operation of the Station.
8.7. COOPERATION WITH RESPECT TO FINANCIAL AND TAX MATTERS. Between the
-----------------------------------------------------
date hereof and the Closing Date, Company, its Shareholder, officers, directors
and employees shall cooperate and Company shall cause its independent accounting
firm to cooperate with Buyer for the purpose of preparing Financial Statements
reviewed by Buyer's independent accountants for purposes of including such
statements in any reports filed by Buyer with any Governmental Authority. Buyer
shall be permitted to disclose the audited Financial Statements for 1997 and the
unaudited Financial Statements for the years 1995 and 1996 as well as unaudited
Financial Statements for June 30, 1998, in any reports filed by the Buyer with
any Governmental Authority.
8.8. CLOSING OBLIGATIONS. Company and Shareholder shall make commercially
-------------------
reasonable efforts to satisfy the conditions precedent to Closing.
8.9. ENVIRONMENTAL ASSESSMENT. Within thirty (30) days after filing the
------------------------
Transfer of Control Application, Buyer may retain, at its expense, an
environmental assessment firm to perform a Phase I and Phase II Environmental
Assessment of the Real Property. Company and Shareholder agree to cooperate and
Company agrees to cause its officers, directors, employees, agents and
representatives to cooperate with Buyer and such firm in performing such
Environmental Assessment. Buyer shall provide a copy of such Environmental
Assessment to Company and Shareholder but such delivery shall not relieve
Shareholder of any obligation with respect to any representation, warranty or
covenant in this Agreement or waive any condition to Buyer's obligations under
this Agreement. If the Environmental Assessment shows the presence of any
additional condition other than as set forth in the Phase I Environmental Site
Assessment referred to in Section 5.11(b) hereof, that must be cured or removed
at a cost in excess of Ten Thousand Dollars ($10,000),then Buyer may terminate
this Agreement, in which event the Initial Escrow Deposit and all interest
earned thereon shall be returned to Buyer and the parties shall be released and
discharged from any further obligation hereunder, except that Buyer shall be
entitled to demand current payment of the Contingent Liability.
32
<PAGE>
9.0 CONDITIONS PRECEDENT.
--------------------
9.1. MUTUAL CONDITIONS. The respective obligations of Buyer, Shareholder
-----------------
and Company to consummate the Transaction are subject to the satisfaction of
each of the following conditions:
(A) APPROVAL OF TRANSFER OF CONTROL APPLICATION. The Commission
-------------------------------------------
shall have granted the Transfer of Control Application, and such grant shall be
in full force and effect on the Closing Date.
(B) ABSENCE OF LITIGATION. As of the Closing Date, no litigation,
---------------------
action, suit or proceeding enjoining, restraining or prohibiting the
consummation of the Transaction shall be pending before any court, the
Commission or any other Governmental Authority or arbitrator; provided, however,
-------- -------
that this Paragraph may not be invoked by a party if any such litigation,
action, suit or proceeding was solicited or encouraged by, or instituted as a
result of any act or omission of, such party.
9.2. ADDITIONAL CONDITIONS TO BUYER'S OBLIGATION.
-------------------------------------------
In addition to the satisfaction of the mutual conditions contained in
Section 9.1, the obligation of Buyer to consummate the Transaction is subject,
at Buyer's option, to the satisfaction or waiver by Buyer of each of the
following conditions:
(A) REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------
warranties of Company and Shareholder to Buyer shall be true, complete, and
correct in all material respects as of the Closing Date with the same force and
effect as if then made, except to the extent that any representation or warranty
is made as of a specified date, in which case such representation or warranty
shall be true in all material respects as of such date.
(B) COMPLIANCE WITH CONDITIONS. All of the terms, conditions and
--------------------------
covenants to be complied with or performed by Company and Shareholder on or
before the Closing Date under this Agreement and Company Documents shall have
been duly complied with and performed in all material respects.
(C) DISCHARGE OF LIENS.
------------------
(1) Company shall have obtained and delivered to Buyer, at
Company's expense, at least 10 days prior to Closing, a
33
<PAGE>
report prepared by C.T. Corporation System (or similar firm reasonably
acceptable to Buyer) showing the results of searches of lien, tax, judgment and
litigation records in the State of Michigan and Macomb, Oakland and Wayne
Counties, demonstrating that Company, Real Property, Shares and Business are
free and clear of all Encumbrances except for Encumbrances to be discharged at
Closing using the proceeds from the Purchase Price and that there are no
judgments or pending litigation. The record searches described in the report
shall have taken place no more than 15 days prior to the Closing Date.
(2) Subject to using a portion of the Purchase Price for payment
of all Indebtedness of the Company, Company shall have no Indebtedness and shall
have received a certificate, dated the Closing Date, and signed by the President
of Company to the effect that Company has no Indebtedness. Buyer shall also have
received such releases and UCC termination statements as are necessary to
discharge of any Indebtedness.
(D) THIRD-PARTY CONSENTS. Company shall have obtained any requisite
--------------------
third-party consents and approvals for Material Contracts which may be necessary
to consummate the Transaction.
