<PAGE>
As filed with the Securities and Exchange Commission on November 10, 1999
Registration No. 333-89607
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
Radio One, Inc.
(Exact name of Registrant as specified in its charter)
----------------
Delaware 52-1166660 4832
(State or other (I.R.S. Employer (Primary Standard
jurisdiction of Identification No.) Industry Classification
incorporation or Number)
organization)
5900 Princess Garden Parkway, 8th Floor
Lanham, MD 20706
Telephone: (301) 306-1111
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
ALFRED C. LIGGINS, III
Chief Executive Officer and President
Radio One, Inc.
5900 Princess Garden Parkway, 8th Floor
Lanham, MD 20706
Telephone: (301) 306-1111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copies to:
RICHARD L. PERKAL, ESQ. ANTOINETTE COOK BUSH, ESQ.
Kirkland & Ellis STEPHEN W. HAMILTON, ESQ.
655 Fifteenth Street, N.W. Skadden, Arps, Slate, Meagher & Flom
Washington, D.C. 20005 LLP
Telephone: (202) 879-5000 1440 New York Avenue, N.W.
Washington, D.C. 20005
Telephone: (202) 371-7000
----------------
Approximate date of commencement of the proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
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- ------------------------------------------------------------------------------------------------
<CAPTION>
Proposed Proposed
Amount maximum maximum Amount of
Title of each Class of to be offering price aggregate registration
Securities to be Registered registered(/1/) per share(/2/) offering price fee(/3/)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, par value
$0.001 per share................ 5,100,000 Shares $50.13 $230,013,000 $63,944
</TABLE>
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(1) Includes 400,000 shares that the underwriters have the option to purchase
from the Company to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating Registration Fee pursuant to
Rule 457(c) based on the average high and low sale price per share of class
A common stock on The Nasdaq Stock Market's National Market on October 29,
1999 (the "Average Price").
(3) Previously paid.
----------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this Registration Statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 10, 1999
4,700,000 Shares
[LOGO OF RADIO ONE]
Class A Common Stock
--------
We are selling 4,000,000 shares of class A common stock and the selling
stockholders are selling 700,000 shares of class A common stock. We will not
receive any proceeds from shares sold by the selling stockholders.
Our class A common stock is traded on The Nasdaq National Market under the
symbol "ROIA." The last reported sale price for our class A common stock on The
Nasdaq National Market on November 9, 1999 was $59.00 per share.
The underwriters have an option to purchase a maximum of 400,000 additional
shares to cover over-allotments of shares.
Investing in our class A common stock involves risks. See "Risk Factors" on
page 7.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions Radio One Stockholders
-------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share................... $ $ $ $
Total....................... $ $ $ $
</TABLE>
Delivery of the shares of class A common stock will be made on or about .
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Deutsche Banc Alex. Brown
Banc of America Securities LLC
Bear, Stearns & Co. Inc.
Prudential Securities
Robertson Stephens
The date of this prospectus is .
<PAGE>
[Map of United States detailing location of Radio One Stations appears here]
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 7
Use of Proceeds..................... 12
Dividend Policy..................... 12
Price Range of Our Class A Common
Stock.............................. 13
Capitalization...................... 14
Recent and Pending Transactions..... 15
Unaudited Pro Forma Consolidated
Financial Information.............. 17
Selected Historical Consolidated
Financial Data..................... 28
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 30
Business............................ 40
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management......................... 60
Certain Relationships and Related
Transactions...................... 65
Selling Stockholders............... 67
Principal Stockholders............. 68
Description of Capital Stock....... 70
Description of Indebtedness........ 72
Shares Eligible for Future Sale.... 74
Underwriting....................... 76
Notice to Canadian Residents....... 78
Legal Matters...................... 79
Experts............................ 79
Where You Can Find Additional
Information....................... 79
Index to Financial Statements...... F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Radio One's principal executive offices are located at 5900 Princess Garden
Parkway, 8th Floor, Lanham, MD 20706, and our telephone number is (301) 306-
1111.
<PAGE>
PROSPECTUS SUMMARY
This summary contains a general discussion of our business, this offering
and summary financial information. We encourage you to read the entire
prospectus for a more complete understanding of Radio One and this offering.
Except where otherwise noted, all share numbers and per share data in this
prospectus give effect to the capitalization transactions described in
"Capitalization." Unless otherwise indicated, all information in this
prospectus assumes that the underwriters' over-allotment option will not be
exercised.
RADIO ONE, INC.
Introduction
We were founded in 1980 and are the largest radio broadcasting company in
the United States primarily targeting African-Americans. After we complete our
acquisitions of four stations that we operate in Richmond, we will own 26 radio
stations. Twenty-five of these stations (eighteen FM and seven AM) are in nine
of the top 20 African-American radio markets: Washington, D.C., Baltimore,
Atlanta, Philadelphia, Detroit, Cleveland, St. Louis, Richmond and Boston. 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 focus on formats primarily
targeting African-American audiences, our skill in programming and marketing
these formats, and our turnaround expertise.
The radio stations that we owned or managed as of June 30, 1999, grouped by
market, were ranked in the top three in their markets in combined audience and
revenue share among radio stations primarily targeting African-Americans. Due
to successful implementation of our business strategy, our net broadcast
revenue, broadcast cash flow and after-tax cash flow have grown significantly:
. Same station net broadcast revenue increased 30.6% from year-end 1997 to
year-end 1998 and 32.8% for the six months ended June 30, 1999, compared
to the same period in 1998.
. Same station broadcast cash flow increased 50.4% from year-end 1997 to
year-end 1998 and 39.6% for the six months ended June 30, 1999, compared
to the same period in 1998.
. After-tax cash flow increased 148.3% from year-end 1997 to year-end 1998
and 22.6% for the six months ended June 30, 1999, compared to the same
period in 1998.
Radio One is led by our Chairperson and co-founder, Catherine L. Hughes, and
her son, 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 Cleveland, St.
Louis, Richmond and Boston, and to other radio stations in existing and new
markets as attractive acquisition opportunities arise.
The African-American Market Opportunity
We believe that operating radio stations in large African-American markets,
with formats primarily targeting African-American audiences, has significant
growth potential for the following reasons:
. African-Americans are experiencing faster population growth than the
population as a whole.
. African-Americans are experiencing higher income growth than the
population as a whole.
. There is significant growth in advertising targeting the African-
American market.
1
<PAGE>
. We believe there is a growing influence of African-American culture on
American society.
. We believe that radio formats primarily targeting African-Americans are
becoming more popular with mainstream audiences.
. We can reach our target audience with fewer radio stations due to the
concentration of African-Americans in the top 40 African-American
markets.
. African-Americans exhibit stronger radio audience listenership and
loyalty than the population as a whole.
Station Portfolio
We operate in some of the largest African-American markets. We have also
acquired or agreed to acquire 13 radio stations since January 1, 1999. These
acquisitions diversify our net broadcast revenue, broadcast cash flow and asset
bases and increase the number of top 20 African-American markets in which we
operate from five to nine. The table below outlines our station operations and
information about our markets from BIA 1999 Third Edition.
Radio One and Our Markets
<TABLE>
<CAPTION>
Radio One Including Pending Acquisitions Market Data
------------------------------------------------ ---------------------------------------------
Number of African-American
Stations Market 1999 Entire Market 1997 MSA Population
--------- ---------------- --------------------- ----------------------
Estimated Ranking by
January- 1998 Annual Size of
Audience Spring 1999 June 1999 Radio African- African-
Share Revenue Audience Revenue Revenue American Total American
Market FM AM Rank Rank Share Share ($millions) Population (in millions) %
- ------ ---- ---- -------- ------- ----------- --------- ----------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Washington, D.C......... 2 2 1 1 10.1 10.1% $263.4 3 4.3 26.5%
Detroit................. 2 2 2 2 5.5 3.4 230.0 5 4.6 22.3
Philadelphia............ 1 -- 2 2 3.0 2.1 255.6 6 4.9 20.2
Atlanta................. 2 -- 2 3 6.8 4.9 257.5 7 3.7 26.0
Baltimore............... 2 2 1 1 18.7 22.1 110.1 10 2.5 27.6
St. Louis............... 1 -- n/a n/a n/a n/a 115.6 14 2.6 17.7
Cleveland............... 1 1 3 2 3.6 2.9 98.7 17 2.1 19.2
Boston.................. 1 -- n/a n/a n/a n/a 253.9 18 4.3 7.1
Richmond................ 6 1 1 1 26.0 23.6 46.4 19 0.9 30.1
---- ----
Total................. 18 8
==== ====
</TABLE>
Business Strategy
We focus primarily on making strategic acquisitions of underperforming radio
stations, improving the performance of these stations and operating them to
maximize profitability.
Acquisitions - Our primary acquisition strategy is to acquire and to turn
around underperforming radio stations principally in the top 40 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. For strategic reasons, or as a result of an acquisition
of multiple stations in a market, we may also acquire and operate stations with
formats that primarily target non-African-American segments of the population.
2
<PAGE>
Turnarounds - Historically, we have entered 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 strategy, we have
succeeded in increasing ratings, net broadcast revenue and broadcast cash flow
of all the FM stations we have owned and operated or managed for at least one
year. We have achieved these improvements while operating against much larger
competitors.
Operations - 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, to convert these audience share
ratings to advertising revenue, and to control operating expenses.
Preliminary Unaudited Third Quarter Results
The following table summarizes certain selected data for the three and nine
month periods ended September 30, 1998 and 1999. Dollar figures are in
millions.
<TABLE>
<CAPTION>
Three
Months Nine Months
Ended Ended
September September
30, 30,
----------- -----------
Percentage Percentage
1998 1999 Increase 1998 1999 Increase
----- ----- ---------- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Net broadcast revenue........... $13.8 $24.1 74.6% $33.3 $57.0 71.2%
Broadcast cash flow............. $ 6.7 $12.0 79.1% $15.8 $25.8 63.3%
EBITDA (excluding stock-based
compensation expense).......... $ 6.0 $10.8 80.0% $13.7 $22.7 65.7%
After-tax cash flow............. $ 2.9 $ 6.7 131.0% $ 6.0 $10.5 75.0%
</TABLE>
The increases in our net broadcast revenue resulted primarily from
continuing broadcast revenue growth in our Washington, Baltimore and
Philadelphia markets as we benefitted from historical ratings increases at
certain of our radio stations, improved power ratios at these stations as well
as industry growth in each of these markets. Additional revenue gains were
derived from our recently acquired stations in Detroit and Cleveland, from
stations in Richmond being operated under a time brokerage agreement and from
stations in Atlanta acquired in March 1999.
The increases in our broadcast cash flow were attributable to the increases
in broadcast revenue partially offset by higher operating expenses related to
our rapid expansion in all of our markets.
The increases in our EBITDA, excluding stock-based compensation expense,
were attributable to the increase in broadcast revenue partially offset by
higher operating expenses and higher corporate expenses partially associated
with the costs of operating as a public company.
The increases in our after-tax cash flow were attributable to an increase in
operating income partially offset by higher interest charges associated with
the financing of various acquisitions as well as a tax provision for the first
nine months of 1999 associated with an estimate of our effective tax rate for
all of 1999.
3
<PAGE>
The Offering
<TABLE>
<S> <C>
Class A common stock offered(/1/)............................. 4,000,000 shares by Radio One
700,000 shares by the selling stockholders
----------
4,700,000 shares of class A common stock
==========
Common stock to be outstanding after this offering(/1/)(/2/).. 16,034,397 shares of class A common stock
2,873,083 shares of class B common stock
3,195,063 shares of class C common stock
----------
22,102,543 shares of common stock
==========
Voting Rights................................................. Holders of class A common stock are entitled
to one vote per share and are entitled to elect
two independent directors. Holders of class B
common stock are entitled to ten votes per
share. Holders of class C common stock do
not have voting rights, except as required
by law.
Other Rights.................................................. Except as to voting and conversion rights,
each class of common stock has the same
rights.
Use of Proceeds............................................... We plan to use the net proceeds from this
offering:
. to fund pending and future acquisitions;
. to repay amounts under our bank credit
facility, which will increase debt
capacity
for pending and future acquisitions;
. for continued business development
activities; and
. for general corporate purposes.
NASDAQ Symbol................................................. ROIA
</TABLE>
- --------
(1) Excludes 400,000 shares of class A common stock that may be issued to cover
over-allotments of shares.
(2) Excludes 207,204 shares of class A common stock issuable upon exercise of
stock options outstanding at an average exercise price of $24.00.
4
<PAGE>
Summary Historical and Pro Forma Consolidated Financial Data
The following table contains summary historical financial information
derived from the audited consolidated financial statements for the years ended
December 31, 1996, 1997 and 1998, and the unaudited financial statements for
the six months ended June 30, 1998 and 1999, of Radio One. The table also
contains summary unaudited pro forma financial information derived from the
unaudited pro forma financial information set forth under "Unaudited Pro Forma
Consolidated Financial Information." The summary unaudited pro forma
consolidated financial information does not purport to represent what our
results of operations or financial condition would actually have been had the
transactions described below occurred on the dates indicated or to project our
results of operations or financial condition for any future period or date. The
summary financial data set forth in the following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Unaudited Pro Forma Consolidated Financial
Information," and the unaudited financial statements and the audited
consolidated financial statements of Radio One included elsewhere in this
prospectus.
. The pro forma amounts for the year ended December 31, 1998, and the six
months ended June 30, 1999, are adjusted to give effect to the following
transactions as if they had occurred as of January 1, 1998:
-- the acquisitions of:
. Bell Broadcasting Company;
. Allur-Detroit, Inc.;
. Radio One of Atlanta, Inc.;
. Dogwood Communications, Inc. (by Radio One of Atlanta, Inc.);
. WENZ-FM and WERE-AM in Cleveland;
. the assets of WFUN-FM in St. Louis (pro forma balance sheet only);
. WKJS-FM and WARV-FM in Richmond;
. WDYL-FM in Richmond; and
. the assets of WBOT-FM in Boston (pro forma balance sheet only);
-- the pending acquisitions of WJRV-FM, WCDX-FM, WPLZ-FM, and WGCV-AM in
Richmond;
-- the repayment of debt;
-- our initial public offering of class A common stock on May 5, 1999;
and
-- this offering.
. The pro forma balance sheet data are adjusted to give effect to the
transactions described above as if they had occurred as of June 30, 1999
unless the transactions had actually occurred prior to that date.
5
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, Six Months Ended June 30,
-------------------------------------- ------------------------------
Historical Historical
------------------------- -----------------
1998 Pro 1999 Pro
1996 1997 1998 Forma 1998 1999 Forma
------- ------- ------- ----------- ------- -------- -----------
(unaudited) (unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Net broadcast revenue... $23,702 $32,367 $46,109 $73,043 $19,528 $ 32,854 $ 40,385
Station operating
expenses............... 13,927 18,848 24,501 42,135 10,510 19,083 22,420
Corporate expenses...... 1,793 2,155 2,800 2,800 1,319 2,153 2,174
Depreciation and
amortization........... 4,262 5,828 8,445 20,910 3,632 7,475 10,209
------- ------- ------- ------- ------- -------- --------
Operating income...... 3,720 5,536 10,363 7,198 4,067 4,143 5,582
Interest expense........ 7,252 8,910 11,455 9,628 4,925 7,489 4,971
Other income (expense),
net.................... (77) 415 358 451 286 141 149
Income tax benefit
(expense).............. -- -- 1,575 500 -- (476) (1,200)
------- ------- ------- ------- ------- -------- --------
Income (loss) before
extraordinary item... $(3,609) $(2,959) $ 841 $(1,479) $ (572) $ (3,681) $ (440)
======= ======= ======= ======= ======= ======== ========
Loss applicable to
common stockholders
before extraordinary
item................... $(3,609) $(4,996) $(2,875) $(1,479) $(2,344) $ (5,157) $ (440)
======= ======= ======= ======= ======= ======== ========
Earnings per common
share:
Basic and diluted..... $ (0.38) $ (0.53) $ (0.31) $ (0.07) $ (0.25) $ (0.40) $ (0.02)
======= ======= ======= ======= ======= ======== ========
Weighted average common
shares outstanding:
Basic and diluted..... 9,392 9,392 9,392 22,102 9,392 12,739 22,102
Other Data:
Broadcast cash flow..... $ 9,775 $13,519 $21,608 $30,908 $ 9,018 $ 13,771 $ 17,965
Broadcast cash flow
margin................. 41.2% 41.8% 46.9% 42.3% 46.2% 41.9% 44.5%
EBITDA (before non-cash
compensation expense).. $ 7,982 $11,364 $18,808 $28,402 $ 7,699 $ 11,843 $ 16,016
After-tax cash flow..... 806 2,869 7,248 18,262 3,060 3,794 9,994
Cash interest expense... 4,815 4,413 7,192 5,986 3,104 5,207 2,993
Accreted preferred stock
dividends.............. -- 2,037 3,716 -- 1,772 1,476 --
Capital expenditures.... 252 2,035 2,236 4,534 1,103 2,119 3,414
Ratio of total debt to EBITDA (before non-cash
compensation expense).......................... 2.8x
Ratio of EBITDA (before non-cash compensation
expense) to interest expense................... 2.9x 3.2x
Ratio of EBITDA (before non-cash compensation
expense) to cash interest expense.............. 4.7x 5.4x
Balance Sheet Data (at
period end):
Cash and cash equivalents........................................... $ 5,018 $139,448
Intangible assets, net.............................................. 200,181 271,261
Total assets........................................................ 243,776 452,406
Total debt (including current portion and deferred interest)........ 96,498 80,498
Total stockholders' equity ......................................... 122,930 347,560
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information in
this prospectus before deciding to invest in shares of class A common stock of
Radio One.
Restrictions Imposed by Our Debt - The terms of our debt restrict us from
engaging in many activities and require us to satisfy various financial tests.