(E) ESTOPPEL CERTIFICATES. Subject to disclosures on Schedule 9.2(e),
---------------------
at Closing Company shall deliver to Buyer a certificate executed by the other
party to each Material Contract, dated no more than 15 days prior to the Closing
Date, stating (i) that such Contract is in full force and effect and has not
been amended or modified; (ii) the date to which all rent and/or other payments
due thereunder have been paid; (iii) that Company is not in breach or default
under such Material Contract, and that no event has occurred that, with notice
or the passage of time or both, would constitute a breach or default thereunder
by Company.
(F) NO MATERIAL ADVERSE CHANGE. Neither the Station nor the Business
--------------------------
shall have suffered a material adverse change since the date of this Agreement,
and there shall have been no changes since the date of this Agreement in the
business, operations, condition (financial or otherwise), properties, assets or
liabilities of Company, except changes specifically required by this Agreement
and changes which are not (either individually or in the aggregate) materially
adverse to Company, the Business or the Station.
(G) FINANCIAL STATEMENTS. The financial information set forth in the
--------------------
Station's Financial Statements for the year ending December 31, 1997, and for
the period ending thirty (30) days prior
34
<PAGE>
to the Closing Date fairly and accurately reflect the financial performance and
results of operation of the Business for those periods.
(H) CASH AND ACCOUNTS RECEIVABLE CALCULATION. Company shall have
----------------------------------------
delivered to Buyer at least five (5) days prior to Closing, a pre-closing
balance sheet as of a date which is no more than fifteen (15) days before the
Closing Date which includes a good faith estimate calculated in accordance with
the Company's normal and customary practice of the Company's Accounts Receivable
and cash balance as of the Closing, which such Accounts Receivable and cash
shall remain with Company at Closing.
(I) SALES AND CUSTOMER INFORMATION. The sales and customer
------------------------------
information provided are accurate and complete in all material respects.
(J) OPINION OF COMPANY'S COUNSEL. At Closing, Company and Shareholder
----------------------------
shall deliver to Buyer the written opinion or opinions of Company's counsel,
dated the Closing Date, in scope and form satisfactory to Buyer, to the
following effect:
(1) Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, with all requisite
corporate power and authority to enter into and perform this Agreement.
(2) This Agreement has been duly executed and delivered by
Shareholder and such action has been duly authorized by all necessary corporate
action. This Agreement constitutes the legal, valid, and binding obligation of
the Shareholder, enforceable against Company and Shareholder in accordance with
its terms subject to bankruptcy, reorganization, fraudulent conveyance,
insolvency, moratorium and similar laws relating to or affecting creditors' and
other obligees' rights generally and the exercise of judicial discretion in
accordance with general equitable principles.
(3) None of (i) the execution and delivery of this Agreement,
(ii) the consummation of the Transaction, or (iii) compliance with the terms and
conditions of this Agreement will, with or without the giving of notice or lapse
of time or both, conflict with, breach the terms and conditions of, constitute a
default under, or violate Company's certificate of incorporation or bylaws, any
law, rule, regulation or other requirement of any Governmental Authority, or any
judgment, decree, order, agreement, lease or other instrument known to counsel
to which Company or
35
<PAGE>
Shareholder is a party or by which Company, or Shareholder, the Business or the
Station, may be bound or affected.
(4) To such counsel's knowledge, based on a search of court
dockets as shall be reasonably satisfactory to Buyer's counsel, no suit, action,
claim or proceeding is pending or threatened that questions or may affect the
validity of any action to be taken by Company pursuant to this Agreement or that
seeks to enjoin, restrain or prohibit Company from carrying out the Transaction.
(5) To such counsel's knowledge, based on a search of court
dockets as shall be reasonably satisfactory to Buyer's counsel, there is no
outstanding judgment, or any suit, action, claim or proceeding pending,
threatened or deemed by Company's counsel to be probable of assertion, or any
governmental proceeding or investigation in progress (other than proceedings
affecting radio broadcasters generally) that could reasonably be expected to
have an adverse effect upon Company, the Business or upon the business or
operations of the Station after Closing.
(6) Company is the authorized legal holder of the FCC Licenses,
the FCC Licenses are in full force and effect, and the FCC Licenses are not the
subject of any pending license renewal application. The FCC Licenses set forth
on Schedule 5.4 constitute all FCC licenses and authorizations issued in
connection with the operation of the Station and are the only such licenses and
authorizations required for the operation of the Station, as currently operated.
There are no applications pending before the Commission with respect to the
Station.
(7) The Commission has consented to the assignment of the FCC
Licenses to Buyer and that consent is in full force and effect on the Closing
Date.
(8) To the best of such Counsel's knowledge, there is no
Commission investigation, notice of apparent liability or order of forfeiture,
pending or outstanding against the Station, or any complaint, petition to deny
or proceeding against or involving Company or the Station pending before the
Commission.
(9) Shareholder holds title to 400 shares of Common Stock and
such Shares are owned free and clear of any Encumbrances. The Shares are validly
issued, fully paid and nonassessable. The Shares represent all the issued and
outstanding capital stock of the Company. There are no outstanding stock options
or stock appreciation rights granted by any Shareholder or
36
<PAGE>
Company to any person or entity exercisable now or in the future. Shareholder
has no outstanding subscriptions, warrants, calls, commitments or agreements to
issue or to repurchase any shares of its stock or other securities, including
any right of conversion or exchange under any outstanding security or other
instrument. There are no unsatisfied preemptive rights to which Shareholder is
entitled and any preemptive rights accorded Shareholder pursuant to the
Certificate of Incorporation shall be waived for purposes of this Agreement.