Our bank credit facility and the agreements governing our other outstanding
debt contain covenants that restrict, among other things, our ability to incur
additional debt, pay cash dividends, purchase our capital stock, make capital
expenditures, make investments or other restricted payments, swap or sell
assets, engage in transactions with related parties, secure non-senior debt
with our assets, or merge, consolidate or sell all or substantially all of our
assets.
Our bank credit facility also requires us to get our banks' consent before
we make acquisitions. This restriction may make it more difficult to pursue our
acquisition strategy. Our bank credit facility also requires us to maintain
specific financial ratios. Events beyond our control could affect our ability
to meet those financial ratios, and we cannot assure you that we will meet
them.
All of the loans under our bank credit facility are due on December 31,
2003. A breach of any of the covenants contained in our bank credit facility
could allow our lenders to declare all amounts outstanding under the bank
credit facility to be immediately due and payable. In addition, our banks could
proceed against the collateral granted to them to secure that indebtedness. If
the amounts outstanding under the bank credit facility are accelerated, we
cannot assure you that our assets will be sufficient to repay in full the money
owed to the banks or to our other debt holders.
Substantial Debt - Our substantial level of debt could limit our ability to
grow and compete.
As of June 30, 1999, we had outstanding total debt of $96.5 million
(including $16.0 million bearing interest at variable rates) and stockholders'
equity of $122.9 million.
Our substantial level of indebtedness could adversely affect us for various
reasons, including limiting our ability to:
. obtain additional financing for working capital, capital expenditures,
acquisitions, debt payments or other corporate purposes;
. have sufficient funds available for operations, future business
opportunities or other purposes;
. compete with competitors that have less debt than we do; and
. react to changing market conditions, changes in our industry and
economic downturns.
Additional Borrowings Available--In addition to our current level of
indebtedness, we have the ability to incur substantially more debt. This
additional debt could further exacerbate the risks described above.
Although the agreements governing our indebtedness place certain limitations
on the incurrence of additional indebtedness by us, under certain circumstances
we can incur substantial amounts of additional indebtedness. For example, we
may be able to borrow up to $100.0 million under our bank credit facility.
Additionally, the agreements governing our indebtedness would have permitted us
to incur up to approximately $160.0 million of additional debt as of June 30,
1999, after giving effect to the transactions described under "Unaudited Pro
Forma Consolidated Information," as if they had occurred on June 30, 1999,
unless the transactions had actually occurred prior to that date. If we incur
additional debt, the related risks discussed above could intensify. See
"Description of Indebtedness" for a more detailed discussion of the terms of
certain of our indebtedness.
7
<PAGE>
History of Net Losses - If we have losses in the future, the market price of
our common stock and our ability to raise capital could be adversely affected.
We cannot be certain that we will sustain profitability. Failure to sustain
profitability may adversely affect the market price of our common stock, which
in turn may adversely affect our ability to raise additional equity capital and
to incur additional debt.
Since 1994, we have experienced net losses in three out of five years. The
primary reasons for these losses are significant charges for depreciation and
amortization relating to the acquisition of radio stations and interest charges
on our outstanding debt. If we acquire additional stations, these charges will
probably increase.
Dependence on Key Personnel - The loss of key personnel could disrupt the
management of our business.
Our business depends upon the continued efforts, abilities and expertise of
our executive officers and other key employees. We intend to enter into
employment agreements with several of our key employees, including Catherine L.
Hughes, Alfred C. Liggins, III, and other executive officers. We believe that
the unique combination of skills and experience possessed by these individuals
would be difficult to replace, and that the loss of any one of them could have
a material adverse effect on us. These adverse effects could include the
impairment of our ability to execute our acquisition and operating strategies
and a decline in our standing in the radio broadcast industry.
Competition - We compete for advertising revenue against radio stations and
other media, many of which have greater resources than we do.
Our 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 in which 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.
Risks of Acquisition Strategy - Our growth depends on successfully executing
our acquisition strategy.
We intend to grow by acquiring radio stations primarily in top 40 African-
American markets. We cannot assure you that our acquisition strategy will be
successful. Our acquisition strategy is subject to a number of risks,
including:
. Our pending acquisitions may not be consummated, and we may not
successfully identify and consummate future acquisitions;
. Acquired stations may not increase our broadcast cash flow or yield
other anticipated benefits;
. Required regulatory approvals may result in unanticipated delays in
completing acquisitions;
. We may have difficulty managing our rapid growth; and
. We may be required to raise additional financing and our ability to do
so is limited by the terms of our debt instruments.
Controlling Stockholders - Two common stockholders have a majority interest in
Radio One and have the power to control matters on which Radio One's common
stockholders may vote.
Upon completion of this offering, Catherine L. Hughes and her son, Alfred C.
Liggins, III, will collectively hold approximately 64% (63% if the underwriters
exercise their over-allotment option) of the
8
<PAGE>
outstanding voting power of Radio One's common stock. As a result, Ms. Hughes
and Mr. Liggins will control most decisions involving Radio One, including
transactions involving a change of control of Radio One, such as a sale or
merger. In addition, certain covenants in Radio One's debt instruments require
that Ms. Hughes and Mr. Liggins maintain specified ownership and voting
interests in Radio One, and prohibit other parties' voting interests from
exceeding specified amounts. Ms. Hughes and Mr. Liggins have agreed to vote
their shares together in elections to the board of directors.
Technology Changes, New Services and Evolving Standards - We must respond to
the rapid changes in technology, services and standards which characterize our
industry in order to remain competitive.
The radio broadcasting industry is subject to rapid technological change,
evolving industry standards and the emergence of new media technologies. We
cannot assure you that we will have the resources to acquire new technologies
or to introduce new services that could compete with these new technologies.
Several new media technologies are being developed, including the following:
. Audio programming by cable television systems, direct broadcast
satellite systems, Internet content providers and other digital audio
broadcast formats;
. 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
. In-band on-channel digital radio, which could provide multi-channel,
multi-format digital radio services in the same bandwidth 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.
Importance of the Washington, D.C. and Baltimore Markets - A large portion of
our net broadcast revenue and broadcast cash flow comes from these markets.
Based upon the stations we owned or managed as of June 30, 1999, our radio
stations in Washington, D.C. and Baltimore collectively accounted for 63.5% and
77.1% of our net broadcast revenue and broadcast cash flow, respectively, for
the six-month period ended June 30, 1999, adjusted to include results of
stations acquired between January 1, 1999 and June 30, 1999. A significant
decline in net broadcast revenue or broadcast cash flow from our stations in
either of these markets could have a material adverse effect on our financial
position and results of operations.
Government Regulation - Our business depends on maintaining our licenses with
the FCC. We cannot assure you that we will be able to maintain these licenses.
Radio broadcasters depend upon maintaining radio broadcasting licenses
issued by the FCC. These licenses are ordinarily issued for a maximum term of
eight years and may be renewed. Our radio broadcasting licenses expire at
various times from October 1, 2003 to August 1, 2006. Although we may apply to
renew our FCC licenses, interested third parties may challenge our renewal
applications. In addition, if Radio One or any of our stockholders, officers,
or directors violates the FCC's rules and regulations or the Communications Act
of 1934, as amended, or is convicted of a felony, the FCC may commence a
proceeding to impose sanctions upon us. Examples of possible sanctions include
the imposition of fines; the revocation of our broadcast licenses; or the
renewal of one or more of our broadcasting licenses for a term of fewer than
eight years. If the FCC were to issue an order denying a license renewal
application or revoking a license, we would be required to cease operating the
radio station covered by the license only after we had exhausted administrative
and judicial review without success.
The radio broadcasting industry is subject to extensive and changing federal
regulation. Among other things, the Communications Act and FCC rules and
policies limit the number of broadcasting properties that any person or entity
may own (directly or by attribution) in any market and require FCC approval for
transfers of control and assignments of licenses. The filing of petitions or
complaints against Radio One or any FCC licensee from which
9
<PAGE>
we are acquiring a station could result in the FCC delaying the grant of, or
refusing to grant or imposing conditions on its consent to the assignment or
transfer of control of licenses. The Communications Act and FCC rules also
impose limitations on non-U.S. ownership and voting of the capital stock of
Radio One.
Antitrust Matters - We may have difficulty obtaining regulatory approval for
acquisitions in our existing markets and, potentially, new markets.
An important part of our growth strategy is the acquisition of additional
radio stations. After the passage of the Telecommunications Act of 1996, the
U.S. Department of Justice 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 has adopted 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.
Shares of Common Stock Eligible for Future Sale - Future sales by holders of
restricted stock could depress the market price of the class A common stock.
Upon completion of this offering, we will have 16,034,397 shares of class A
common stock, 2,873,083 shares of class B common stock and 3,195,063 shares of
class C common stock issues and outstanding, assuming no exercise of the
underwriters' over-allotment option. Of these shares, the 4,700,000 shares of
class A common stock being sold in this offering (plus any shares issued upon
exercise of the underwriters' over-allotment option), the 7,150,000 shares of
class A common stock sold in our initial public offering in May 1999 and
approximately 2,293,000 shares of unrestricted class A common stock will be
freely transferable without restriction in the public market, except to the
extent these shares have been acquired by our affiliates, whose sale of such
shares is restricted by Rule 144 under the Securities Act. The remaining shares
of our common stock are "restricted" securities under Rule 144 which, among
other things, limits the number of such shares available for sale in the public
market. However, many of the restrictions of Rule 144 do not apply to persons
who are not our affiliates.
The market price of our class A common stock could decline as a result of
future sales of substantial amounts of class A common stock, or the perception
that such sales could occur. Furthermore, certain of our existing stockholders
have the right to require us to register their shares, which may facilitate
their sale of shares in the public market.
Year 2000 - Computer programs and microprocessors that have date sensitive
software may recognize a date using "00" as year 1900 rather than 2000, or not
recognize the date at all, which could result in major system failures or
miscalculations.
We rely, directly and indirectly, on information technology systems to
operate our radio stations, provide our radio stations with up-to-date news and
perform a variety of administrative services, including accounting, financial
reporting, advertiser spot scheduling, payroll and invoicing. We also use non-
information technology systems, such as microchips, for dating and other
automated functions. We are in the process of assessing and remediating
potential risks to our business related to the Year 2000 problem. Although we
believe that, as a result of these efforts, our critical systems are or will be
substantially Year 2000 ready, we cannot assure you that this will be the case.
One of our greatest potential Year 2000 risks may be that third parties with
whom we deal will fail to be Year 2000 ready. For example, if our programming
suppliers or key advertisers experience significant disruptions in their
businesses because of the Year 2000 problem, we may lose access to programming
and significant advertising revenue.
10
<PAGE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934. 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 "Risk Factors" and elsewhere in this
prospectus. 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
prospectus. 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 prospectus or to reflect the occurrence of unanticipated
events.
11
<PAGE>
USE OF PROCEEDS
The net proceeds from this offering to Radio One, after deducting
underwriting discounts and commissions and estimated offering expenses, based
on the public offering price of $ per share, are estimated to be
approximately $ million ($ million if the underwriters' over-allotment
option is exercised in full).
We expect to use approximately $69.0 million of the net proceeds from this
offering to fund the currently pending acquisition of radio stations in
Richmond and to repay amounts borrowed under our bank credit facility.
We expect to use a substantial portion of the remaining net proceeds of
this offering to acquire radio broadcasting assets and businesses. Depending
on the nature of any such acquisitions, we could apply all, or substantially
all, of the net proceeds of this offering to such acquisitions. As part of our
ongoing business development activities, we expect that we will continue to
consider acquisition opportunities. In this regard, we are currently
evaluating certain acquisition opportunities. We cannot assure, however, that
we will identify suitable acquisition candidates or that we will consummate
any acquisition. We may also use remaining net proceeds for continued business
development activities and general corporate purposes.
The actual amount of net proceeds we spend on a particular use will depend
on many factors, including our future revenue growth, additional financing
sources, if any, and the amount of cash generated by our operations. Many of
these factors are beyond our control. We reserve the right to allocate
proceeds to different uses if, in management's view, the needs of the business
so require. Until we use the net proceeds of this offering as described above,
we intend to invest the net proceeds in short-term investment-grade marketable
securities.
Radio One will not receive any proceeds from class A common stock sold by
the selling stockholders.
DIVIDEND POLICY
Since becoming a public company in May 1999, we have not declared any
dividends on our common stock. We intend to retain future earnings for use in
our business and do not anticipate declaring or paying any cash or stock
dividends on shares of our common stock in the foreseeable future. In
addition, any determination to declare and pay dividends will be made by our
board of directors in light of our earnings, financial position, capital
requirements, the bank credit facility, and the 12% notes indenture, and such
other factors as the board of directors deems relevant. See "Description of
Indebtedness."
12
<PAGE>
PRICE RANGE OF OUR CLASS A COMMON STOCK
Our class A common stock is traded on The Nasdaq Stock Market's National
Market under the symbol "ROIA." The table below shows, for the quarters
indicated, the reported high and low bid quotes for our class A common stock on
the Nasdaq Stock Market's National Market.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fiscal Year 1999
Second Quarter (beginning May 6)......................... $47.00 $28.00
Third Quarter............................................ 46.50 39.63
Fourth Quarter (through November 9)...................... 64.75 41.50
</TABLE>
The initial public offering of our class A common stock was priced on May 5,
1999 at a price of $24.00 per share. The last reported sale price for our class
A common stock on The Nasdaq Stock Market's National Market on November 9,
1999, was $59.00.
13
<PAGE>
CAPITALIZATION
The table below sets forth our capitalization as of June 30, 1999, on an
actual basis and on a pro forma basis giving effect to the transactions
identified below.
. The acquisitions of:
-- Radio One of Atlanta, Inc. ("ROA");
-- Dogwood Communications, Inc. ("Dogwood") by ROA;
-- WENZ-FM and WERE-AM in Cleveland;
-- the assets of WFUN-FM in St. Louis;
-- WDYL-FM in Richmond ("Richmond I");
-- WKJS-FM and WARV-FM in Richmond ("Richmond II");
-- the assets of WBOT-FM in Boston; and
-- WJRV-FM, WCDX-FM, WPLZ-FM and WGCV-AM in Richmond ("Richmond III").
. the repayment of debt; and
. this offering.
The information in this table should be read in conjunction with "Use of
Proceeds," "Unaudited Pro Forma Consolidated Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
As of June 30,
1999
-------------------
Actual Pro Forma
-------- ---------
(unaudited)
(in thousands
except
share data)
<S> <C> <C>
Cash and cash equivalents.............................. $ 5,018 $139,448
======== ========
Long-term debt (including current portion):
Bank credit facility................................. $ 16,000 $ --
12% senior subordinated notes due May 15, 2004....... 80,436 80,436
Other long-term debt................................. 62 62
-------- --------
Total debt......................................... 96,498 80,498
-------- --------
Stockholders' equity (deficit):
Class A common stock, $0.001 par value, 30,000,000
shares authorized, 12,034,397 shares and 16,034,397
shares issued and outstanding, respectively......... 12 16
Class B common stock, $0.001 par value, 30,000,000
shares authorized, 2,873,083 shares issued and
outstanding......................................... 3 3
Class C common stock, $0.001 par value, 30,000,000
shares authorized, 3,195,063 shares issued and
outstanding......................................... 3 3
Additional paid-in capital........................... 152,933 377,559
Accumulated deficit.................................. (30,021) (30,021)
-------- --------
Total stockholders' equity ........................ 122,930 347,560
-------- --------
Total capitalization............................. $219,428 $428,058
======== ========
</TABLE>
14
<PAGE>
RECENT AND PENDING TRANSACTIONS
We have acquired or agreed to acquire 13 radio stations since January 1,
1999. These acquisitions diversify our net broadcast revenue, broadcast cash
flow and asset bases and increase the number of top 20 African-American markets
in which we operate from five to nine.
The table below sets forth information regarding each of the recently
completed or pending acquisitions as of November 1, 1999.
<TABLE>
<CAPTION>
Approximate
No. of Call Purchase Price Date
Stations Letters (in millions) Completed
-------- ------- -------------- ---------
<S> <C> <C> <C> <C>
Completed Transactions
Atlanta (ROA and Dogwood)...... 2 WHTA-FM (/1/) 3/99
WAMJ-FM
Cleveland...................... 2 WENZ-FM $20.0 4/99
WERE-AM
St. Louis...................... 1 WFUN-FM 13.6 6/99
Richmond I..................... 1 WDYL-FM 4.6 7/99
Richmond II.................... 2 WKJS-FM 12.0 7/99
WARV-FM
Boston......................... 1 WBOT-FM 10.0 10/99
--- -----
Subtotal..................... 9 60.2(/2/)
Pending Transaction
Richmond III................... 4 WJRV-FM 34.0 --
WCDX-FM
WPLZ-FM
WGCV-AM
--- -----
Total.......................... 13 $94.2(/2/)
=== =====
</TABLE>
- --------
(/1/) Radio One issued approximately 3.3 million shares of our common stock and
assumed approximately $16.3 million of debt in this transaction.
(/2/) Excludes ROA and Dogwood.
Completed Transactions
Atlanta--Radio One of Atlanta and Dogwood Communications Acquisitions
On March 30, 1999, Radio One acquired ROA, an affiliate of Radio One, for
approximately 3.3 million shares of Radio One common stock. Radio One also
assumed and retired approximately $16.3 million of indebtedness of ROA and
Dogwood. At the time, ROA owned approximately 33% of Dogwood. On March 30,
1999, ROA 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 "Certain Relationships and Related Transactions."
Cleveland--WENZ-FM and WERE-AM Acquisition
On April 30, 1999, Radio One acquired WENZ-FM and WERE-AM, both of which are
licensed to Cleveland, Ohio, for approximately $20.0 million in cash.
15
<PAGE>
St. Louis--WFUN-FM Acquisition
On June 4, 1999, Radio One acquired the assets of WFUN-FM, licensed to
Bethalto, Illinois, for approximately $13.6 million in cash. We are in the
process of moving WFUN-FM to a broadcast tower site closer to downtown St.
Louis and upgrading its signal from 6 kW to 25 kW, and we expect to reformat
the station.
Richmond I and II--WDYL-FM Acquisition and WKJS-FM and WARV-FM Acquisition
On July 1, 1999, Radio One acquired WKJS-FM, licensed to Crewe, Virginia,
and WARV-FM, licensed to Petersburg, Virginia, for approximately $12.0 million
in cash, subject to purchase price adjustments.
On July 15, 1999, Radio One acquired WDYL-FM, licensed to Chester, Virginia,
for approximately $4.6 million in cash.
Boston--WBOT-FM Acquisition
On October 1, 1999, Radio One acquired the assets of WBOT-FM, licensed to
Brockton, Massachusetts, for approximately $10.0 million in cash. WBOT-FM is
temporarily off the air while we change its format from Country to Urban.
Pending Transaction
Richmond III--WJRV-FM, WCDX-FM, WPLZ-FM and WGCV-AM Acquisitions
Pursuant to an asset purchase agreement dated May 6, 1999, Radio One has
agreed to acquire WCDX-FM, licensed to Mechanicsville, Virginia; WPLZ-FM,
licensed to Petersburg, Virginia; WJRV-FM, licensed to Richmond, Virginia; and
WGCV-AM, licensed to Petersburg, Virginia, for approximately $34.0 million in
cash. We have been operating WCDX-FM, WPLZ-FM and WJRV-FM under a time
brokerage agreement since June 1, 1999, and we expect to complete the
acquisition no later than the second half of 2000.
16
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements for the
year ended December 31, 1998, and the six months ended June 30, 1999 (the "Pro
Forma Consolidated Financial Statements"), are based on the historical
Consolidated Financial Statements of Radio One included elsewhere in this
prospectus.
The pro forma amounts for the year ended December 31, 1998 and the six
months ended June 30, 1999, are adjusted to give effect to the following
transactions as if they had occurred as of January 1, 1998:
-- the acquisitions of:
. Bell Broadcasting;
. Allur-Detroit;
. ROA;
. Dogwood by ROA;
. WENZ-FM and WERE-AM in Cleveland
. the assets of WFUN-FM in St. Louis (pro forma balance sheet only);
. WDYL-FM in Richmond;
. WKJS-FM and WARV-FM in Richmond; and
. the assets of WBOT-FM in Boston (pro forma balance sheet only);
-- the pending acquisition of WJRV-FM, WCDX-FM, WPLZ-FM and WGCV-AM in
Richmond;
-- the repayment of debt;
-- our initial public offering of class A common stock on May 5, 1999; and
-- this offering.
The pro forma balance sheet data are adjusted to give effect to the
transactions described above as if they had occurred as of June 30, 1999 unless
the transaction had actually occurred prior to that date.
These transactions are described in the accompanying notes to the Pro Forma
Consolidated Financial Statements. The pro forma data are based upon available
information and certain assumptions that management believes are reasonable.
The Pro Forma Consolidated Financial Statements do not purport to represent
what Radio One's results of operations or financial condition would actually
have been had these transactions occurred on the dates indicated or to project
Radio One's results of operations or financial condition for any future period
or date. The Pro Forma Consolidated Financial Statements should be read in
conjunction with the Consolidated Financial Statements of Radio One and the
historical consolidated financial statements of ROA, Bell Broadcasting, Allur-
Detroit, Richmond II and Richmond III included elsewhere in this prospectus,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The pending acquisition of the operations of the four stations in Richmond
will be accounted for using the purchase method of accounting. After an
acquisition, the total consideration of such acquisition will be allocated to
the tangible and intangible assets acquired and liabilities assumed, if any,
based upon their respective estimated fair values. The allocation of the
aggregate total consideration included in the Pro Forma Consolidated Financial
Statements is preliminary as we believe further refinement is impractical at
this time. However, we do not expect that the final allocation of the total
consideration will materially differ from the preliminary allocations.
17
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations and Other Data
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-----------------------------------------------------------------------------------------------
(in thousands)
Pro Forma
Completed Pro Forma Pending for Completed Pro Forma
Transactions for Completed Transaction and Pending Offering as
Historical(a) Adjustments(b) Transactions Adjustments(c) Transactions Adjustments Adjusted
------------- -------------- ------------- -------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue... $46,109 $19,476 $65,585 $7,458 $73,043 $ -- $73,043
Station operating
expenses............... 24,501 12,966 37,467 4,668 42,135 -- 42,135
Corporate expenses...... 2,800 -- 2,800 -- 2,800 -- 2,800
Depreciation and
amortization........... 8,445 9,753 18,198 2,712 20,910 -- 20,910
------- ------- ------- ------ ------- ------ -------
Operating income....... 10,363 (3,243) 7,120 78 7,198 7,198
Interest expense........ 11,455 -- 11,455 -- 11,455 (1,827)(d) 9,628
Other income (expense),
net.................... 358 93 451 -- 451 451
Income tax benefit
(expense).............. 1,575 (370) 1,205 (31) 1,174 (674)(e) 500
------- ------- ------- ------ ------- ------ -------
Net income (loss)...... $ 841 $(3,520) $(2,679) $ 47 $(2,632) $1,653 $(1,479)
======= ======= ======= ====== ======= ====== =======
Net loss applicable to
common stockholders.... $(2,875) $(2,679) $(2,632) $(1,479)
======= ======= ======= =======
Earnings per common
share:
Basic and diluted...... $ (.31) $ (.07)
Weighted average common
shares outstanding:
Basic and diluted...... 9,392 22,102
Other Data:
Broadcast cash flow(f).. $21,608 $30,908
Broadcast cash flow
margin(g).............. 46.9% 42.3%
EBITDA (before non-cash
compensation
expense)(f)............ $18,808 $28,402
After-tax cash flow(f).. 7,248 18,262
Cash interest
expense(h)............. 7,192 5,986
Capital expenditures.... 2,236 4,534
Ratio of total debt to EBITDA (before non-cash compensation expense)......................................... 2.8x
Ratio of EBITDA (before non-cash compensation expense) to interest expense................................... 2.9x
Ratio of EBITDA (before non-cash compensation expense) to cash interest expense.............................. 4.7x
</TABLE>
18
<PAGE>
Footnotes for the Unaudited Pro Forma Consolidated Statement of Operations and
Other Data for the Year Ended December 31, 1998
(a) See the consolidated financial statements included elsewhere in this
prospectus.
(b) The table below gives effect to the acquisitions completed during the
period from January 1, 1998 through November 1, 1999 as if they had
occurred on January 1, 1998:
<TABLE>
<CAPTION>
Bell
Broadcasting Allur-Detroit ROA Cleveland Richmond I Richmond II
Historical(/1/) Historical(/2/) Historical(/3/) Historical(/4/) Historical(/4/) Historical(/5/)
--------------- --------------- --------------- --------------- --------------- ----------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of
Operations:
Net broadcast
revenue.......... $2,025 $ 2,854 $10,140 $3,295 $400 $1,062
Station operating
expenses......... 1,423 3,239 5,529 1,979 368 1,002
Corporate
expenses......... 663 336 667 -- 14 15
Depreciation and
amortization..... 63 194 896 811 4 416
------ ------- ------- ------ ---- ------
Operating income
(loss)......... (124) (915) 3,048 505 14 (371)
Interest expense.. 52 383 2,007 600 -- 500
Other income
(expense), net... (28) (50) 7 101 -- 21
Income tax benefit
(expense)........ (14) -- (499) (2) (6) --
------ ------- ------- ------ ---- ------
Net income
(loss)......... $ (218) $(1,348) $ 549 $ 4 $ 8 $(850)
====== ======= ======= ====== ==== ======
<CAPTION>
Pro Forma
Adjustments(/6/) Total
------------------- --------
<S> <C> <C>
Statement of
Operations:
Net broadcast
revenue.......... $ (300)(/7/) $19,476
Station operating
expenses......... (574)(/8/) 12,966
Corporate
expenses......... (1,695)(/9/) --
Depreciation and
amortization..... 7,369 (/10/) 9,753
------------------- --------
Operating income
(loss)......... (5,400) (3,243)
Interest expense.. (3,542)(/11/) --
Other income
(expense), net... 42 (/12/) 93
Income tax benefit
(expense)........ 151 (/13/) (370)
------------------- --------
Net income
(loss)......... $(1,665) $(3,520)
=================== ========
</TABLE>
- --------
(/1/) See the unaudited financial statements of Bell Broadcasting for the six
months ended June 30, 1998, included elsewhere in this prospectus, which
is the period during 1998 that Bell Broadcasting was not owned by Radio
One.
(/2/) Derived from the unaudited financial statements of Allur-Detroit for the
period from January 1, 1998 to December 28, 1998, which is the period
during 1998 that the entity was not owned by Radio One.
(/3/) See the consolidated financial statements of ROA included elsewhere in
the prospectus.
(/4/) The column represents the historical results of operations of the
stations to be acquired for the year ended December 31, 1998. As these
stations to be acquired did not prepare stand-alone financial
statements, these financial statements were carved out from a larger
entity and include the direct revenue and expenses charged to the
stations and an allocation of those expenses which benefited the
stations but were not directly charged to the stations. As these results
of operations include allocated expenses, these financial statements do
not represent what the results from operations would have been if the
stations operated on a stand-alone basis or what they would have been if
they were owned by Radio One.
(/5/) The column represents the historical results of operations for the year
ended December 31, 1998 that were obtained from carveout audited
financial statements. See the financial statements included elsewhere in
this prospectus.
(/6/) Historical financial statements and pro forma adjustments related to the
St. Louis and Boston acquisitions have not been included in this pro
forma income statement, because Radio One has determined that these
acquisitions are a purchase of assets. Income statement activity would
not be relevant, because Radio One has taken the current stations off
the air and will reformat them.
(/7/) To reflect the elimination of the management fee paid by ROA to Radio
One for administrative services provided by Radio One.
(/8/) To record compensation expense of $105 for a manager and a general
manager Radio One will need to hire to manage the Detroit market,
eliminate bonuses of $115 paid by Allur-Detroit to employees because of
the sale, and eliminate the salary, bonus and benefits of $564 paid to
the previous Allur-Detroit general manager who was not retained by Radio
One.
(/9/) To eliminate corporate expenses which Radio One does not expect to incur
going forward which consist primarily of compensation of $617 to
officers and former owners of Bell Broadcasting who were not retained by
Radio One, the management fee of $300 paid by ROA to Radio One,
charitable contributions and management fees of $336 paid by the former
owners of Allur-Detroit that would not have been distributed if the
station had been owned by Radio One and other corporate management fees.
(/10/) To record the additional depreciation and amortization expense that
would have been recognized if the Bell Broadcasting, Allur-Detroit, 20%
of Dogwood, ROA Cleveland, Richmond I and Richmond II acquisitions had
occurred as of January 1, 1998.
(/11/) To eliminate interest expense of the acquisitions assuming Radio One
would use proceeds from this offering and the May 5, 1999 offering to
fund the acquisitions and retire certain outstanding debt.
(/12/) To eliminate tax penalties incurred by Bell Broadcasting that are not
expected to be incurred by Radio One on a going-forward basis.
(/13/) To record additional tax benefit related to additional loss as a result
of the acquisitions.
19
<PAGE>
(c) The table below gives effect to the acquisition pending as of November 1,
1999:
<TABLE>
<CAPTION>
Richmond III Pro Forma
Historical(/1/) Adjustments Total
--------------- ----------- ------
(in thousands)
<S> <C> <C> <C>
Statement of Operations:
Net broadcast revenue................ $7,458 $ -- $7,458
Station operating expenses........... 4,668 -- 4,668
Corporate expenses................... 413 (413)(/2/) --
Depreciation and amortization........ 648 2,064 (/3/) 2,712
------ ------- ------
Operating income .................. 1,729 (1,651) 78
Income tax expense................... -- 31 (/4/) 31
------ ------- ------
Net income ........................ $1,729 $(1,682) $ 47
====== ======= ======
</TABLE>
- --------
(/1/) The column represents the historical results of operations for the year
ended December 31, 1998, that were carved out audited financial
statements. See the financial statements included elsewhere in this
prospectus.
(/2/) To eliminate corporate management fees which would not be incurred by
Radio One.
(/3/) To record additional amortization of $2,064 for intangibles related to
the excess purchase price of $32,767 over 15 years, less the amortization
previously recorded by the acquired company.
(/4/) To record additional tax provision related to additional income as a
result of the acquisition.
(d) To record the decrease in interest expense assuming Radio One uses the
proceeds of this offering and the May 5, 1999 offering to retire certain
outstanding debt.
(e) To reflect the tax effect for pro forma income.
(f) Broadcast cash flow consists of operating income before depreciation,
amortization, local marketing agreement fees and corporate expenses.
EBITDA (before non-cash compensation expense) consists of operating
income before depreciation, amortization, non-cash compensation expense
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 and non-cash
compensation expense. Although broadcast cash flow, EBITDA (before non-
cash compensation expense), 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 (before non-cash compensation expense) 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 (before non-cash compensation expense) 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.
(g) Broadcast cash flow margin is defined as broadcast cash flow divided by
net broadcast revenue.
(h) 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.
20
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations and Other Data
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
--------------------------------------------------------------------------------------------
Pro Forma
Pro Forma for
Completed for Pending Completed Pro
Transactions Completed Transaction and Pending Offerings Forma as
Historical(a) Adjustments(b) Transactions Adjustments(c) Transactions Adjustments Adjusted
------------- -------------- ------------ -------------- ------------ ----------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue... $32,854 $4,967 $37,821 $2,564 $40,385 -- $40,385
Station operating
expenses............... 19,083 2,742 21,825 595 22,420 -- 22,420
Corporate expenses...... 2,153 21 2,174 -- 2,174 -- 2,174
Depreciation and
amortization........... 7,475 1,561 9,036 1,173 10,209 -- 10,209
------- ------ ------- ------ ------- ------ -------
Operating income....... 4,143 643 4,786 796 5,582 5,582
Interest expense........ 7,489 -- 7,489 (233) 7,256 (2,285)(d) 4,971
Other income, net....... 141 8 149 -- 149 149
Income tax expense...... 476 500 976 224 1,200 -- 1,200
------- ------ ------- ------ ------- ------ -------
Net income (loss)...... $(3,681) $ 151 $(3,530) $ 805 $(2,725) $2,285 $ (440)
======= ====== ======= ====== ======= ====== =======
Net loss applicable to
common stockholders.... $(5,157) $(5,006) $(2,725) $ (440)
======= ======= ======= =======
Earnings per common
share:
Basic and diluted...... $ (0.40) $ (0.02)
Weighted average common
shares outstanding:
Basic and diluted...... 12,739 22,102
Other Data:
Broadcast cash
flow(e)............... $13,771 $17,965
Broadcast cash flow
margin(f)............. 41.9% 44.5%
EBITDA (before non-cash
compensation
expense)(e)........... $11,843 $16,016
After-tax cash
flow(e)............... 3,794 9,994
Cash interest
expense(g)............ 5,207 2,993
Capital expenditures... 2,119 3,414
Ratio of EBITDA (before non-cash compensation expense) to interest expense................................ 3.2x
Ratio of EBITDA (before non-cash compensation expense) to cash interest expense........................... 5.4x
</TABLE>
21
<PAGE>
Footnotes for the Unaudited Pro Forma Consolidated Statement of Operations and
Other Data for the Six Months Ended June 30, 1999
(a) See the consolidated financial statements included elsewhere in this
prospectus.
(b) The table below gives effect to the acquisitions completed during the
period from January 1, 1999 through November 1, 1999 as if they had
occurred on January 1, 1998:
<TABLE>
<CAPTION>
ROA Cleveland Richmond I Richmond II Pro Forma
Historical(/1/) Historical(/2/) Historical(/2/) Historical(/3/) Adjustments(/4/) Total
--------------- --------------- --------------- --------------- ---------------- ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue... $2,447 $977 $198 $1,420 $ (75)(/5/) $4,967
Station operating
expenses............... 1,388 513 182 659 -- 2,742
Corporate expenses...... 96 -- 6 8 (89)(/6/) 21
Depreciation and
amortization........... 202 137 8 182 1,032 (/7/) 1,561
------ ---- ---- ------ ------ ------
Operating income
(loss)............... 761 327 2 571 (1,018) 643
Interest expense,
including extraordinary
item................... 491 -- -- 231 (722)(/8/) --
Other income, net....... -- -- -- 8 -- 8
Income tax expense...... 100 -- 6 -- 394 (/9/) 500
------ ---- ---- ------ ------ ------
Net income (loss)..... $ 170 $327 $ (4) $ 348 $ (690) $ 151
====== ==== ==== ====== ====== ======
</TABLE>
- --------
(/1/) See the consolidated financial statements of ROA included elsewhere in
the prospectus.
(/2/) The column represents the historical results of operations of the
stations to be acquired for the six months ended June 30, 1999. As these
stations to be acquired did not prepare stand-alone financial statements,
these financial statements were carved out from a larger entity and
include the direct revenue and expenses charged to the stations and an
allocation of those expenses which benefited the stations but were not
directly charged to the stations. As these results of operations include
allocated expenses, these financial statements do not represent what the
results from operations would have been if the stations operated on a
stand-alone basis or what they would have been if they were owned by
Radio One.
(/3/) The column represents the historical results of operations for the six
months ended June 30, 1999 that were obtained from carveout unaudited
financial statements. See the financial statements included elsewhere in
this prospectus.
(/4/) Historical financial statements and pro forma adjustments related to the
St. Louis and Boston acquisitions have not been included in this pro
forma income statement, because Radio One has determined that these
acquisitions are purchases of assets. Income statement activity would not
be relevant, because Radio One has taken the current stations off the
air, and will reformat the stations.
(/5/) To reflect the elimination of the management fee paid by ROA to Radio One
for administrative services provided by Radio One.
(/6/) To eliminate corporate expenses which Radio One does not expect to incur
going forward which consist primarily of corporate management fees.
(/7/) To record the additional depreciation and amortization expense that would
have been recognized if the ROA, Cleveland and Richmond I and II
acquisitions had occurred.