The foregoing opinions shall be for the benefit of and may be
relied on by Buyer and Buyer's lenders. In rendering such opinions, Company's
counsel may rely upon such corporate records of Company and such certificates of
public officials and officers of Company.
(K) PREFERRED STOCK. Shareholder shall have redeemed the 1,050 shares
---------------
of Preferred Stock and all such obligations to be satisfied in exchange
for such redemption shall have been satisfied in full.
(L) CLOSING DOCUMENTS. At the Closing, Company and Shareholder shall
-----------------
deliver to Buyer (i) such instruments of conveyance as are necessary to vest in
Buyer title to the Shares, all of which documents shall be dated as of the
Closing Date, duly executed by Company and/or Shareholder and in form acceptable
to Buyer; (ii) a certificate, dated the Closing Date, executed by Company's
President certifying as to those matters set forth in Section 9.2(a) and (b);
(iii) copies of Company's corporate resolutions authorizing the Transaction,
each certified as to accuracy and completeness by Company's Secretary; and (iv)
an Unwind Agreement.
(M) RESIGNATION OF DIRECTORS AND OFFICERS. Documentation shall be
-------------------------------------
provided showing that the number of directors is consistent with the Company's
governing documents and that the current officers and directors were duly
elected. All the directors and officers of Company who will be identified in an
Incumbency Certificate executed by the President shall have submitted their
resignations in writing to Company. Such resignations shall be effective as of
the Closing Date.
(N) STOCK CERTIFICATES. Buyer shall receive at Closing duly executed
------------------
stock certificates duly endorsed in blank documenting transfer of the Shares to
Buyer, free of any Encumbrances, and such certificates shall represent all the
issued and outstanding capital stock of the Company.
37
<PAGE>
(O) CORPORATE RECORDS. Buyer shall receive at Closing the original
-----------------
corporate records of Company and original copies of the Station's Records.
(P) BANK ACCOUNTS/INSURANCE POLICIES. Buyer shall receive at Closing
--------------------------------
the cash and cash equivalents on hand or in bank accounts and other cash items
and investment securities of Company, and all contracts of insurance (including
any cash surrender value thereof).
(Q) WARRANT. The warrant held by Syndicated Communications Venture
-------
Partners III, L.P. to acquire shares of Common Stock of Company representing
four percent of the equity of the Company shall have been cancelled or satisfied
so that Company has no further obligation to Syndicated Communications Venture
Partners III, L.P. under the terms of the warrant and should any shares be
issued in satisfaction of the warrant such shares shall be assigned and
delivered to Buyer at Closing.
(R) LEASE. American Signaling Corporation, the owner of the WWBR(FM)
-----
Transmitter Site, shall have entered into a written lease for the real property
described in Section 5.10 and any equipment associated with the operation of the
Station at that site for a minimum of ten years, with one five year option, and
for a commercially reasonable monthly rental rate, such lease to contain
commercially reasonable annual increases to the monthly rental rate.
(S) ACCOUNTS PAYABLE. Shareholder shall deliver a document stating
----------------
that there are no amounts to be paid to vendors whether or not within the normal
course of business other than the Accounts Payable.
(T) TRADE BALANCE. The Trade Balance, if negative, will not exceed
-------------
Five Thousand Dollars ($5,000).
(U) LICENSES. Approval to assign or transfer any licenses,
--------
authorizations or permits issued by a Governmental Authority and used in the
operation of the Station shall have been granted and such licenses,
authorizations and permits shall be assigned to Buyer to the extent such
assignment is required by law.
(V) RADIOFREQUENCY RADIATION. The operation of the Station does not
------------------------
cause or result in exposure of workers or the general public to levels of radio
frequency radiation in excess of
38
<PAGE>
the standards adopted by the FCC in 1996 and explained in OET Bulletin 65,
Edition 97-01.
(W) TAXES. Company shall have delivered to Buyer ten (10) days prior
-----
to Closing a certificate signed by the President of the Company stating that to
the Knowledge of the Company, except as disclosed in the certificate, all Tax
Returns for the Company that would be due before the Closing Date without filing
for an extension have been filed and all Taxes due (except for Taxes being
contested in good faith and by appropriate proceedings and for which adequate
reserves have been established and are being maintained), plus any interest and
penalties that have been assessed, have been paid in full.
(X) COMPENSATION. Company shall have satisfied all amounts due
------------
employees for compensation, whether pursuant to the terms of a written agreement
or otherwise, including bonuses and reimbursement of expenses, that have accrued
as of the Closing.
(Y) CONFIDENTIAL INFORMATION. Shareholder will deliver to Buyer all
------------------------
documents or papers (including diskettes or other medium for electronic storage
of information) relating to trade secrets or other confidential information
relative to the business or any proprietary rights of Company that are in their
possession or under their control without making copies or summaries of any such
material.
(Z) RELEASES. Shareholder shall deliver releases executed by such
--------
Shareholder and PNC Bank, former holder of 1,050 shares of the Preferred Stock,
stating that neither has any claims against Company, and stating that the
Shareholders' Agreement of December 4, 1992 has been terminated.