(/8/) To eliminate interest expense of the acquisitions assuming Radio One uses
the proceeds from this offering and the May 5, 1999 offering to fund the
acquisitions and retire certain outstanding debt.
(/9/) To record additional tax expense related to additional income as a result
of the acquisitions.
22
<PAGE>
(c) The table below gives effect to the acquisition pending as of November 1,
1999:
<TABLE>
<CAPTION>
Richmond III Pro Forma
Historical(/1/) Adjustments Total
--------------- ----------- ------
(in thousands)
<S> <C> <C> <C>
Statement of Operations:
Net broadcast revenue................ $2,564 $ -- $2,564
Station operating expenses........... 595 -- 595
Corporate expenses................... 206 (206)(/2/) --
Depreciation and amortization........ 161 1,012 (/3/) 1,173
------ ------ ------
Operating income .................. 1,602 (806) 796
Interest expense..................... 82 (315)(/4/) (233)
Income tax expense................... -- 224 (/5/) 224
------ ------ ------
Net income......................... $1,520 $ (715) $ 805
====== ====== ======
</TABLE>
- --------
(/1/) The column represents the historical results of operations for the period
ended May 31, 1999 that were obtained from carveout unaudited financial
statements, as Radio entered into an LMA with Richmond III on June 1,
1999.
(/2/) To eliminate corporate management fees which would not be incurred by
Radio One.
(/3/) To record additional amortization of $1,012 for intangibles related to
the excess purchase price of $32,790 over 15 years, less the amortization
previously recorded by the acquired company.
(/4/) To eliminate the LMA fee paid by Radio One to Richmond III and to
eliminate interest expense of the Richmond III acquisition assuming Radio
One uses the proceeds from this offering and the May 5, 1999 offering to
fund the acquisition and retire the outstanding debt.
(/5/) To record additional tax expense related to additional income as a result
of the acquisition.
(d) To record the decrease in interest expense assuming Radio One uses the
proceeds of this offering and the May 5, 1999 offering to retire
outstanding debt.
(e) Broadcast cash flow consists of operating income before depreciation,
amortization, local marketing agreement fees and corporate expenses.
EBITDA (before non-cash compensation expense) consists of operating
income before depreciation, amortization, non-cash compensation expense
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 and non-cash
compensation expense. Although broadcast cash flow, EBITDA (before non-
cash compensation expense), 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(before non-cash compensation expense) 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 (before non-cash compensation expense) and after-tax
23
<PAGE>
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.
(f) Broadcast cash flow margin is defined as broadcast cash flow divided by
net broadcast revenue.
(g) 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.
24
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
<TABLE>
<CAPTION>
As of June 30, 1999
-----------------------------------------------------------------------------------------------------
Pro Forma for
Completed Pro Forma for Pending Completed
Transactions Completed Transaction and Pending Offering Pro Forma
Historical (a) Adjustments (b) Transactions Adjustments (c) Transactions Adjustments as Adjusted
-------------- --------------- ------------- --------------- ------------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........ $ 5,018 $(40,200) $(35,182) $(34,000) $(69,182) $208,630(d) $139,448
Trade accounts
receivable, net.... 16,879 835 17,714 -- 17,714 -- 17,714
Prepaid expenses
and other.......... 766 10 776 18 794 -- 794
Deferred taxes...... 826 -- 826 -- 826 -- 826
-------- -------- -------- -------- -------- -------- --------
Total current
assets........... 23,489 (39,355) (15,866) (33,982) (49,848) 208,630 158,782
Property and
equipment, net...... 15,349 1,065 16,414 1,192 17,606 -- 17,606
Intangible assets,
net................. 200,181 38,290 238,471 32,790 271,261 -- 271,261
Other assets......... 4,757 -- 4,757 -- 4,757 -- 4,757
-------- -------- -------- -------- -------- -------- --------
Total assets...... $243,776 $ -- $243,776 $ -- $243,776 $208,630 $452,406
======== ======== ======== ======== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
and accrued
expenses........... $ 9,405 $ -- $ 9,405 $ -- $ 9,405 $ -- $ 9,405
-------- -------- -------- -------- -------- -------- --------
Total current
liabilities...... 9,405 -- 9,405 -- 9,405 -- 9,405
Bank credit
facility............ 16,000 -- 16,000 -- 16,000 (16,000)(e) --
12% notes due 2004... 80,436 -- 80,436 -- 80,436 -- 80,436
Other long-term
debt................ 62 -- 62 -- 62 -- 62
Deferred tax
liability........... 14,943 -- 14,943 -- 14,943 -- 14,943
-------- -------- -------- -------- -------- -------- --------
Total
liabilities...... 120,846 -- 120,846 -- 120,846 (16,000) 104,846
-------- -------- -------- -------- -------- -------- --------
Stockholders' equity
(deficit):
Class A common
stock.............. 12 -- 12 -- 12 4 (f) 16
Class B common
stock.............. 3 -- 3 -- 3 -- 3
Class C common
stock.............. 3 -- 3 -- 3 -- 3
Additional paid in
capital............ 152,933 -- 152,933 -- 152,933 224,626 (f) 377,559
Accumulated
deficit............ (30,021) -- (30,021) -- (30,021) -- (30,021)
-------- -------- -------- -------- -------- -------- --------
Total
stockholders'
equity........... 122,930 -- 122,930 -- 122,930 224,630 347,560
-------- -------- -------- -------- -------- -------- --------
Total liabilities
and stockholders'
equity........... $243,776 $ -- $243,776 $ -- $243,776 $208,630 $452,406
======== ======== ======== ======== ======== ======== ========
</TABLE>
25
<PAGE>
Footnotes for the Unaudited Pro Forma Consolidated Balance Sheet as of June 30,
1999
(a) See the Consolidated Financial Statements included elsewhere in this
prospectus.
(b) The table below gives effect to the acquisitions completed between July 1,
1999 and November 1, 1999 as if they were completed on June 30, 1999.
<TABLE>
<CAPTION>
As of June 30, 1999
------------------------------------------------------------------------------------------
Richmond I Richmond II St. Louis Boston Acquisitional
Historical(/1/) Historical(/2/) Historical(/3/) Historical(/3/) Adjustments Total
--------------- --------------- --------------- --------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents.......... $-- $ 87 $-- $-- $(40,287)(/4/) $(40,200)
Trade accounts
receivable, net...... 62 773 -- -- -- 835
Prepaid expenses and
other................ -- 10 -- -- -- 10
---- ------ ---- ---- -------- --------
Total current
assets............. 62 870 -- -- (40,287) (39,355)
Property and equipment,
net.................... 24 1,041 -- -- -- 1,065
Intangible assets, net.. -- 3,282 -- -- 35,008 (/5/) 38,290
---- ------ ---- ---- -------- --------
Total assets........ $ 86 $5,193 $-- $-- $ (5,279) $ --
==== ====== ==== ==== ======== ========
LIABILITIES AND STATION
EQUITY
Current Liabilities:
Accounts payable and
accrued expenses..... $-- $ 102 $-- $-- $ (102)(/6/) $ --
Current portion of
long-term debt....... -- 16 -- -- (16)(/6/) --
---- ------ ---- ---- -------- --------
Total current
liabilities........ -- 118 -- -- (118)(/6/) --
Long-term debt and
deferred interest...... -- 5,054 -- -- (5,054)(/6/) --
---- ------ ---- ---- -------- --------
Total liabilities... -- 5,172 -- -- (5,172) --
Station equity ......... 86 21 -- -- (107)(/7/) --
---- ------ ---- ---- -------- --------
Total liabilities
and station
equity............. $ 86 $5,193 $-- $-- $ (5,279) $ --
==== ====== ==== ==== ======== ========
</TABLE>
- --------
(/1/) The column represents the historical balance sheet of the stations
acquired. As the stations acquired did not prepare stand-alone financial
statements, these financial statements were carved out from a larger
entity and include the assets and liabilities of the stations to be
acquired.
(/2/) See Financial Statements included elsewhere in this prospectus.
(/3/) Historical financial statements related to the St. Louis and Boston
acquisitions have not been included in this pro forma balance sheet
because Radio One has determined that these acquisitions are a purchase
of the license only.
(/4/) To reflect the cash paid by Radio One of $40,200 for the Richmond I and
II, St. Louis and Boston acquisitions and to reflect cash not assumed
from the acquired companies.
(/5/) To record intangible assets booked as a result of the acquisitions,
calculated as follows:
<TABLE>
<CAPTION>
Net Tangible
Purchase Assets Intangibles
Price Acquired Acquired
-------- -------- -----------
<S> <C> <C> <C>
Total............................................ $40,200 $1,910 $38,290
Less: Intangibles recorded on historical books... 3,282
-------
Pro forma adjustment............................. $35,008
=======
</TABLE>
(/6/) To eliminate accounts payable, accrued expenses and debt that will not be
assumed by Radio One.
(/7/) To eliminate the station equity from the entities acquired.
26
<PAGE>
(c) The table below gives effect to the pending acquisition as of November 1,
1999 as if it had occurred on June 30, 1999.
<TABLE>
<CAPTION>
Richmond III Acquisition
Historical(/1/) Adjustments Total
--------------- ----------- --------
(in thousands)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........... $ 36 $(34,036)(/2/) $(34,000)
Trade accounts receivable, net...... 1,247 (1,247)(/3/) --
Prepaid expenses and other.......... 18 -- 18
------ -------- --------
Total current assets.............. 1,301 (35,283) (33,982)
Property and equipment, net.......... 1,192 -- 1,192
Intangible assets, net............... 4,257 28,533 (/4/) 32,790
------ -------- --------
Total assets...................... $6,750 $ (6,750) $ --
====== ======== ========
LIABILITIES AND STATION EQUITY
Current Liabilities:
Accounts payable and accrued
expenses........................... $ 300 $ (300)(/5/) $ --
Current portion of long-term debt... -- -- --
------ -------- --------
Total current liabilities......... 300 (300) --
Station equity ...................... 6,450 (6,450)(/6/) --
------ -------- --------
Total liabilities and station
equity (deficit)................. $6,750 $ (6,750) $ --
====== ======== ========
</TABLE>
- --------
(/1/) This column represents the historical balance sheet of Richmond III as of
June 1, 1999, the date Radio One entered into an LMA with Richmond III.
Richmond III had no broadcast operations during the month of June 1999.
All broadcast revenues, expenses, and assets, except for the station's
FCC licenses, are recorded in the financial statements of Radio One
subsequent to June 1, 1999.
(/2/) To reflect the cash paid by Radio One of $34,000 for the Richmond III
acquisition and to reflect cash not assumed from the acquired company.
(/3/) To eliminate the trade accounts receivable not purchased in the Richmond
III acquisition.
(/4/) To record intangible assets booked as a result of the acquisition,
calculated as follows:
<TABLE>
<CAPTION>
Net Tangible
Purchase Assets Intangibles
Price Acquired Acquired
-------- ------------ -----------
<S> <C> <C> <C>
Total....................................... $34,000 $1,210 $32,790
Less: Intangibles recorded on historical
books...................................... 4,257
-------
Pro forma adjustment........................ $28,533
=======
</TABLE>
(/5/) To eliminate accounts payable and accrued expenses that will not be
assumed by Radio One.
(/6/) To eliminate the station equity from the entity acquired.
(d) To reflect the net proceeds of this offering assuming the sale of
4,000,000 shares of class A common stock at a public offering price of
$59.00 per share less underwriting discounts, commissions and offering
expenses of $11,370, and retirement of borrowings under the bank credit
facility.
(e) To reflect the retirement of debt with the proceeds from this offering.
(f) To reflect the net proceeds of this offering assuming the sale of
4,000,000 shares of class A common stock at a public offering price of
$59.00 per share, less underwriting discounts, commissions and offering
costs of $11,370 for this offering.
27
<PAGE>
SELECTED HISTORICAL CONSOLIDATED 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 for the six months ended
June 30, 1998, and 1999 have been derived from the unaudited consolidated
financial statements included elsewhere in this prospectus. The selected
historical consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of Radio One included
elsewhere in this prospectus.
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, 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.
28
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
Fiscal Year Ended December 31,(/1/) June 30,(/1/)
-------------------------------------- ------------------
Dec. 25,
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue....... $15,541 $ 21,455 $ 23,702 $ 32,367 $ 46,109 $ 19,528 $ 32,854
Station operating expenses.. 8,506 11,736 13,927 18,848 24,501 10,510 19,083
Corporate expenses.......... 1,128 1,995 1,793 2,155 2,800 1,319 2,153
Depreciation and
amortization............... 2,027 3,912 4,262 5,828 8,445 3,632 7,475
------- -------- -------- -------- -------- -------- --------
Operating income........... 3,880 3,812 3,720 5,536 10,363 4,067 4,143
Interest expense(/2/)....... 2,665 5,289 7,252 8,910 11,455 4,925 7,489
Other income (expense),
net........................ 38 89 (77) 415 358 286 141
Income tax benefit
(expense)(/3/)............. (30) -- -- -- 1,575 -- (476)
------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item........ 1,223 (1,388) (3,609) (2,959) 841 (572) (3,681)
Extraordinary loss.......... -- 468 -- 1,985 -- -- --
------- -------- -------- -------- -------- -------- --------
Net income (loss).......... $ 1,223 $ (1,856) $ (3,609) $ (4,944) $ 841 $ (572) $ (3,681)
======= ======== ======== ======== ======== ======== ========
Net income (loss) applicable
to common stockholders..... $ 1,223 $ (1,856) $ (3,609) $ (6,981) $ (2,875) $ (2,344) $ (5,157)
======= ======== ======== ======== ======== ======== ========
Earnings per common share:
Basic and diluted......... $ 0.16 $ (0.22) $ (0.38) $ (0.74) $ (0.31) $ (0.25) $ (0.40)
Weighted average common
shares
outstanding:
Basic and diluted......... $ 7,435 $ 8,413 $ 9,392 $ 9,392 $ 9,392 $ 9,392 $ 12,739
Other Data:
Broadcast cash flow......... $ 7,035 $ 9,719 $ 9,775 $ 13,519 $ 21,608 $ 9,018 $ 13,771
Broadcast cash flow
margin(/4/)................ 45.3% 45.3% 41.2% 41.8% 46.9% 46.2% 41.9%
EBITDA (before non-cash
compensation).............. 5,907 7,724 7,982 11,364 18,808 7,699 11,843
After-tax cash flow......... 2,763 2,524 806 2,869 7,248 3,060 3,794
Cash interest expense(/5/).. 2,356 5,103 4,815 4,413 7,192 3,104 5,207
Accreted preferred stock
dividends.................. -- -- -- 2,037 3,716 1,772 1,476
Capital expenditures........ 639 224 252 2,035 2,236 1,103 2,119
Balance Sheet Data (at
period end):
Cash and cash equivalents... $ 1,417 $ 2,703 $ 1,708 $ 8,500 $ 4,455 $ 3,431 $ 5,018
Intangible assets, net...... 11,705 43,455 39,358 54,942 127,639 89,236 200,181
Total assets................ 20,566 55,894 51,777 79,225 153,856 110,876 243,776
Total debt (including
current portion
and deferred interest)..... 23,049 64,585 64,939 74,954 131,739 105,821 96,498
Preferred stock............. -- -- -- 22,968 26,684 24,741 --
Total stockholders'
(deficit) equity........... (4,367) (11,394) (15,003) (21,984) (24,859) (24,328) $122,930
</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.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with "Selected
Historical Consolidated Financial Data" and the Financial Statements and the
notes thereto included elsewhere in this prospectus.
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
(1) a radio station's audience share in the demographic groups targeted by
advertisers, as measured principally by quarterly reports developed by
Arbitron, (2) the number of radio stations in the market competing for the same
demographic groups, and (3) 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 group 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 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
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corresponding period in the prior year. However, no station will be included in
such a comparison unless it has been 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, through June 30, 1999, Radio One acquired 11 radio
stations. On May 19, 1997, Radio One acquired WPHI-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 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 WDMK-FM, in Detroit,
for approximately $26.5 million. On March 30, 1999, Radio One acquired its
affiliate, ROA, for approximately 3.3 million shares of Radio One common stock,
and ROA acquired the 67% of Dogwood it did not own for approximately $3.6
million. On April 30, 1999, Radio One acquired WENZ-FM and WERE-AM for
approximately $20.0 million. On June 4, 1999, Radio One acquired the assets of
WFUN-FM for approximately $13.6 million.
The consolidated financial statements of Radio One for fiscal years 1996,
1997 and 1998 included elsewhere in this prospectus 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 consolidated financial statements of
Radio One for the six months ended June 30, 1999, included elsewhere in this
prospectus set forth the results of operations of: ROA and Dogwood from March
30, 1999, through June 30, 1999; WENZ-FM and WERE-AM from April 30, 1999
through June 30, 1999; and WFUN-FM from June 4, 1999, through June 30, 1999.
The discussion below concerning results of operations reflects the operations
of radio stations Radio One owned and/or managed during the periods presented.
As a result of the acquisition of WPHI-FM in May 1997, WYCB-AM in March 1998,
Bell Broadcasting in June 1998, Allur-Detroit in December 1998, ROA and Dogwood
in March 1999, WENZ-FM and WERE-AM in April 1999, and WFUN-FM in June 1999,
Radio One's historical financial data prior to such times are not directly
comparable to Radio One's historical financial data for subsequent periods.
Additionally, due to recent acquisition activity, our pro forma results for
fiscal year 1998 and the six months ended June 30, 1999, differ materially from
our actual results for the same periods. For the year ended December 31, 1998,
pro forma for completed transactions, net broadcast revenue and broadcast cash
flow were approximately $65.6 million and $28.1 million, respectively, compared
to actual net broadcast revenue and broadcast cash flow of $46.1 million and
$21.6 million, respectively. For the six months ended June 30, 1999, pro forma
for completed transactions, net broadcast revenue and broadcast cash flow were
approximately $37.8 million and $16.0 million, respectively, compared to actual
net broadcast revenue and broadcast cash flow of $32.8 million and $13.7
million, respectively.