(AA) FAIRNESS OPINION. Buyer has obtained the Fairness Opinion
----------------
referred to in Section 7.3(b).
9.3. ADDITIONAL CONDITIONS TO COMPANY'S AND SHAREHOLDER'S OBLIGATION.
---------------------------------------------------------------
In addition to satisfaction of the mutual conditions contained in Section 9.1
the obligation of Company and Shareholder to consummate the Transaction is
subject, at Shareholder's option, to the satisfaction or waiver by Shareholder
of each of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------
warranties of Buyer to Company and Shareholder shall be true, complete and
correct in all material respects as of the Closing Date with the same force and
effect as if then made, except to the
39
<PAGE>
extent that any representation or warranty is made as of a specified date, in
which case such representation or warranty shall be true in all material
respects as of such date.
(B) COMPLIANCE WITH CONDITIONS. All of the terms, conditions and
--------------------------
covenants to be complied with or performed by Buyer on or before the Closing
Date under this Agreement shall have been duly complied with and performed in
all material respects.
(C) PAYMENT. Buyer shall pay Shareholder the Purchase Price due at
-------
Closing as provided in Section 4.2.
(D) CLOSING DOCUMENTS. Buyer shall deliver to Shareholder at the
-----------------
Closing (i) copies of Buyer's corporate resolutions authorizing the Transaction
certified as to accuracy and completeness by Buyer's Secretary; (ii) a
certificate, dated the Closing Date, executed by Buyer's President certifying as
to those matters set forth in Section 9.3(a) and (b); and (iii) an Unwind
Agreement.
10.0 INDEMNIFICATION/POST-CLOSING OBLIGATIONS.
----------------------------------------
10.1. OBLIGATIONS OF SHAREHOLDER. Subject to the limitations of Sections
--------------------------
10.6, Shareholder agrees to and shall indemnify and hold harmless (after the
Closing) Buyer, and its respective directors, officers, employees, affiliates,
agents and assigns from and against any and all Loss of Buyer or Company,
directly or indirectly, resulting from, based upon or arising out of:
(a) any inaccuracy in or breach of any of the representations or
warranties made by Company or Shareholder in or pursuant to this Agreement; or
(b) the failure to perform any covenant of this Agreement; or
(c) any liability for Taxes or Indebtedness of Company incurred prior
to the Closing; or
(d) third party claims resulting from the actions of Shareholder or
Company in the conduct of the Business prior to the Closing including, but not
limited to, those claims described in Schedule 5.13; or
(e) any and all violations of or liabilities under Environmental Law
that (i) relate to the Real Property or Company
40
<PAGE>
and arise on or before the Closing or (ii) arise from or relate to conditions,
actions, activities or operations, whether conducted by, caused by or
attributable to Company, Shareholder or any entity acting on behalf of Company,
on or before Closing; or
(f) any damages, penalties and taxes arising from any breach of ERISA
fiduciary duty or ERISA prohibited transaction occurring before the Closing; or
(g) all compensation, benefits, and claims arising out of the
employment or termination of employment by employees of Company before Closing.
10.2. OBLIGATIONS OF BUYER. Buyer agrees to indemnify and hold
--------------------
harmless (after the Closing) Shareholder from and against any Loss of
Shareholder, directly or indirectly, resulting from, based upon or arising out
of:
(a) any inaccuracy in or breach of any of the representations, or
warranties, made by Buyer in this Agreement; or
(b) except as to matters as to which Buyer is indemnified under the
terms of Section 10.1, third party claims (in contract, tort or otherwise)
resulting from the actions of Buyer and its conduct of the Business after
Closing; or
(c) any liability for Taxes or Indebtedness of Company incurred after
the Closing.
10.3. PROCEDURE FOR INDEMNIFICATION. The procedure for indemnification
-----------------------------
shall be as follows:
(a) The party claiming indemnification (the "Claimant") shall give
written notice to the party from which indemnification is sought (the
"Indemnitor") promptly after the Claimant learns of any claim or proceeding
covered by the foregoing agreements to indemnify and hold harmless and failure
to provide prompt notice shall not be deemed to jeopardize Claimant's right to
demand indemnification, provided, that, Indemnitor is not prejudiced by the
delay in receiving notice. If Indemnitor is prejudiced, the Claimant's right to
indemnification shall be reduced according to the extent of the prejudice caused
by the delay.
(b) With respect to claims between the parties, following receipt of
notice from the Claimant of a claim, the Indemnitor shall have 15 days to make
any investigation of the claim that the Indemnitor deems necessary or desirable,
or such
41
<PAGE>
lesser time if a 15-day period would jeopardize any rights of Claimant to oppose
or protest the claim. For the purpose of this investigation, the Claimant agrees
to make available to the Indemnitor and its authorized representatives the
information relied upon by the Claimant to substantiate the claim. If the
Claimant and the Indemnitor cannot agree as to the validity and amount of the
claim within the 15-day period, or lesser period if required by this Section (or
any mutually agreed upon extension hereof) the Claimant may seek appropriate
legal remedies.
(c) The Indemnitor shall have the right to undertake, by counsel or
other representatives of its own choosing, the defense of such claim, provided,
that, Indemnitor acknowledges in writing to Claimant that Indemnitor would
assume responsibility for and demonstrates its financial ability to satisfy the
claim should the party asserting the claim prevail. In the event that the
Indemnitor shall not satisfy the requirements of the preceding sentence or shall
elect not to undertake such defense, or within 15-days after notice of such
claim from the Claimant shall fail to defend, the Claimant shall have the right
to undertake the defense, compromise or settlement of such claim, by counsel or
other representatives of its own choosing, on behalf of and for the account and
risk of the Indemnitor. Anything in this Section 10.3 to the contrary
notwithstanding, (i) if there is a reasonable probability that a claim may
materially and adversely affect the Claimant other than as a result of money
damages or other money payments, the Claimant shall have the right, at its own
cost and expense, to participate in the defense, compromise or settlement of the
claim, (ii) the Indemnitor shall not, without the Claimant's written consent,
settle or compromise any claim or consent to entry of any judgment which does
not include as an unconditional term thereof the giving by the plaintiff to the
Claimant of a release from all liability in respect of such claim, and (iii) in
the event that the Indemnitor undertakes defense of any claim consistent with
this Section, the Claimant, by counsel or other representative of its own
choosing and at its sole cost and expense, shall have the right to consult with
the Indemnitor and its counsel or other representatives concerning such claim
and the Indemnitor and the Claimant and their respective counsel or other
representatives shall cooperate with respect to such claim. If any disagreement
arises in the joint handling of the claim, the Indemnitor shall have the right
to make the final determination consistent with the requirements of this
section.
(d) If any payment is made pursuant to this Section, the Indemnitor
shall be subrogated to the extent of such payment to all of the rights of
recovery of Claimant, and Claimant shall assign to
42
<PAGE>
Indemnitor, for its use and benefit, any and all claims, causes of actions, and
demands of whatever kind and nature that Claimant may have against the person,
firm, corporation or entity giving rise to the loss for which payment was made.
Claimant agrees to reasonably cooperate in any efforts by Indemnitor to recover
such loss from any person, firm, corporation or entity.
10.4. REMEDIES CUMULATIVE. Each party to this Agreement shall have and
-------------------
retain all rights and remedies set forth in this Agreement and all of the rights
and remedies such parties have at law or equity.
10.5. NOTICE. Each party agrees to notify the other of any liabilities,
------
claims or misrepresentations, breaches or other matters covered by this Section
10 upon discovery or receipt of notice thereof.
10.6. THRESHOLD CONCERNING SECTIONS 10.1 AND 10.2. Notwithstanding
-------------------------------------------
anything to the contrary in Sections 10.1 and 10.2, the parties shall not be
entitled to indemnity under Sections 10.1 and 10.2 unless the aggregate Loss
indemnified against thereunder exceeds $25,000.00 (in which case, the Claimant
shall be entitled to recovery from the Indemnitor of the full amount of the
Loss). However, the threshold required by the preceding sentence shall not limit
in any way Buyer's or Shareholder's rights under Section 10.3.
10.7. SURVIVAL OF REPRESENTATIONS. The representations and warranties of
---------------------------
the parties set forth in this Agreement or in any certificate, document or
instrument delivered in connection herewith shall survive the execution and
delivery of this Agreement and the Closing hereunder for a period of eighteen
(18) months from the Closing Date.
10.8. TAX RETURNS.
-----------
(a) Preparation and Filing of Returns for Pre-Closing Periods.
---------------------------------------------------------
Shareholder shall be responsible for the initial preparation of all Federal,
State, commonwealth, foreign and local income tax returns of Company for taxable
periods actually ending on or before the Closing Date. Buyer shall have the
right, directly and through its designated representatives, to review at its
expense any such returns that pertain to Company at least 30 days prior to the
due date of the return. Shareholder agrees not to take, or cause Company to
take, any position or make any election on any such return inconsistent with
prior reporting practices without the prior written consent of Buyer, if the
effect of any
43
<PAGE>
such election or position may be to increase the Taxes of Company thereof from
taxable periods (or portions thereof) beginning after the Closing Date or to
file an extension on the due date for any tax return or to file an amended
return without first obtaining Buyer's consent. Shareholder will forward any
"separate company" state and local returns due after the Closing Date to Buyer,
together with any necessary payment of Tax, interest or penalties, if
applicable, for signature and filing at least 15 days prior to the due date of
such returns.
(b) Preparation and Filing of Returns for Post-Closing Periods. Buyer
----------------------------------------------------------
shall cause to be prepared, and filed, all income tax returns of Company for all
taxable periods ending after the Closing.
10.9. ALLOCATION OF TAX LIABILITY.
---------------------------
(a) To the extent permitted by applicable law, the parties hereto agree
to cause federal, state and local tax periods of Company to be closed at the
close of business on the Closing Date. In the event applicable law does not
permit the closing of any such period, the allocation of tax liability shall be
made in accordance with Section 10.9(b).