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Results of Operations
The following table summarizes Radio One's historical consolidated results
of operations.
<TABLE>
<CAPTION>
Three Months Six Months
Year Ended December 31, Ended June 30, Ended June 30,
------------------------- ---------------- ----------------
1996 1997 1998 1998 1999 1998 1999
------- ------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue... $23,702 $32,367 $46,109 $11,505 $21,037 $19,528 $32,854
Station operating
expenses............... 13,927 18,848 24,501 5,446 11,467 10,510 19,083
Corporate expenses...... 1,793 2,155 2,800 678 1,070 1,319 1,928
Stock-based
compensation........... -- -- -- -- -- -- 225
Depreciation and
amortization........... 4,262 5,828 8,445 1,859 4,347 3,632 7,475
------- ------- ------- ------- ------- ------- -------
Operating income....... 3,720 5,536 10,363 3,522 4,153 4,067 4,143
Interest expense........ 7,252 8,910 11,455 2,547 3,752 4,925 7,489
Other income (expense),
net.................... (77) 415 358 156 78 286 141
------- ------- ------- ------- ------- ------- -------
Income (loss) before
benefit for income
taxes and extraordinary
item................... (3,609) (2,959) (734) 1,131 479 (572) (3,205)
------- ------- ------- ------- ------- ------- -------
Income tax benefit
(expense).............. -- -- 1,575 -- (225) -- (476)
Income (loss) before
extraordinary item.... (3,609) (2,959) 841 1,131 254 (572) (3,681)
------- ------- ------- ------- ------- ------- -------
Extraordinary loss...... -- 1,985 -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss).... $(3,609) $(4,944) $ 841 $ 1,131 $ 254 $ (572) $(3,681)
======= ======= ======= ======= ======= ======= =======
Broadcast cash flow..... $ 9,775 $13,519 $21,608 $ 6,059 $ 9,570 $ 9,018 $13,771
Broadcast cash flow
margin................. 41.2% 41.8% 46.9% 52.7% 45.5% 46.2% 41.9%
EBITDA.................. $ 7,982 $11,364 $18,808 $ 5,381 $ 8,500 $ 7,699 $11,843
After-tax cash flow..... 806 2,869 7,248 2,990 4,601 3,060 3,794
</TABLE>
Three Months and Six Months Ended June 30, 1999, Compared to Three Months and
Six Months Ended June 30, 1998
Net Broadcast Revenue. Net broadcast revenue increased to approximately
$21.0 million for the quarter ended June 30, 1999 from approximately $11.5
million for the quarter ended June 30, 1998 or 82.6%. Net broadcast revenue
increased to approximately $32.9 million for the six months ended June 30, 1999
from approximately $19.5 million for the six months ended June 30, 1998 or
68.7%. This increase in net broadcast revenue was the result of continuing
broadcast revenue growth in our Washington, Baltimore and Philadelphia markets
as we benefitted from historical ratings increases at certain of our radio
stations, improved power ratios at these stations as well as industry growth in
each of these markets. Additional revenue gains were derived from our recent
acquisitions in Detroit and Cleveland and from the radio stations being
operated under a time brokerage agreement in Richmond, as well as the March,
1999 acquisition of our former affiliate, Radio One of Atlanta, Inc.
Station Operating Expenses. Station operating expenses excluding
depreciation and amortization increased to approximately $11.5 million for the
quarter ended June 30, 1999 from approximately $5.4 million for the quarter
ended June 30, 1998 or 113.0%. Approximately $2.9 million of the increase was
attributable to stations acquired or operated under a time brokerage agreement
since June 30, 1998. Station operating expenses excluding depreciation and
amortization increased to approximately $19.1 million for the six months ended
June 30, 1999 from approximately $10.5 million for the six months ended June
30, 1998 or 81.9%. Approximately $4.3 million of the increase was attributable
to stations acquired or operated under a time brokerage agreement since June
30, 1998. On a same station basis, station operating expenses increased 62.8%
to approximately $8.6 million and 70.9% to approximately $14.8 million for the
quarter and six months ended June 30, 1999, respectively. These increases were
the result of significant increases in revenue, higher spending on marketing
and promotions, additional costs associated with higher ratings and the overall
growth of our business.
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Corporate Expenses. Corporate expenses excluding stock-based compensation
increased to approximately $1.1 million from approximately $0.7 million for the
quarter ended June 30, 1999 or 57.1%. Corporate expenses excluding stock-based
compensation increased to approximately $1.9 million from approximately $1.3
million for the six months ended June 30, 1999 or 46.2%. These increases were
due primarily to growth in our corporate staff consistent with our overall
expansion as well as increases in the compensation of certain executives and
other costs associated with operating as a public company.
Depreciation and Amortization. Depreciation and amortization increased to
approximately $4.3 million from approximately $1.9 million for the quarter
ended June 30, 1999 or 126.3%. Depreciation and amortization increased to
approximately $7.5 million from approximately $3.6 million for the six months
ended June 30, 1999 or 108.3%. These increases were due to our asset growth as
well as our acquisitions during 1998 and 1999.
Operating Income. Operating income increased to approximately $4.2 million
for the quarter ended June 30, 1999 from approximately $3.5 million for the
quarter ended June 30, 1998. Operating income was flat at approximately $4.1
million for each of the six month periods ended June 30, 1999 and June 30,
1998. This increase for the quarter and flatness for the six month period were
attributable to higher depreciation and amortization expenses associated with
our several acquisitions made within the last year offset by higher revenue as
described above.
Interest Expense. Interest expense increased to approximately $3.8 million
for the quarter ended June 30, 1999 from approximately $2.5 million for the
quarter ended June 30, 1998 or 52.0%. Interest expense increased to
approximately $7.5 million for the six months ended June 30, 1999 from
approximately $4.9 million for the six months ended June 30, 1998 or 53.1%.
These increases relate primarily to interest incurred on borrowings under our
bank credit facility to help fund the several acquisitions made by us within
the past year.
Other Income. Other income decreased to $78,000 for the quarter ended June
30, 1999 from $156,000 for the quarter ended June 30, 1998 or 50.0%. Other
income decreased to $141,000 for the six months ended June 30, 1999 from
$286,000 for the six months ended June 30, 1998 or 50.1%. These decreases were
primarily attributable to lower interest income due to lower average cash
balances as we partially used our free cash balances to help fund acquisitions
made during the quarter as well as to help reduce our outstanding balance on
our senior bank credit facility, which stood at $16.0 million at June 30, 1999
as compared to approximately $49.4 million at June 30, 1998.
Income (loss) before Benefit from Income Taxes. Income before benefit for
income taxes decreased to approximately $0.5 million for the quarter ended June
30, 1999 from approximately $1.1 million for the quarter ended June 30, 1998 or
54.5%. Loss before benefit for income taxes increased to approximately $3.2
million for the six months ended June 30, 1999 from approximately $0.6 million
for the six months ended June 30, 1998 or 433.3%. This decrease in income for
the quarter and increase in the loss for the six month period were primarily
due to higher interest and depreciation and amortization expenses as described
above, partially offset by higher revenue.
Net Income (Loss). Net income decreased to approximately $0.3 million for
the quarter ended June 30, 1999 from approximately $1.1 million for the quarter
ended June 30, 1998 or 72.7%. Net loss increased to approximately $3.7 million
for the six months ended June 30, 1999 from approximately $0.6 million for the
six months ended June 30, 1998 or 516.7%. This decrease in income for the
quarter and increase in the loss for the six month period was due to the
factors described above as well as a tax provision for each of the second
quarter and first six month periods of 1999 associated with an estimate of our
effective tax rate for all of 1999. In 1998, we used our remaining net
operating losses and did not incur a tax liability during the first six months
of 1998.
Broadcast Cash Flow. Broadcast cash flow increased to approximately $9.6
million for the quarter ended June 30, 1999 from approximately $6.1 million for
the quarter ended June 30, 1998 or 57.4%. Broadcast cash
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<PAGE>
flow increased to approximately $13.8 million for the six months ended June 30,
1999 from approximately $9.0 million for the six months ended June 30, 1998 or
53.3%. These increases were attributable to the increases in broadcast revenue
partially offset by higher operating expenses as described above.
EBITDA. EBITDA, excluding stock-based compensation expense, increased to
approximately $8.5 million for the quarter ended June 30, 1999 from
approximately $5.4 million for the quarter ended June 30, 1998 or 57.4%.
EBITDA, excluding stock-based compensation expense, increased to approximately
$11.8 million for the six months ended June 30, 1999 from approximately $7.7
million for the six months ended June 30, 1998 or 53.2%. These increases were
attributable to the increase in broadcast revenue partially offset by higher
operating expenses and higher corporate expenses partially associated with the
costs of operating as a public company.
After-Tax Cash Flow. After-tax cash flow increased to approximately $4.6
million for the quarter ended June 30, 1999 from approximately $3.0 million for
the quarter ended June 30, 1998, or 53.3%. After-tax cash flow increased to
approximately $3.8 million for the six months ended June 30, 1999 from
approximately $3.1 million for the six months ended June 30, 1998, or 22.6%.
These increases were attributable to the increase in operating income partially
offset by higher interest charges associated with the financings of various
acquisitions as well as the provision for income taxes for 1999, as described
above.
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.
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.
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<PAGE>
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 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.
35
<PAGE>
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 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 a
former 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
preferred stock.
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<PAGE>
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 1997 from approximately
$9.8 million in 1996. 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. 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 (1) the bank
credit facility, (2) the proceeds of this offering, and (3) internally
generated cash flow. A portion of the net proceeds from this offering will be
used to repay our outstanding indebtedness under the bank credit facility. See
"Use of Proceeds."
Our capital structure consists of our outstanding long-term debt and
stockholders' equity. The stockholders' equity consists of common stock,
additional paid-in capital and accumulated deficit. Our balance of cash and
cash equivalents was approximately $4.5 million as of December 31, 1998. Our
balance of cash and cash equivalents was approximately $5.0 million as of June
30, 1999. This increase resulted primarily from stronger cash flows from
operating activities as well as our initial public offering on May 6, 1999 from
which we raised approximately $119.0 million, partially offset by the repayment
of debt and preferred stock with the proceeds from the initial public offering.
At June 30, 1999 approximately $84.0 million remained available (based on
various covenant restrictions) to be drawn down from our bank credit facility
which was increased to a $100.0 million facility in February 1999. In general,
our primary source of liquidity is cash provided by operations and, to the
extent necessary, on undrawn commitments available under our bank credit
facility.
Net cash flow from operating activities increased to approximately $6.0
million for the six months ended June 30, 1999 from approximately $4.3 million
for the six months ended June 30, 1998 or 39.5%. This increase
37
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was primarily due to a higher net loss due to higher interest charges
associated with higher average levels of debt outstanding, higher depreciation
and amortization charges associated with the various acquisitions made by us in
the past year and a higher provision for income taxes as compared to the first
half of 1998. Non-cash expenses of depreciation and amortization increased to
approximately $9.7 million for the six months ended June 30, 1999 from
approximately $5.4 million for the six months ended June 30, 1998 or 79.6% due
to various acquisitions made by us within the past year.
Net cash flow used in investing activities increased to approximately $42.0
million for the six months ended June 30, 1999 compared to approximately $33.6
million for the six months ended June 30, 1998 or 25.0%. During the six months
ended June 30, 1999 we, through our Radio One of Atlanta, Inc. subsidiary
(which we acquired on March 30, 1999) acquired the remaining stock in Dogwood
Communications, Inc. which we did not already own, for approximately $3.6
million, acquired radio stations WENZ-FM and WERE-AM in Cleveland, Ohio for
approximately $20 million, acquired radio station WFUN-FM in St. Louis,
Missouri for approximately $13.6 million, entered into a time brokerage
agreement to operate radio stations located in Richmond, Virginia and made a
$1.0 million investment in PNE Media, LLC. We also made escrow deposits on
anticipated acquisitions of additional radio stations in Richmond, Virginia and
Boston, Massachusetts. Also during the six months ended June 30, 1999 we made
purchases of capital equipment totaling approximately $2.1 million.
Net cash flow from financing activities was approximately $36.6 million for
the six months ended June 30, 1999. During the six months ended June 30, 1999,
we completed our initial public offering of common stock and raised net
proceeds of approximately $119.0 million which was used to partially repay
outstanding balances on our bank credit facility and to repay all of our
outstanding Senior Cumulative Redeemable Preferred Stock. Additionally, we
increased the size of our bank credit facility to $100.0 million. During the
six months ended June 30, 1999, we partially used this bank credit facility to
acquire our former affiliate, Radio One of Atlanta, Inc. which, in turn,
acquired the remaining stock of Dogwood Communications, Inc. that we did not
already own. We also acquired radio stations located in Cleveland, Ohio and St.
Louis, Missouri. Net cash flow from financing activities was approximately
$24.3 million for the six months ended June 30, 1998. During the six months
ended June 30, 1998, we aquired, through an unrestricted subsidiary, the
capital stock of Broadcast Holdings, Inc., the owner and operator of radio
station WYCB-AM, for approximately $3.8 million in a note, and we used our bank
credit facility to acquire Bell Broadcasting Company, an owner and operator of
radio stations in Detroit and Kingsley, Michigan, for approximately $34
million.
As a result of the aforementioned, cash and cash equivalents increased by
approximately $0.6 million during the six months ended June 30, 1999 compared
to an approximate $5.1 million decrease during the six months ended June 30,
1998.
We continuously review, and are currently reviewing, opportunities to
acquire additional radio stations, primarily in the top 40 African-American
markets. 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 a S corporation to a C corporation.
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<PAGE>
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 or for the six months ended June 30, 1999. 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 completed 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 fourth 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 fourth quarter of
1999.
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 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.
We do not intend to develop any contingency plans to address possible
failures by us or our vendors related to Year 2000 compliance. We do not
believe that such contingency plans are required because we believe that we and
our significant vendors will be Year 2000 compliant before January 2000.
39
<PAGE>
BUSINESS
Radio One was founded in 1980 and is the largest radio broadcasting company
in the United States primarily targeting African-Americans. After we complete
our acquisitions of four stations that we operate in Richmond, we will own 26
radio stations. Twenty-five of these stations (eighteen FM and seven AM) are in
nine of the top 20 African-American radio markets: Washington, D.C., Baltimore,
Atlanta, Philadelphia, Detroit, Cleveland, St. Louis, Richmond and Boston. 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.
The radio station clusters that we owned or managed as of June 30, 1999,
were ranked in the top three in their markets in combined audience and revenue
share among radio stations primarily targeting African-Americans. Our net
broadcast revenue, broadcast cash flow and after-tax cash flow have grown
significantly:
. Same station net broadcast revenue increased 30.6% from year-end 1997 to
year-end 1998 and 32.8% for the six months ended June 30, 1999, compared
to the same period in 1998.
. Same station broadcast cash flow increased 50.4% from year-end 1997 to
year-end 1998 and 39.6% for the six months ended June 30, 1999, compared
to the same period in 1998.
. After-tax cash flow increased 148.3% from year-end 1997 to year-end 1998
and 22.6% for the six months ended June 30, 1999, compared to the same
period in 1988.
Radio One is led by our Chairperson and co-founder, Catherine L. Hughes, and
her son, 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 Cleveland, St.
Louis, Richmond and Boston, and to other radio stations in existing and new
markets as attractive acquisition opportunities arise.
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 African-American 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 21.2% increase from 1995,
compared to an expected increase of 13.3% for the population as a whole.
(Source: 1998 U.S. Census Bureau Current Population Report)
. Higher African-American Income Growth. According to the U.S. Census
Bureau, from 1980 to 1995, the rate of increase in median family
household income in 1995 adjusted dollars for African-Americans was
approximately 10.7% compared to 4.3% 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)
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. 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.
. Growing Influence of African-American Culture. 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(R) 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 Radio Formats Primarily Targeting African-
Americans. 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 Fall 1997, 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 Regional
Differences in Media Usage Study).
. Concentrated Presence of African-Americans in Urban Markets. In 1997,
approximately 61.8% of the African-American population was located in
the top 40 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 of eight allowed by the
FCC. (Source: BIA 1999, Third Edition).
. Strong African-American Listenership and Loyalty. In 1996, African-
Americans in the ten largest markets listened to radio broadcasts an
average of 27.0 hours per week. (Source: INTEREP Research Division, 1998
Urban Radio Study). This compares to 22.0 hours per week for all
Americans. (Source: Forbes, June 1, 1998). In addition, we believe 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.
Acquisition Strategy
Our primary acquisition strategy is to acquire and turn around
underperforming radio stations principally in the top 40 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 we already maintain a presence;
and
41
<PAGE>
. the number of competitive radio stations in the market.
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
Historically, we have entered 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 12 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. For the Arbitron Survey four book averages ending
with the Spring 1999 Arbitron Survey, the station was ranked number one
in the 18-34 age demographic (with a 10.3 share) and number three in the
12-plus age demographic (with a 5.4 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. For the Arbitron Survey four book
averages ending with the Spring 1999 Arbitron Survey, the station was
tied for the fifth rank in the 25-54 age demographic (with a 4.9 share)
and was ranked number eight in the 12-plus age demographic (with a 4.2
share).
. Baltimore. In 1993, we acquired WERQ-FM and WOLB-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 for the Arbitron Survey four book
averages ending with the Spring 1999 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 for the Arbitron Survey
four book averages ending with the Spring 1999 Arbitron Survey, the
station was ranked number two in that age demographic (with a 7.5 share)
behind only Radio One's WERQ-FM.
. Atlanta. In 1995, ROA, then an affiliate of Radio One, acquired WHTA-FM,
a Class A radio station located approximately 40 miles from Atlanta, for
approximately $4.5 million. Prior to that acquisition, the previous
owners, together with our management, upgraded and moved the station
approximately 20 miles closer to Atlanta. The result was the
introduction of a new, Young Urban Contemporary radio station in the
Atlanta market. The station's ratings increased quickly, to an
approximate 5.0 share in the 12-plus age demographic. For the Arbitron
Survey four book averages ending with the Spring 1999 Arbitron Survey,
the station was ranked number four in the 18-34 age demographic (with an
8.2 share).