(b) In the case of a tax return for the taxable period beginning before
and ending after the Closing Date ("Overlap Period") based upon income or gross
receipts, the amount of taxes attributable to any Pre-Closing Period or Post-
Closing Period included in the Overlap Period shall be determined by closing the
books of Company as of the close of business on the Closing Date and by treating
each of such Pre-Closing Period and Post-Closing Period as a separate taxable
year, except that exemptions, allowances or deductions that are calculated on an
annual basis shall be apportioned on a per diem basis. If the liability for the
Taxes for an Overlap Period is determined on a basis other than income or gross
receipts, the amount of Taxes attributable to any Pre-Closing Period included in
the Overlap Period shall be equal to the amount of Taxes for the Overlap Period
multiplied by a fraction, the numerator of which is the number of days in the
Pre-Closing Period included in the Overlap Period and the denominator of which
is the total number of days in the Overlap Period, and the amount of such Taxes
attributable to any Post-Closing Period included in an Overlap Period shall be
the excess of the amount of Taxes for the Overlap Period over the amount of
Taxes attributable to the Pre-Closing Period. Shareholder shall be responsible
for Taxes due for the Pre-Closing Period and Buyer shall be responsible for
Taxes due for the Post-Closing Period.
44
<PAGE>
10.10. COOPERATION WITH RESPECT TO FINANCIAL AND TAX MATTERS. From the
-----------------------------------------------------
date of Closing and for a period of three (3) years thereafter, Shareholder
shall provide Buyer with such cooperation and information as Buyer shall
reasonably request in Buyer's: (i) filing of any tax return, amended return or
claim or refund, (ii) determining a liability for Taxes or a right to a refund
of Taxes, (iii) participating in or conducting any audit or proceeding in
respect of Taxes, (iv) analysis and review of the Financial Statements or (v)
preparation of documentation to fulfill any reporting requirements of Buyer
including reports that may be filed with the Securities and Exchange Commission.
Such cooperation and information shall include providing copies of relevant tax
returns or portions thereof, together with the accompanying schedules and
related work papers and documents relating to rulings or other determinations by
tax authorities. Shareholder shall make itself and Company's independent
accounting firm available, the cost of said firm to be paid by the Buyer, and
the information relied upon by that firm, including its opinions and Financial
Statements for the Company, to provide explanations of any documents or
information provided hereunder and to permit disclosure by Buyer, including
disclosure to any Governmental Authority.
10.11. NONDISCLOSURE AND CONFIDENTIALITY. Shareholder agrees that it will
---------------------------------
not after Closing use or disclose to others any trade secrets or other
confidential information about the business or any proprietary rights of
Company; provided, however, that such agreement shall not apply to trade secrets
-------- -------
or other confidential information that Shareholder is obligated to disclose by a
court of competent jurisdiction, or which lawfully becomes available to the
public other than as a result of a disclosure by Shareholder. If this Agreement
is terminated prior to the Closing Date, each party shall deliver, and cause its
officers, employees, agents, and representatives, including, without limitation,
attorneys, accountants, consultants and financial advisors who obtain
confidential information of another party pursuant to investigations permitted
hereunder to deliver to such other party all such confidential information that
is written (including copies or extracts thereof), whether such confidential
information was obtained before or after the execution hereof.
11.0 DEFAULT AND REMEDIES.
--------------------
11.1. OPPORTUNITY TO CURE. If any party believes the other to be in
-------------------
breach hereunder, the former party shall provide the other with written notice
specifying in reasonable detail the
45
<PAGE>
nature of such breach. If the breach has not been cured by the earlier of: (i)
the Closing Date, or (ii) within thirty (30) days after delivery of that notice
(or such additional reasonable time as the circumstances may warrant provided
the party in breach undertakes diligent, good faith efforts to cure the breach
within such thirty (30) day period and continues such efforts thereafter), then
the party giving such notice may consider the other party to be in default and
exercise the remedies available to such party pursuant to this Section, subject
to the right of the other party to contest the alleged default through
appropriate proceedings.
11.2. SHAREHOLDER'S REMEDIES. Buyer recognizes that if the Transaction
----------------------
is not consummated as a result of Buyer's default, Shareholder would be entitled
to compensation, the extent of which is extremely difficult and impractical to
ascertain. To avoid this problem, the parties agree that if the Transaction is
not consummated due to the default of Buyer, Shareholder, provided that neither
Company nor Shareholder are in default or has otherwise failed to comply with
their respective obligations under this Agreement, shall be entitled to the
Initial Cash Escrow Deposit, with interest earned thereon and to cancellation of
the Contingent Liability. The parties agree that this sum shall constitute
liquidated damages and shall be in lieu of any other relief at law or in equity
to which Company and/or Shareholder might otherwise be entitled due to Buyer's
failure to consummate the Transaction as a result of a default by Buyer.
11.3. BUYER'S REMEDIES. Shareholder agrees that the Shares represent an
----------------
interest in unique property that cannot be readily obtained on the open market
and that Buyer will be irreparably injured if this Agreement is not specifically
enforced. Therefore, Buyer shall have the right specifically to enforce
Company's and Shareholder's performance under this Agreement, and Company and
Shareholder agree (i) to waive the defense in any such suit that Buyer has an
adequate remedy at law and (ii) to interpose no opposition, legal or otherwise,
as to the propriety of specific performance as a remedy. If Buyer elects to
terminate this Agreement as a result of Company's or Shareholder's default
instead of seeking specific performance, Buyer shall be entitled to the Initial
Cash Escrow Deposit together with all interest earned thereon, and to demand
current payment of the Contingent Liability and in addition thereto, Buyer shall
be entitled to sue for damages due to Company's and/or Shareholder's failure to
consummate the Transaction as a result of a default by Company and/or
Shareholder, provided, that Buyer's claim for damages shall not exceed One
-------- ----
Million Dollars ($1,000,000), the amount that would be available to Seller if
Buyer breached this Agreement.