. Philadelphia. In May 1997, we acquired WPHI-FM for approximately $20.0
million. At the time the station was being programmed in a Modern Rock
format and had a 2.7 share in the 12 plus age demographic. We changed
the station's format to Young Urban Contemporary and, for the Arbitron
Survey four book averages ending with the Spring 1999 Arbitron Survey,
the station was ranked number 14 in the 12-plus age demographic (with a
3.1 share) and number five in the 18-34 age demographic (with a 5.8
share).
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<PAGE>
Top 40 African-American Radio Markets in the United States
In the table below, boxes and bold text indicate markets where we currently
own radio stations. Population estimates are for 1997 and are based upon BIA
Investing in Radio Market Report ("BIA 1999 Third Edition").
<TABLE>
<CAPTION>
African-Americans
as a Percentage of
African American the Overall
Population in the Population in the
Rank Market Market Market
---- -------------------------------- ----------------- -------------------
(in thousands)
<C> <S> <C> <C>
1. New York, NY 3,589 21.3%
2. Chicago, IL 1,670 19.6
-----------------------------------------------------------------------------
| 3. Washington, DC 1,131 26.5 |
-----------------------------------------------------------------------------
4. Los Angeles, CA 1,120 9.1
-----------------------------------------------------------------------------
| 5. Detroit, MI 1,032 22.3 |
| 6. Philadelphia, PA 987 20.2 |
| 7. Atlanta, GA 957 26.0 |
-----------------------------------------------------------------------------
8. Houston/Galveston, TX 795 18.3
9. Miami/Ft. Lauderdale/Hollywood, FL 713 19.7
-----------------------------------------------------------------------------
|10. Baltimore, MD 686 27.6 |
-----------------------------------------------------------------------------
11. Dallas/Ft. Worth, TX 659 14.2
12. San Francisco, CA 594 8.9
13. Memphis, TN 491 42.0
-----------------------------------------------------------------------------
|14. St. Louis, MO 455 17.7 |
-----------------------------------------------------------------------------
15. Norfolk/Virginia Beach/Newport 455 30.2
News, VA
16. New Orleans, LA 443 35.0
-----------------------------------------------------------------------------
|17. Cleveland, OH 408 19.2 |
|18. Boston, MA 309 7.1 |
|19. Richmond, VA 284 30.1 |
-----------------------------------------------------------------------------
20. Charlotte/Gastonia/Rock Hill, NC 280 20.5
21. Birmingham, AL 267 27.4
22. Milwaukee/Racine, WI 261 15.5
23. Raleigh/Durham, NC 256 24.1
24. Jacksonville, FL 241 22.6
25. Tampa/St. Petersburg/Clearwater, FL 239 10.5
26. Kansas City, MO 229 13.5
27. Greensboro/Winston Salem/High 228 19.6
Point, NC
28. Cincinnati, OH 224 11.6
29. Nassau/Suffolk Counties (NY) 224 8.4
30. Pittsburgh, PA 198 8.4
31. Indianapolis, IN 196 14.2
32. Orlando, FL 191 14.6
33. Columbus, OH 190 13.0
34. Jackson, MS 186 43.3
35. Nashville, TN 181 15.8
36. Baton Rouge, LA 181 31.5
37. San Diego, CA 174 6.3
38. Seattle/Tacoma, WA 174 5.1
39. Greenville/Spartanburg, SC 155 17.8
40. Augusta, GA 153 33.1
</TABLE>
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<PAGE>
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;
. 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.
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<PAGE>
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.
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
fundraisers to benefit the search for their cure;
. developing contests specifically designed to assist African-American
single mothers with day care expenses;
45
<PAGE>
. fundraising 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.
Management Stock Option Plan
On March 10, 1999, we adopted the 1999 Stock Option and Restricted Stock
Grant 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. For more information see
"Management--Stock Option Plan."
Our Station Portfolio
After giving effect to our pending acquisitions, we will have acquired 17
radio stations since June 30, 1998. We believe that most of these stations are
underdeveloped and offer the opportunity for substantial growth in revenue and
broadcast cash flow. The eleven stations which we owned or managed prior to
June 30, 1998, operated at a broadcast cash flow margin of 47.4% for the six
months ended June 30, 1999, compared to a broadcast cash flow margin for the
same period of 2.4% for the 10 stations that we did not previously manage and
which we have acquired or commenced operating during the 12 months beginning
June 30, 1998.
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<PAGE>
The following table sets forth selected information about our portfolio of
radio stations, giving effect to our pending acquisitions. Market population
data and revenue rank data are from BIA 1999 Third Edition. Audience share and
audience rank data are based on Arbitron Survey four book averages ending with
the Spring 1999 Arbitron Survey. Except as noted, revenue share and revenue
rank data for the Washington, D.C., Baltimore and Detroit markets are based on
the Radio Revenue Reports of Hungerford for the six-month period ending June
30, 1999. For the Philadelphia, Atlanta, Cleveland and Richmond markets, the
revenue share and revenue rank data are from revenue reports for the six-month
period ending June 30, 1999, as prepared by Miller, Kaplan, Arase & Co.,
Certified Public Accountants. As used in this table, "n/a" means not applicable
or not available and "t" means tied with one or more radio stations.
<TABLE>
<CAPTION>
January-
June 1999
Radio One
June 1999 Market
Market Rank Four Book Average Four Book Average Revenue
------------------ ----------------- ----------------- ---------------
Audience Audience Audience Audience
Target Share in Rank in Share in Rank in
Age 12+ 12+ Target Target
Metro Radio Year Demo- Demo- Demo- Demo- Demo-
Market(/1/) Population Revenue Acquired Format graphic graphic graphic graphic graphic Share Rank
----------- ---------- ------- -------- ----------- ------- -------- -------- -------- -------- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Washington, DC 9 6
WKYS-FM 1995 Urban 18-34 5.4 3 10.3 1 5.0% 10
WMMJ-FM 1987 Urban AC 25-54 4.2 8 4.9 5 (t) 4.1% 14
WYCB-AM 1998 Gospel 35-64 0.9 22 (t) 1.0 21 (t) 0.5% n/a(/2/)
WOL-AM 1980 Urban Talk 35-64 0.8 25 (t) 1.0 21 (t) 0.5% 21
Baltimore 20 20
WERQ-FM 1993 Urban 18-34 9.6 1 17.1 1 12.8% n/a(/3/)
WWIN-FM 1992 Urban AC 25-54 5.8 4 7.5 2 8.0% n/a(/3/)
WWIN-AM 1993 Gospel 35-64 1.0 16 (t) 1.1 15 0.3% n/a(/3/)
WOLB-AM 1992 Urban Talk 35-64 0.7 18 (t) 0.8 17 (t) 0.2% n/a(/3/)
Philadelphia 5 9
WPHI-FM 1997 Urban 18-34 3.1 14 5.8 5 2.1% 16
Detroit 6 11
WDTJ-FM 1998 Urban 18-34 3.6 11 (t) 6.0 4 2.6% 15
WDMK-FM 1998 Urban AC 25-54 1.3 22 (t) 1.6 19 (t) 0.7% 19
WCHB-AM 1998 Urban Talk 35-64 0.2 31 0.3 30 (t) 0.1% n/a(/2/)
Atlanta 12 7
WHTA-FM 1999 Urban 18-34 4.6 9 (t) 8.2 4 3.4% 12
WAMJ-FM 1999 Urban AC 25-54 2.3 15 (t) 3.0 13 (t) 1.5% 13
Cleveland 24 23
WENZ-FM 1999 Urban 18-34 2.6 14 5.1 8 2.0% 14
WERE-AM 1999 News/Talk 35-64 0.5 19 0.5 19 0.9% 17
Richmond 57 47
WCDX-FM (pending) Urban 18-34 9.0 2 14.8 1 11.6% 3
WKJS-FM 1999 Urban AC 25-54 5.9 6 7.8 4 7.3% 8
WPLZ-FM (pending) R&B 35-64 4.3 11 4.4 9 2.9% 11
WARV-FM 1999 Country 25-54 3.2 12 2.3 12 n/a(/2/) n/a(/2/)
WJRV-FM (pending) Country 25-54 1.5 15 (t) 1.5 14 1.8% 13
WGCV-AM (pending) Gospel 35-64 1.2 17 (t) 1.5 15 (t) n/a(/2/) n/a(/2/)
Oldies
WDYL-FM 1999 Modern Rock 25-54 0.7 20 (t) 0.7 19 (t) n/a(/2/) n/a(/2/)
</TABLE>
- --------
(1) WJZZ-AM in Kingsley, MI, WFUN-FM in St. Louis, MO, and WBOT-FM in Boston,
MA are not currently broadcasting and are not included in the table.
(2) WYCB-AM, WCHB-AM, WARV-FM, WGCV-AM and WDYL-FM do not report revenues to
Hungerford or Miller Kaplan. Revenue shares for WYCB-AM and WCHB-AM
represent those stations' net broadcast revenue as a percentage of the
market radio revenue reported by Hungerford in their respective markets for
the six-month period ending June 30, 1999, as adjusted for WYCB-AM and
WCHB-AM revenue, as appropriate.
(3) The revenues of WERQ-FM and WOLB-AM are reported jointly to Hungerford, as
are the revenues of WWIN-FM and WWIN-AM. The revenue share percentages for
these stations reflect the proportional contribution by each station to the
joint share reported by Hungerford.
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Advertising Revenue
Substantially all of our 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 68.9% of our net broadcast revenue for the six-month
period ended June 30, 1999, was generated from the sale of local advertising
and 27.0% from sales to national advertisers. The balance of net broadcast
revenue is 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 on:
. a radio station's audience share within the demographic groups targeted
by the advertisers,
. the number of radio stations in the market competing for the same
demographic groups, and
. 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 us
to chart audience growth, set advertising rates and adjust programming.
Strategic Diversification
We will continue to evaluate potential radio acquisitions in African-
American markets. We are also 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 digital audio radio service, which is expected
to be available in 2001.
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.
We also recently made an investment of cash and advertising time in aka.com,
LLC, an aggregator of web sites devoted to hip hop culture. In conjunction with
this investment, our Chief Financial Officer, Scott R. Royster, became a
director of aka.com, LLC.
Properties and Facilities
The types of properties required to support each of our radio stations
include offices, studios and transmitter/antenna sites. We typically lease our
studio and office space with lease terms that are five to ten years. A
station's studios are generally housed with its offices in downtown or business
districts. We generally
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consider our facilities to be suitable and of adequate size for our current and
intended purposes. We lease a majority of our main transmitter/antenna sites
and when negotiating a lease for such sites we try to obtain a lengthy lease
term with options to renew. In general, we do not anticipate difficulties in
renewing facility or transmitter/antenna site leases or in leasing additional
space or sites if required.
We own substantially all of our other equipment, consisting principally of
transmitting antennae, transmitters, studio equipment and general office
equipment. The towers, antennae and other transmission equipment used by our
stations are generally in good condition, although opportunities to upgrade
facilities are continuously reviewed. Substantially all of the property that we
own secures our borrowings under our credit facility.
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:
. audio programming by cable television systems, direct broadcast
satellite systems, Internet content providers and other digital audio
broadcast formats;
. 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
. 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 adopted 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
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<PAGE>
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.
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 renewal terms of less than eight
years, 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 or reconsideration, 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;
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. 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.
We 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:
. the radio station has served the public interest, convenience and
necessity;
. there have been no serious violations by the licensee of the
Communications Act or FCC rules and regulations; and
. 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 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
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periods when a renewal application is pending, the transferability of the
applicant's license may be restricted. Historically, our licenses have been
renewed without any conditions or sanctions imposed. However, there can be no
assurance that the licenses of each of our stations 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: (1) Class A radio stations, which operate unlimited time and are
designed to render primary and secondary service over an extended area, or (2)
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 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 information with respect to each of our radio
stations, including the additional radio stations we have agreed to purchase in
Richmond. A broadcast station's market may be different from its community of
license. "ERP" refers to the effective radiated power of an FM radio station.
"HAAT" refers to the antenna height above average terrain of an FM radio
station. "AI" refers to the above insulator measurement of an AM radio station.
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. 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.
<TABLE>
<CAPTION>
ERP (FM) Expiration
Station Power HAAT (FM) Date of
Call Year of FCC (AM) in AI (AM) in Operating FCC
Market Letters Acquisition Class Kilowatts Meters Frequency License
- -------------- ------- ----------- ----- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Washington, DC WOL-AM 1980 C 1.0 52.1 1450 kHz 10/01/2003
WMMJ-FM 1987 A 2.9 146.0 102.3 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(/1/) 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 49.4 1200 kHz 10/01/2004
WJZZ-AM 1998 D 50.0(/2/) 59.7 1210 kHz 10/01/2004
WDMK-FM 1998 B 50.0 152.0 102.7 MHz 10/01/2004
St. Louis WFUN-FM 1999 A 6.0(/3/) 100.0 95.5 MHz 12/01/2003
Cleveland WERE-AM 1999 B 5.0 128.0 1300 kHz 10/01/2004
WENZ-FM 1999 B 16.0 272.0 107.9 MHz 10/01/2004
Richmond WDYL-FM 1999 A 6.0 100.0 101.1 MHz 10/01/2003
WKJS-FM 1999 C1 100.0 299.0 104.7 MHz 10/01/2003
WARV-FM 1999 A 4.7 113.0 100.3 MHz 10/01/2003
WCDX-FM (pending) B1 4.5 235.0 92.1 MHz 10/01/2003
WPLZ-FM (pending) A 6.0 100.0 99.3 MHz 10/01/2003
WJRV-FM (pending) A 2.3 162.0 105.7 MHz 10/01/2003
WGCV-AM (pending) C 1.0 122.0 1240 kHz 10/01/2003
Boston WBOT-FM 1999 A(/4/) 2.7 150.0 97.7 MHZ 04/01/2006
</TABLE>
- --------
(/1/) WPHI-FM operates with facilities equivalent to 3 kW at 100 meters.
(/2/) WJZZ-AM ceased broadcast operations on October 12, 1999.
(/3/) WFUN-FM is authorized to upgrade to a Class C3 facility. WFUN-FM ceased
broadcast operations on June 4, 1999.
(/4/) WBOT-FM ceased broadcast operations on October 1, 1999.
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;
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. 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.
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, for example, the transfer or acquisition 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 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 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 10% or more of the voting stock of the corporation holding broadcast
licenses. Effective as of November 16, 1999, however, stock interests of
passive investors will be attributable only if the interest exceeds 20% 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
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<PAGE>
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 recently adopted a new rule, known as the equity-debt-plus
or EDP rule that causes certain creditors or investors to be attributable
owners of a station, regardless of whether there is a single majority
shareholder or other applicable exception to the FCC's attribution rules. Under
this new rule, which becomes effective November 16, 1999, a major programming
supplier or a same-market media entity will be an attributable owner of a
station if the supplier or same-market media entity holds debt or equity, or
both, in the station that is greater than 33% of the value of the station's
total debt plus equity. For purposes of the EDP rule, equity includes all
stock, whether voting or nonvoting, and equity held by insulated limited
partners in limited partnerships. Debt includes all liabilities, whether long-
term or short-term. A major programming supplier includes any programming
supplier that provides more than 15% of the station's weekly programming hours.
A same-market media entity includes any holder of an attributable interest in a
media company, including broadcast stations, cable television and newspapers,
located in the same market as the station, but only if the holder's interest is
attributable under an FCC attribution rule other than the EDP rule. The FCC's
rules also specify other exceptions to these general principles for
attribution.
Communications Act and FCC rules generally restrict ownership, operation or
control of, or the common holding of attributable interests in:
. radio broadcast stations above certain limits servicing the same local
market;
. radio broadcast stations and television broadcast stations servicing the
same local market; and
. 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, Neilsen or other surveys, or for purposes of the HSR Act.
Under these "cross-ownership" rules, we, absent waivers, would not be permitted
to own a radio broadcast station and acquire an attributable interest in any
daily newspaper in the same market where we then owned any radio broadcast
station. Our stockholders, officers or directors, absent a waiver, may not hold
an attributable interest in a daily newspaper in those same markets.
The FCC's existing rules provide for the liberal grant of 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. As of November 16, 1999, the FCC's newly revised radio/television
cross-ownership rule becomes effective. Under the revised radio/television
cross-ownership rule, a single owner may own up to two television stations,
consistent with the FCC's rules on common ownership of television stations,
together with one radio station in all markets. In addition, an owner will be
permitted to own additional radio stations, not to exceed the local ownership
limits for the market, as follows:
. In markets where 20 media voices will remain, an owner may own an
additional five radio stations, or, if the owner only has one television
station, an additional six radio stations; and
. In markets where 10 media voices will remain, an owner may own an
additional three radio stations.
A "media voice" includes each independently-owned and operating full power
television and radio station and each daily newspaper that has a circulation
exceeding 5% of the households in the market, plus one voice for all cable
television systems operating in the market.
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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 staff has notified the public of its intention to review
transactions that comply with these numerical ownership limits but that might
involve undue concentration of market share.
Under its "cross-interest" policy, the FCC has considered "meaningful"
relationships among competing media outlets that serve "substantially the same
area" even if the FCC's ownership rules do not specifically prohibit the
relationship. Under this policy the FCC has considered 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 FCC,
however, has determined that the recently adopted EDP rule addresses many of
the competitive concerns previously encompassed by its "cross-interest" policy.
As a result, effective November 16, 1999, the FCC has eliminated its "cross-
interest" policy. Nevertheless, the FCC has retained discretion to review
individual cases that present unusual cross-interest relationships on a case-
by-case basis.
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, radio stations or daily newspapers, depending on their number and
location. 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 of
September 30, 1999, no single stockholder held more than 50% of the total
voting power of our common stock.
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.
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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 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.
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 control 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 (1) remains ultimately responsible for, and maintains control
over, the operation of its radio station, and (2) 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. Effective November 16, 1999, the FCC has revised this rule so
that the attribution for radio time brokerage agreements will apply for all of
the FCC's multiple ownership rules applicable to radio stations (daily
newspaper/radio cross-ownership and radio/television cross-ownership) and not
only the local radio ownership rules. 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
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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.
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.
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, could 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.
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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 WDMK-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
WDMK-FM are held by Allur Licenses, Inc. Allur Licenses, Inc. holds no other
material assets.
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, owns some of the assets used in the
operation of station WAMJ-FM and 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. Dogwood Licenses,
Inc., holds no other material assets.
Employees
As of September 30, 1999, we employed approximately 600 people. Our
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, we centralize 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 our radio stations located in
such market and our Vice President of Programming oversees programming for all
of our urban-oriented FM radio stations.
Legal Proceedings
We are 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. We believe the resolution of
such matters will not have a material adverse effect on our business, financial
condition or results of operations.
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MANAGEMENT
Directors, Executive Officers and Other Significant Personnel
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.
<TABLE>
<CAPTION>
Age as of
Name 9/30/99 Position
---- --------- --------
<C> <C> <S>
Chairperson of the Board of Directors and
Catherine L. Hughes..... 52 Secretary
Chief Executive Officer, President,
Alfred C. Liggins, III.. 34 Treasurer, and Director
Executive Vice President and Chief
Scott R. Royster........ 35 Financial Officer
Mary Catherine Sneed.... 48 Chief Operating Officer
Linda J. Eckard......... 42 General Counsel and Assistant Secretary
Steve Hegwood........... 38 Vice President of Programming
Leslie J. Hartmann...... 37 Corporate Controller
Terry L. Jones.......... 52 Director
Brian W. McNeill........ 43 Director
Larry D. Marcus......... 50 Director
</TABLE>
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.
Ms. Eckard has been General Counsel of Radio One since January 1998 and
Assistant Secretary of Radio One since April 1999. 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, from August 1997 to
December 1997. Her practice focused on transactions and FCC regulatory matters.
Prior to joining Davis Wright Tremaine LLP, Ms. Eckard
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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, 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 Bar of the United
States Supreme Court.
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., a communications venture
capital investment company, and its wholly owned subsidiary, Syncom Capital
Corporation. He joined Syndicated Communications, Inc. 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 Syndicated Communications, Inc. 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.
Mr. Marcus became a director of Radio One in April 1999. Mr. Marcus is
currently President of Peak Media L.L.C., which is the sole management member
of Peak Media Holdings L.L.C., the owner of a television station in Johnstown,
Pennsylvania, and the operator under a time brokerage agreement of a television
station in Altoona, Pennsylvania. In 1989, Mr. Marcus became the Chief
Financial Officer of River City Broadcasting, licensee of ten television
stations and thirty-four radio stations located in medium to large markets.
River City Broadcasting was sold to Sinclair Broadcasting in 1996. Mr. Marcus
is also a director of Citation Computer Systems, Inc., a publicly traded NASDAQ
company. Mr. Marcus is a graduate of City College of New York.
Committees of the Board of Directors
The board of directors has formed an Audit Committee and a Compensation
Committee whose members are Mr. Jones and Mr. McNeill, neither of whom is an
employee of Radio One.
Compensation of Directors and Executive Officers
Compensation of Directors
Our non-officer directors are reimbursed for all out-of-pocket expenses
related to meetings attended. In addition, Mr. Marcus receives an annual
stipend of $24,000. Our other non-officer directors receive no additional
compensation for their services as directors. Our officers who serve as
directors do not receive compensation for their services as directors other
than the compensation they receive as officers of Radio One.
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Compensation of Executive Officers
The following information relates to compensation of our Chief Executive
Officer and each of our most highly compensated executive officers (the "Named
Executives") for the fiscal years ended December 31, 1998, 1997 and 1996 (as
applicable):
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 $ 3,232
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 Director 1997 193,269 50,000 3,125
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.
Employment Agreements
Ms. Catherine L. Hughes Employment Agreement. We anticipate entering into a
three-year employment agreement with Ms. Hughes pursuant to which Ms. Hughes
will continue to serve as Radio One's Chairperson of the board of directors.
Ms. Hughes will receive an annual base salary of $250,000 effective January 1,
1999, subject to an annual increase of not less than 5%, and an annual cash
bonus at the discretion of the board of directors. We could incur severance
obligations under the expected terms of the employment agreement in the event
that Ms. Hughes's employment is terminated.
Mr. Alfred C. Liggins, III Employment Agreement. We anticipate entering into
a three-year employment agreement with Mr. Liggins pursuant to which Mr.
Liggins will continue to serve as Radio One's Chief Executive Officer and
President. Mr. Liggins will receive an annual base salary of $300,000 effective
January 1, 1999, subject to an annual increase of not less than 5%, and an
annual cash bonus at the discretion of the board of directors. Radio One could
incur severance obligations under the expected terms of the employment
agreement in the event that Mr. Liggins's employment is terminated.
Mr. Scott R. Royster Employment Agreement. We are party to a three-year
employment agreement with Mr. Royster pursuant to which Mr. Royster serves as
our Chief Financial Officer and Executive Vice President. Under the terms of
the employment agreement Mr. Royster receives an annual base salary of $200,000
effective January 1, 1999, subject to an annual increase of not less than 5%,
and an annual cash bonus at the discretion of the board of directors. Pursuant
to the employment agreement, Mr. Royster also received a one-time cash bonus of
$60,000 upon completion of our initial public offering in May 1999. Mr. Royster
has also received a one-time restricted stock award of 51,194 shares of our
class C common stock and an option to purchase 18,646 shares of our class A
common stock at an exercise price of $24.00 per share (subject to certain
adjustments). Twenty-five percent of the stock granted pursuant to the stock
award vested on the date of grant;
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the remaining stock will vest in equal increments every month beginning
February 28, 1999 and ending December 31, 2001. The options will vest in equal
monthly increments during the term of the employment agreement beginning May
31, 1999. We could incur severance obligations under the expected terms of the
employment agreement in the event that Mr. Royster's employment is terminated.
Ms. Mary Catherine Sneed Employment Agreement. We are party to an 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.
We 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, we terminate 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.
Ms. Linda J. Eckard Employment Agreement. We anticipate entering into an
employment agreement with Ms. Eckard pursuant to which Ms. Eckard will continue
to serve as our General Counsel. Under the expected terms of the employment
agreement, Ms. Eckard will receive an annual base salary of $175,000 effective
January 1, 1999, subject to an annual increase of not less than 5%, an annual
cash bonus at the discretion of the board of directors. Ms. Eckard received a
one-time cash bonus of $40,000 upon completion of our initial public offering
in May 1999. Ms. Eckard also received an option to purchase 31,077 shares of
our class A common stock at an exercise price of $24.00 per share (subject to
certain adjustments). We could incur severance obligations under the expected
terms of the employment agreement in the event that Ms. Eckard's employment is
terminated.
401(k) Plan
We adopted a defined contribution 401(k) savings and retirement plan
effective August 1, 1994. Employees are eligible to participate after
completing 90 days of service and attaining age 21. Participants may contribute
up to 15% of their gross compensation subject to certain limitations.
Stock Option Plan
On March 10, 1999, we adopted an option plan designed to provide incentives
relating to equity ownership to present and future executive, managerial and
other key employees, directors and consultants of Radio One and our
subsidiaries as may be selected in the sole discretion of the board of
directors. The option plan provides for the granting to participants of stock
options and restricted stock grants as the Compensation Committee of the board
of directors, or such other committee of the board of directors as the board of
directors may designate (the "Committee") deems to be consistent with the
purposes of the option plan. An aggregate of 1,408,100 shares of common stock
have been reserved for issuance under the option plan. The option plan affords
Radio One 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. As of September 30, 1999, we have granted options to purchase
207,204 shares of class A common stock having a weighted average exercise price
of $24.00 per share.
The Committee has exclusive discretion to select the participants, to
determine the type, size and terms of each award, to modify the terms of
awards, to determine when awards will be granted and paid, and to make all
other determinations which it deems necessary or desirable in the
interpretation and administration of the option plan. The option plan
terminates ten years from the date that the option plan was approved and
adopted by the stockholders of Radio One. Generally, a participant's rights and
interest under the option plan are not transferable except by will or by the
laws of descent and distribution.
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Options, which include non-qualified stock options and incentive stock
options, are rights to purchase a specified number of shares of common stock at
a price fixed by the Committee. The option price may be less than, equal to or
greater than the fair market value of the underlying shares of common stock,
but in no event will the exercise price of an incentive stock option be less
than the fair market value on the date of grant. Options will expire not later
than ten years after the date on which they are granted. Options will become
exercisable at such times and in such installments as the Committee shall
determine. Upon termination of a participant's employment with Radio One,
options that are not exercisable will be forfeited immediately and Options that
are exercisable will be forfeited on the ninetieth day following such
termination unless exercised by the participant. Payment of the option price
must be made in full at the time of exercise in such form (including, but not
limited to, cash or common stock of Radio One) as the Committee may determine.
Grants are awards of restricted common stock at no cost to participants and
are generally subject to vesting provisions as determined by the Committee.
Upon termination of a participant's employment with Radio One, grants that are
not vested will be forfeited immediately.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, distribution of assets,
or any other change in the corporate structure or shares of Radio One, the
Committee will make any adjustments it deems appropriate in the number and kind
of shares reserved for issuance upon the exercise of options and vesting of
grants under the option plan and in the exercise price of outstanding options.
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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 1995, (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
Syndicated Communications Venture Partners II, L.P. have reached an agreement
to provide initial funding to satisfy the requirements of the Mableton Option.
Syndicated Communications Venture Partners II, L.P. has provided this funding,
a portion of which will be reimbursed to it by Mr. Liggins. Terry L. Jones, a
general partner of the general partner of Syndicated Communications Venture
Partners II, L.P., 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
We lease 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. We
believe that the terms of this lease are not materially different than if the
agreement were with an unaffiliated third party.
Music One, Inc.
Ms. Hughes and Mr. Liggins own a music company called Music One, Inc. We
sometimes engage in promoting the recorded music product of Music One, Inc. We
estimate that the dollar value of such promotion is nominal.
Allur-Detroit
Allur-Detroit leases the transmitter site for WDMK-FM from American
Signalling Corporation for approximately $72,000 per year. American Signalling
Corporation is a wholly-owned subsidiary of Syndicated Communications Venture
Partners II, L.P. We believe 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 we will provide programming to XM Satellite Radio,
Inc. for distribution over satellite-delivered channels. Worldspace, Inc. held
20% of the stock of XM Satellite Radio, Inc. Syndicated Communications Venture
Partners II, L.P. 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.
Radio One of Atlanta, Inc.
On March 30, 1999, we acquired all of the outstanding capital stock of ROA.
ROA's stockholders included Alta Subordinated Debt Partners III, L.P. ("Alta"),
Syndicated Communications Venture Partners II, L.P., 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. Alta is one of the selling
stockholders and will hold approximately 3.0% of the class A common stock after
completion of the offering. Terry L. Jones, a general partner of the general
partner of Syndicated Communications Venture Partners II, L.P., is also a
member of Radio One's board of directors and is the President of Syncom Capital
Corporation and Syndicated Communications, Inc. Syncom Capital Corporation will
hold approximately 6.4% of the class A common stock after completion of this
offering.
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Radio One issued approximately 3.3 million shares of common stock in
exchange for the outstanding capital stock of ROA. Alta, Syndicated
Communications Venture Partners II, L.P. and Mr. Liggins received a majority of
such shares in exchange for their shares 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 Syndicated Communications
Venture Partners II, L.P., 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 were 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 was comprised of members of the board of directors of, and
investors in, Radio One that did 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.
Executive Officers' Loans
We have 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. As of September 30, 1999, the aggregate outstanding principal
and interest amount on this loan was $405,798. 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.
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 two demand promissory notes. As
of September 30, 1999, the aggregate outstanding principal and interest amount
on this loan was $270,514. 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.
We have extended an unsecured loan to Mr. Royster in the amount of $87,564,
which bears interest at an annual rate of 5.56% and is evidenced by a demand
promissory note. As of September 30, 1999, the aggregate outstanding principal
and interest on this loan was $88,787. The purpose of this loan was to pay
Mr. Royster's tax liability with respect to the restricted stock grant that we
made to Mr. Royster.
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SELLING STOCKHOLDERS
The selling stockholders are selling 700,000 shares of class A common stock.
The following table sets forth with respect to each of the selling stockholders
(1) the number of shares of class A common stock held by that selling
stockholder prior to the offering, (2) the number of shares of class A common
stock to be sold by that selling stockholder in the offering, (3) the amount of
class A common stock that the selling stockholder will hold after completion of
the offering, and (4) the percentage of the outstanding class A common stock
that the selling stockholder will hold after completion of the offering,
without giving effect to the exercise of the underwriters' over-allotment
option.
<TABLE>
<CAPTION>
Number of
Shares of
Number of Class A
Shares of Common
Number of Shares Class A Stock Held
of Class A Common After Percentage of Class A
Common Stock Stock to be Completion Common Stock Held
Name of Selling Held Prior to Sold in the of the After Completion of
Stockholder the Offering Offering Offering the Offering
- --------------- ---------------- ----------- ---------- ---------------------
<S> <C> <C> <C> <C>
BancBoston Investments,
Inc. .................. 437,833 200,000 237,833 1.5%
Alta Subordinated Debt
Partners III, L.P...... 954,681 476,640 478,041 3.0%
Fulcrum Venture Capital
Corporation............ 273,360 23,360 250,000 1.6%
</TABLE>
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of October 22, 1999 and after giving effect
to this offering, but without giving effect to the exercise of the
underwriters' over-allotment option, by: (1) each person (or group of
affiliated persons) known by us to be the beneficial owner of more than five
percent of any class of common stock; (2) each Named Executive; (3) each of
our directors; (4) the selling stockholders; (5) all of our directors and
officers as a group. The number of shares of each class of common stock
excludes the shares of any other class of common stock issuable upon
conversion of that class of common stock. Unless otherwise indicated in the
footnotes below, each stockholder possesses sole voting and investment power
with respect to the shares listed. Information with respect to the beneficial
ownership of shares has been provided by the stockholders.
<TABLE>
<CAPTION>
Percent Percent
of Total of Total
Economic Voting
Common Stock Interest Power
-------------------------------------------------------- -------- --------
Class A Class B Class C
------------------ ------------------ ------------------
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> <C> <C>
Catherine L.
Hughes(/1/)............ 1,000 0.006% 851,536 29.6% 1,704,740 53.4% 11.6% 19.0%
c/o Radio One
5900 Princess Garden
Parkway
8th Floor
Lanham, Maryland 20706
Alfred C. Liggins,
III(/1/)............... 38,036 0.2 2,010,308 70.0 1,419,646 44.4 15.7 45.0
c/o Radio One
5900 Princess Garden
Parkway
8th Floor
Lanham, Maryland 20706
Scott R. Royster(/2/)... 5,627 0.04 -- -- 49,191 1.5 0.2 0.01
c/o Radio One
5900 Princess Garden
Parkway
8th Floor
Lanham, Maryland 20706
Linda J. Eckard(/3/).... 8,769 0.1 -- -- -- -- 0.04 0.02
c/o Radio One
5900 Princess Garden
Parkway
8th Floor
Lanham, Maryland 20706
Mary Catherine Sneed.... 230,922 1.4 -- -- -- -- 1.0 0.5
c/o Radio One
5900 Princess Garden
Parkway,
8th Floor,
Lanham, Maryland 20706
Terry L. Jones(/4/)..... 1,076,418 6.7 -- -- -- -- 4.9 2.4
c/o Syncom Capital
Corporation
8401 Colesville Road
Suite 300
Silver Spring, MD 20910
Brian W. McNeill(/5/)... 492,258 3.1 -- -- -- -- 2.2 1.1
c/o Burr, Egan, Deleage
& Co.
One Post Office Square,
Boston, MA 02109
Larry D. Marcus......... 2,500 0.02 -- -- -- -- 0.01 0.01
248 Gay Avenue
Clayton, MO 63105
Alta Subordinated Debt
Partners III, L.P...... 478,041 3.0 -- -- -- -- 2.2 1.1
c/o Burr, Egan, Deleage
& Co.
One Post Office Square
Boston, MA 02109
BancBoston Investments,
Inc.................... 237,833 1.5 -- -- -- -- 1.1 0.5
100 Federal Street
32nd Floor
Boston, MA 02110
Fulcrum Venture Capital
Corporation............ 250,000 1.6 -- -- -- -- 1.1 0.6
300 Corporate Point
Suite 380
Culver City, CA 90230
Syncom Capital
Corporation............ 1,026,861 6.4 -- -- -- -- 4.6 2.3
8401 Colesville Road
Suite 300
Silver Spring, MD 20910
All Directors and Named
Executives as a group
(8 persons)............ 1,855,530 11.6 2,861,844 99.6 3,173,577 99.3 35.7 68.0
</TABLE>
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<PAGE>
- --------
(/1/) 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.
(/2/) Includes 4,662 shares of class A common stock obtainable upon the
exercise of stock options exercisable within 60 days of October 22, 1999.
(/3/) Includes 7,769 shares of class A common stock obtainable upon the
exercise of stock options exercisable within 60 days of October 22, 1999.
(/4/) Includes 49,557 shares of class A common stock held by Mr. Jones, 300
shares of class A common stock held by each of Mr. Jones' three
daughters, and 1,026,861 shares of class A common stock held by Syncom
Capital Corporation. Mr. Jones is the President of Syncom Capital
Corporation and may be deemed to share beneficial ownership of shares of
class A common stock held by Syncom Capital Corporation by virtue of his
affiliation with Syncom Capital Corporation. Mr. Jones disclaims
beneficial ownership in such shares.