46
<PAGE>
12.0 TERMINATION OF AGREEMENT.
------------------------
12.1. TERMINATION OF AGREEMENT. Anything herein to the contrary
------------------------
notwithstanding, this Agreement and the transactions contemplated by this
Agreement shall terminate at any time before the Closing as follows:
(A) MUTUAL CONSENT. By mutual consent in writing by Buyer and
--------------
Shareholder.
(B) CONDITIONS TO BUYER'S PERFORMANCE NOT MET. By Buyer upon written
-----------------------------------------
notice to Shareholder if any event occurs or condition exists which would render
impossible the satisfaction of one or more conditions to the obligations of
Buyer to consummate the transactions contemplated by this Agreement as set forth
in Section 9.1 or 9.2.
(C) CONDITIONS TO SHAREHOLDER'S PERFORMANCE NOT MET. By Shareholder
-----------------------------------------------
upon written notice to Buyer if any event occurs or condition exists which would
render impossible the satisfaction of one or more conditions to the obligation
of Shareholder to consummate the transactions contemplated by this Agreement as
set forth in Section 9.1 or 9.3.
(D) MATERIAL BREACH. By Buyer or Shareholder, provided such party is
---------------
not in material breach of this Agreement, if there has been a material
misrepresentation or other material breach by the other party of any
representation, warranty or covenant set forth herein; provided, however, that
-------- -------
the non-breaching party shall not be excused from its obligations under this
Agreement (i) if such breach has been cured pursuant to Section 11.1 of this
Agreement or (ii) if such breach gives rise solely to money damages that can
readily be ascertained or estimated with reasonable accuracy and the breaching
party tenders such amount to the other party within 30 days after receipt of
notice of such breach.
(E) BANKRUPTCY; RECEIVERSHIP. By Buyer, if any of the following
------------------------
events shall have occurred with respect to Company or Shareholder: (i) it has
been adjudicated a bankrupt or insolvent or has admitted in writing its
inability to pay its debts as they mature or has made an assignment for the
benefit of creditors, or has applied for or consented to the appointment of a
trustee or receiver for it or for the major part of its property; (ii) a trustee
or receiver has been appointed for it or for any part of
47
<PAGE>
its property without its consent; or (iii) bankruptcy, reorganization,
arrangement or insolvency proceedings, or other proceedings for relief under any
bankruptcy or similar law or laws for the relief of creditors, have been
instituted by or against it and remain undismissed for 10 days or longer.
(F) FCC APPROVAL. By either Buyer or Seller, provided such party is
------------
not otherwise in default, and a grant of the Transfer of Control Application is
not obtained within nine (9) months after the FCC has accepted the Transfer of
Control Application for filing.
13.0 GENERAL PROVISIONS.
------------------
13.1. FEES. All recording costs, transfer taxes, sales tax, document
----
stamps and other similar charges shall be paid one-half by Shareholder and one-
half by Buyer. Except as otherwise provided herein, all other expenses incurred
in connection with this Agreement or the Transaction shall be paid by the party
incurring those expenses whether or not the Transaction is consummated.
13.2. NOTICES. All notices, requests, demands and other communications
-------
pertaining to this Agreement shall be in writing and shall be deemed duly given
when (i) delivered personally (which shall include delivery by Federal Express
or other recognized overnight courier service that issues a receipt or other
confirmation of delivery) to the party for whom such communication is intended,
(ii) delivered by facsimile transmission or (iii) three business days after the
date mailed by certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) If to Company or Shareholder:
Allur-Detroit, Inc.
c/o Wilkins & Jones, L.P.
8401 Colesville Road
#300
Silver Spring, MD 20910
Fax: (301) 608-3307
with a copy (which shall not constitute notice) to:
Fleischman & Walsh
1400 Sixteenth St., N.W.
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Suite 600
Washington, DC 20036
ATTN: Howard A. Topel, Esq.
Fax: 202-745-0916
(b) If to Buyer:
Radio One, Inc.
c/o Alfred C. Liggins, III
5900 Princess Garden Parkway, 8th Floor
Lanham, MD 20706
Fax: (301) 306-9694
with a copy (which shall not constitute notice) to:
Linda J. Eckard, Esq.
5900 Princess Garden Parkway
8th Floor
Lanham, Maryland 20706
Fax: (301) 306-9638
Any party may change its address for notices by written notice to the other
given pursuant to this Section. Any notice purportedly given by a means other
than as set forth in this Section shall be deemed ineffective.
13.3. ASSIGNMENT. No party may assign this Agreement without the
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express prior written consent of the other parties, except that, Buyer may
------ ----
assign its rights and obligations pursuant to this Agreement without
Shareholder's consent prior to Closing to (i) an entity which assumes all of
Buyer's obligations under this Agreement if such assignment results in no
financial gain or profit for the Buyer or (ii) to Buyer's or its assignee's
lenders as collateral for any indebtedness incurred; and subsequent to Closing
to (a) any entity which acquires all or substantially all of the Shares or
assets of Company, or (b) to Buyer's or its assignee's lenders as collateral for
any indebtedness incurred. Subject to the foregoing, this Agreement shall be
binding on, inure to the benefit of, and be enforceable by the original parties
hereto and their respective successors and permitted assignees.
13.4. EXCLUSIVE DEALINGS. For so long as this Agreement remains in
------------------
effect, neither Company nor Shareholder nor any person acting on either party's
behalf shall, directly or indirectly, solicit or initiate any offer from, or
conduct any negotiations with, any person or entity concerning the acquisition
of all or any
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interest in the Shares or in the assets of the Business, other than Buyer or
Buyer's permitted assignees.
13.5. THIRD PARTIES. Nothing in this Agreement, whether express or
-------------
implied, is intended to: (i) confer any rights or remedies on any person other
than Shareholder, Buyer and their respective successors and permitted assignees;
(ii) relieve or discharge the obligations or liability of any third party; or
(iii) give any third party any right of subrogation or action against either
Shareholder or Buyer.
13.6. INDULGENCES. Unless otherwise specifically agreed in writing to
-----------
the contrary: (i) the failure of any party at any time to require performance by
another party of any provision of this Agreement shall not affect such party's
right thereafter to enforce the same; (ii) no waiver by any party of any default
by another party shall be taken or held to be a waiver by such party of any
other preceding or subsequent default; and (iii) no extension of time granted by
any party for the performance of any obligation or act by any party shall be
deemed to be an extension of time for the performance of any other obligation or
act hereunder.
13.7. PRIOR NEGOTIATIONS. This Agreement supersedes in all respects all
------------------
prior and contemporaneous oral and written negotiations, understandings and
agreements between the parties with respect to the subject matter hereof. All
of such prior and contemporaneous negotiations, understandings and agreements
are merged herein and superseded hereby.
13.8. EXHIBITS AND SCHEDULES. The Exhibits and Schedules attached
----------------------
hereto or referred to herein are a material part of this Agreement, as if set
forth in full herein.
13.9. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Exhibits and
---------------------------
Schedules to this Agreement set forth the entire understanding between the
parties in connection with the Transaction, and there are no terms, conditions,
warranties or representations other than those contained, referred to or
provided for herein and therein. Neither this Agreement nor any term or
provision hereof may be altered or amended in any manner except by an instrument
in writing signed by each of the parties hereto.
13.10. COUNSEL/INTERPRETATION. Each party has been represented by its
----------------------
own counsel in connection with the negotiation and preparation of this
Agreement. This Agreement shall be fairly interpreted in accordance with its
terms and, in the event of any ambiguities, no inferences shall be drawn against
either party.
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13.11. GOVERNING LAW, JURISDICTION. This Agreement shall be governed by,
---------------------------
and construed and enforced in accordance with the laws of the State of Maryland
without regard to the choice of law rules utilized in that jurisdiction. Buyer,
Shareholder and Company each hereby consent to service of process by certified
mail at the address to which notices are to be given. Each of Buyer and
Shareholder agree that its submission to jurisdiction and its consent to service
of process by certified mail is made for the express benefit of the other
parties hereto. Final judgment against Buyer or Shareholder in any such action,
suit or proceeding may be enforced in other jurisdictions by suit, action or
proceeding on the judgment, or in any other manner provided by or pursuant to
the laws of such other jurisdiction; provided, however, that any party may at
-------- -------
its option bring suit, or institute other judicial proceedings, in any state or
federal court of the United States or of any country or place where the other
party or its assets, may be found.
13.12. SEVERABILITY. If any term of this Agreement is illegal or
------------
unenforceable at law or in equity, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected or
impaired thereby. Any illegal or unenforceable term shall be deemed to be void
and of no force and effect only to the minimum extent necessary to bring such
term within the provisions of applicable law and such term, as so modified, and
the balance of this Agreement shall then be fully enforceable.
13.13. COUNTERPARTS. This Agreement may be signed in any number of
------------
counterparts with the same effect as if the signature on each such counterpart
were on the same instrument. Each fully executed set of counterparts shall be
deemed to be an original, and all of the signed counterparts together shall be
deemed to be one and the same instrument.
13.14. FURTHER ASSURANCES. Shareholder shall at any time and from time to
------------------
time after the Closing execute and deliver to Buyer such further conveyances,
assignments and other written assurances as Buyer may request to vest and
confirm in Buyer (or its assignee) the title and rights to and in all the Shares
and/or assets of the Business to be and intended to be transferred, assigned and
conveyed hereunder.
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IN WITNESS WHEREOF, and to evidence their assent to the foregoing,
Shareholder and Buyer have executed this Stock Purchase Agreement under seal as
of the date first written above.
SELLER:
SYNDICATED COMMUNICATIONS VENTURE
PARTNERS II, L.P.
BY: WILKINS & JONES, L.P.,
GENERAL PARTNER
/s/ Herbert P. Wilkins, Sr.,
BY: ______________________________
HERBERT P. WILKINS, SR.,
GENERAL PARTNER
BUYER:
RADIO ONE, INC.
/s/ Alfred C. Liggins, III
BY: ______________________________
ALFRED C. LIGGINS, III
PRESIDENT
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated March 11, 1999, included in
the Form 8-K dated March 12, 1999. It should be noted that we have not audited
any financial statements of the Company subsequent to December 31, 1998, or
performed any audit procedures subsequent to the date of our report.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland,
March 31, 1999