(/5/) Includes 14,217 shares of class A common stock held by Mr. McNeill and
478,041 shares of class A common stock held by Alta. Mr. McNeill is a
general partner of Alta and Mr. McNeill may be deemed to share beneficial
ownership of shares of class A common stock held by Alta by virtue of his
affiliation with Alta. Mr. McNeill disclaims any beneficial ownership of
such shares.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock gives effect to the
consummation of the transactions contemplated under "Capitalization," which
will occur prior to or simultaneously with the proposed sale of 4,000,000
shares of class A common stock by Radio One in this offering. Our capital stock
consists of (1) 90,000,000 authorized shares of common stock, $0.001 par value
per share, which consists of (a) 30,000,000 shares of class A common stock, of
which 16,034,397 shares are outstanding (16,434,397 shares assuming the
underwriters overallotment option is exercised), (b) 30,000,000 shares of class
B common stock, of which 2,873,083 shares are outstanding, and (c) 30,000,000
shares of class C common stock, of which 3,195,063 shares are outstanding, and
(2) 290,000 authorized shares of preferred stock, par value $0.01 per share,
which consists of 140,000 shares of series A preferred stock, none of which is
outstanding and 150,000 shares of series B preferred stock, none of which is
outstanding. The following is summary of the material provisions of our
certificate of incorporation, which is filed as an exhibit to the Registration
Statement of which this prospectus is a part.
Class A Common Stock
The holders of class A common stock are entitled to one vote for each share
held on all matters voted upon by stockholders, including the election of
directors and any proposed amendment to the certificate of incorporation. The
holders of class A common stock are entitled to vote as a class to elect two
independent directors to the board of directors. The holders of class A common
stock will be entitled to such dividends as may be declared at the discretion
of the board of directors out of funds legally available for that purpose. The
holders of class A common stock will be entitled to share ratably with all
other classes of common stock in the net assets of Radio One upon liquidation
after payment or provision for all liabilities. All shares of class A common
stock may be converted at any time into a like number of shares of class C
common stock at the option of the holder of such shares. All shares of class A
common stock issued pursuant to the offering will be fully paid and non-
assessable.
Class B Common Stock
The holders of class B common stock are entitled to the same rights,
privileges, benefits and notices as the holders of class A common stock, except
that the holders of class B common stock will be entitled to ten votes per
share. All shares of class B common stock may be converted at any time into a
like number of shares of class A common stock at the option of the holder of
such shares. Catherine L. Hughes and Alfred C. Liggins, III may transfer shares
of class B common stock held by them only to "Class B Permitted Transferees,"
and Class B Permitted Transferees may transfer shares of class B common stock
only to other Class B Permitted Transferees. If any shares of class B common
stock are transferred to any person or entity other than a Class B Permitted
Transferee, such shares will automatically be converted into a like number of
shares of class A common stock. "Class B Permitted Transferees" include Ms.
Hughes, Mr. Liggins, their respective estates, spouses, former spouses, parents
or grandparents or lineal descendants thereof, and certain trusts and other
entities for the benefit of, or beneficially owned by, such persons. Ms. Hughes
and Mr. Liggins have agreed to vote their shares of common stock to elect each
other and other mutually agreeable nominees to the board of directors. See
"Risk Factors--Controlling Stockholders."
Class C Common Stock
The holders of class C common stock are entitled to the same rights,
privileges, benefits and notices as the holders of class A common stock and
class B common stock, except that the holders of class C common stock will be
entitled to no votes per share. All shares of class C common stock may be
converted at any time into a like number of shares of class A common stock at
the option of the holder of such shares, except that Class B Permitted
Transferees may convert shares of class C common stock into shares of class A
common stock, or otherwise acquire shares of class A common stock, only in
connection with:
. a merger or consolidation of Radio One with or into, or other
acquisition of, another entity pursuant to which the Class B Permitted
Transferees are to receive shares of class A common stock in exchange
for their interest in such entity;
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. the transfer of such shares of class A common stock to a person or
entity other than a Class B Permitted Transferee; or
. a registered public offering of such shares of class A common stock.
Foreign Ownership
Radio One's certificate of incorporation restricts the ownership, voting and
transfer of our capital stock, including the class A common stock, in
accordance with the Communications Act and the rules of the FCC, which prohibit
the issuance of more than 25% of our outstanding capital stock (or more than
25% of the voting rights such stock represents) to or for the account of aliens
(as defined by the FCC) or corporations otherwise subject to domination or
control by aliens. Our certificate of incorporation prohibits any transfer of
our capital stock that would cause a violation of this prohibition. In
addition, the certificate of incorporation authorizes the board of directors to
take action to enforce these prohibitions, including restricting the transfer
of shares of capital stock to aliens and placing a legend restricting foreign
ownership on the certificates representing the class A common stock.
Registration Rights
The holders of substantially all of the shares of class A common stock
outstanding prior to our initial public offering, other than Mr. Liggins, are
parties to registration rights agreements with us. These agreements, which
relate to approximately 3.3 million shares of class A common stock, provide
incidental or "piggyback" registration rights that allow such holders, under
certain circumstances, to include their shares of class A common stock in
registration statements initiated by Radio One or other stockholders. Under
these agreements, the holders of class A common stock may require us to
register their shares under the Securities Act for offer and sale to the public
(including by way of an underwritten public offering) on up to four occasions.
These agreements also permit demand registrations on Form S-3 registration
statements provided that we are eligible to register our capital stock on Form
S-3. All such registration rights are subject to conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares to be included in a registration. The holders of these registration
rights have waived their "piggyback" registration rights with respect to the
offering.
Limitations on Directors' and Officers' Liability
Radio One's certificate of incorporation limits the liability of directors
to the maximum extent permitted by Delaware law, which specifies that a
director of a company adopting such a provision will not be personally liable
for monetary damages for breach of fiduciary duty as a director, except for the
liability (1) for any breach of the director's duty of loyalty to Radio One or
its stockholders; (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (3) for unlawful payments
of dividends or unlawful stock repurchases or redemptions as provided in
Section 174 of the Delaware General Corporation Law; or (4) for any transaction
from which the director derived an improper personal benefit.
Radio One's certificate of incorporation provides for mandatory
indemnification of directors and officers and authorizes indemnification for
employees and agents in such manner, under such circumstances and to the
fullest extent permitted by the Delaware General Corporation Law, which
generally authorizes indemnification as to all expenses incurred or imposed as
a result of actions, suits or proceedings if the indemnified parties act in
good faith and in a manner they reasonably believe to be in or not opposed to
the best interests of Radio One. We believe these provisions are necessary or
useful to attract and retain qualified persons as directors. Radio One
maintains directors and officers insurance for the benefit of its directors and
officers.
There is no pending litigation or proceeding involving a director or officer
as to which indemnification is being sought.
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<PAGE>
Transfer Agent and Registrar
American Stock Transfer & Trust Company is our transfer agent and registrar.
DESCRIPTION OF INDEBTEDNESS
Bank Credit Facility
On February 26, 1999, we entered into an amended and restated credit
agreement providing for a bank credit facility under which we may borrow up to
$100 million on a revolving basis from a group of banking institutions. Draw
downs under the bank credit facility are currently available, subject to
compliance with provisions of the credit agreement, including but not limited
to the financial covenants. Specifically, borrowings under the bank credit
facility may be entirely of Eurodollar Loans, Alternate Base Rate ("ABR") Loans
or a combination thereof. The bank credit facility will be fully available
until a maturity date of December 31, 2003. No commitment reductions under the
bank credit facility will occur until the final maturity date, provided that
Radio One does not acquire or issue additional indebtedness or Disqualified
Stock (as such term is defined in the credit agreement).
The bank credit facility terminates on December 31, 2003, at which time any
outstanding principal together with all accrued and unpaid interest thereon
would become due and payable. All amounts under the bank credit facility are
guaranteed by each of Radio One's direct and indirect subsidiaries other than
WYCB Acquisition Corporation and Broadcast Holdings, Inc.
The bank credit facility is secured by a perfected first priority secured
interest in: (1) substantially all of the tangible and intangible assets of
Radio One and our direct and indirect subsidiaries including, without
limitation, any and all FCC licenses to the maximum extent permitted by law and
(2) all of the common stock of Radio One and our direct and indirect
subsidiaries, including all warrants or options and other similar securities to
purchase such securities. Radio One also granted a security interest in all
money (including interest), instruments and securities at any time held or
acquired in connection with a cash collateral account established pursuant to
the credit agreement, together with all proceeds thereof.
The interest rates on the borrowings under the bank credit facility are
based on the ratio of total debt to EBITDA, with a maximum margin above ABR of
1.625% with respect to ABR Loans, and a maximum margin above Eurodollar rate
2.625% with respect to Eurodollar Loans. Interest on Eurodollar Loans is based
on a 360-day period for actual days elapsed, and interest on ABR Loans is based
on a 365-day period for actual days elapsed. In addition, Radio One will pay a
commitment fee equal to an amount based on the average daily amount of the
available commitment computed at a rate per year tied to a leverage ratio in
effect for the fiscal quarter preceding the date of payment of such fee. The
commitment fee is fully earned and non-refundable and is payable quarterly in
arrears on the last business day of each March, June, September and December
and on the maturity date.
The credit agreement contains customary and appropriate affirmative and
negative covenants including, but not limited to, financing covenants and other
covenants including limitations on other indebtedness, liens, investments,
guarantees, restricted payments (dividends, redemptions and payments on
subordinated debt), prepayment or repurchase of other indebtedness, mergers and
acquisitions, sales of assets, capital expenditures, losses, transactions with
affiliates and other provisions customary and appropriate for financing of this
type, including mutually agreed upon exceptions and baskets. The financial
covenants include:
. a maximum ratio of total debt to EBITDA of 7.0x;
. a maximum ratio of senior debt to EBITDA of 3.75x;
. a minimum interest coverage ratio; and
. a minimum fixed charge coverage ratio.
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The credit agreement contains the following customary events of default:
. failure to make payments when due;
. defaults under any other agreements or instruments of indebtedness;
. noncompliance with covenants;
. breaches of representations and warranties;
. voluntary or involuntary bankruptcy or liquidation proceedings;
. entrance of judgments;
. impairment of security interests in collateral; and
. changes of control.
12% Notes Due 2004
On May 15, 1997, we entered into an approximate $85.0 million aggregate
principal amount offering (the "12% notes offering") of our 12% Senior
Subordinated Notes (the "12% notes due 2004"). The 12% notes offering has an
aggregate initial accreted value of approximately $75.0 million, as of Maturity
Date May 15, 2004.
The 12% notes due 2004 were issued pursuant to an indenture, dated as of May
15, 1997 among Radio One, Radio One Licenses, Inc. and United States Trust
Company of New York (the "12% notes indenture"). The 12% notes due 2004 are
generally unsecured obligations of Radio One and are subordinated in rights of
payment to all Senior Indebtedness (as defined in the 12% notes indenture). All
of our Restricted Subsidiaries are Subsidiary Guarantors of the 12% notes due
2004.
The 12% notes due 2004 were issued at a substantial discount from their
principal amount. The issue price to investors per note was $877.42, which
represents a yield to maturity on the 12% notes due 2004 of 12.0% calculated
from May 19, 1997 (computed on a semi-annual bond equivalent basis).
Cash interest on the 12% notes due 2004 accrues at a rate of 7.0% per annum
on the principal amount of the 12% notes due 2004 through and including May 15,
2000, and at a rate of 12.0% per annum on the principal amount of the 12% notes
due 2004 after such date. Cash interest on the 12% notes due 2004 is currently
payable semi-annually on May 15 and November 15 of each year.
The 12% notes due 2004 are redeemable at any time and from time to time at
the option of Radio One, in whole or in part, on or after May 15, 2001 at the
redemption prices set forth in the 12% notes due 2004, plus accrued and unpaid
interest to the date of redemption. In addition, on or prior to May 15, 2000,
Radio One may redeem, at our option, up to 25.0% of the aggregate original
principal amount of the 12% notes due 2004 with the net proceeds of one or more
Public Equity Offerings at 112% of the Accreted Value thereof, together with
accrued and unpaid interest, if any, to the date of redemption, as long as at
least approximately $64.1 million of the aggregate principal amount of the 12%
notes due 2004 remains outstanding after each such redemption. Upon a Change of
Control (as defined in the 12% notes indenture), we must commence an offer to
repurchase the 12% notes due 2004 at 101% of the Accreted Value thereof, plus
accrued and unpaid interest, if any, to the date of repurchase.
The 12% notes indenture contains certain restrictive covenants with respect
to Radio One and our Restricted Subsidiaries, including limitations on: (a) the
sale of assets, including the equity interests of our Restricted Subsidiaries,
(b) asset swaps, (c) the payment of Restricted Payments (as defined in the 12%
notes indenture), (d) the incurrence of indebtedness and issuance of preferred
stock by us or our Restricted Subsidiaries, (e) the issuance of Equity
Interests (as defined in the 12% notes indenture) by a Restricted Subsidiary,
(f) the payment of dividends on our capital stock and the purchase, redemption
or retirement of our
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capital stock or subordinated indebtedness, (g) certain transactions with
affiliates, (h) the incurrence of senior subordinated debt and (i) certain
consolidations and mergers. The 12% notes indenture also prohibits certain
restrictions on distributions from Restricted Subsidiaries. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications.
The 12% notes indenture includes various events of default customary for
such type of agreements, such as failure to pay principal and interest when due
on the 12% notes due 2004, cross defaults on other indebtedness and certain
events of bankruptcy, insolvency and reorganization.
SHARES ELIGIBLE FOR FUTURE SALE
The market price of our class A common stock could decline as a result of
future sales of substantial amounts of class A common stock, or the perception
that such sales could occur. Furthermore, certain of our existing stockholders
have the right to require us to register their shares, which may facilitate
their sale of shares in the public market.
Upon completion of this offering, we will have 16,034,397 shares of class A
common stock, 2,873,084 shares of class B common stock and 3,195,064 shares of
class C common stock issues and outstanding, assuming no exercise of the
underwriters' over-allotment option. Of these shares, the 4,700,000 shares of
class A common stock being sold in this offering (plus any shares issued upon
exercise of the underwriters' over-allotment option), the 7,150,000 shares of
class A common stock sold in our initial public offering in May 1999 and
approximately 2,293,000 shares of unrestricted class A common stock will be
freely transferable without restriction in the public market, except to the
extent these shares have been acquired by our affiliates, whose sale of such
shares is restricted by Rule 144 under the Securities Act. The remaining shares
of our common stock are "restricted" securities under Rule 144 which, among
other things, limits the number of such shares available for sale in the public
market. However, many of the restrictions of Rule 144 do not apply to persons
who are not our affiliates.
The holders of substantially all of the shares of class A common stock
outstanding prior to our initial public offering, other than Mr. Liggins, are
parties to registration rights agreements with us. These agreements, which
relate to approximately 3.3 million shares of class A common stock, provide
incidental or "piggyback" registration rights that allow such holders, under
certain circumstances, to include their shares of class A common stock in
registration statements initiated by Radio One or other stockholders. Such
registration rights agreements also permit demand registrations. The number of
shares sold in the public market could increase if such rights are exercised.
See "Description of Capital Stock--Registration Rights."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares
of common stock that have been outstanding and not held by any "affiliate" of
Radio One for a period of one year is entitled to sell within any three-month
period a number of shares that does not exceed the greater of one percent of
the then outstanding shares of class A common stock (approximately 221,000
shares immediately after completion of this offering assuming no exercise of
the underwriters' over-allotment option) or the average weekly reported trading
volume of the class A common stock during the four calendar weeks preceding the
date on which notice of such sale is given, provided certain manner of sale and
notice requirements and requirements as to the availability of current public
information are satisfied (such information requirements have been satisfied by
Radio One's filing of reports under the Securities Exchange Act of 1934, as
amended since August 1997). Affiliates of Radio One must comply with the
restrictions and requirements of Rule 144, other than the two-year holding
period requirement, in order to sell shares of common stock that are not
"restricted securities" (such as shares acquired by affiliates in this
offering). Under Rule 144(k), a person who is not deemed an "affiliate" of
Radio One at any time during the three months preceding a sale by him, and who
has beneficially owned shares of common stock that were not acquired from Radio
One or an "affiliate" of Radio One within the previous two years, would be
entitled to sell such shares without regard to volume limitations, manner of
sale provisions,
74
<PAGE>
notification requirements or the availability of current public information
concerning Radio One. As defined in Rule 144, an "affiliate" of an issuer is a
person that directly or indirectly through the use of one or more
intermediaries controls, or is controlled by, or is under common control with,
such issuer.
Radio One, Catherine L. Hughes, Alfred C. Liggins, III, the selling
stockholders and certain other holders of common stock of Radio One have
entered into contractual "lock-up" agreements providing that they will not
offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of the shares of common stock owned by them or that could be purchased
by them through the exercise of options to purchase common stock of Radio One
for a period of 90 days after the date of this prospectus without the prior
written consent of Credit Suisse First Boston Corporation on behalf of the
underwriters.
Radio One has on file with the SEC an effective Registration Statement under
the Securities Act covering shares of class A common stock reserved for
issuance under Radio One's option plan. Such Registration Statement covers
approximately 1.4 million shares. Shares registered under such Registration
Statement will be, subject to Rule 144 volume limitations applicable to
affiliates, available for sale in the open market, unless such shares are
subject to vesting restrictions or the lock-up agreements described above.
75
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated, November , 1999, we and the selling stockholders have agreed
to sell to the underwriters named below, for whom Credit Suisse First Boston
Corporation, Deutsche Bank Securities Inc., Banc of America Securities LLC,
Bear, Stearns & Co. Inc., Prudential Securities Incorporated and BancBoston
Robertson Stephens Inc. are acting as representatives, the following respective
number of shares of class A common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Deutsche Bank Securities Inc.......................................
Banc of America Securities LLC.....................................
Bear, Stearns & Co. Inc............................................
Prudential Securities Incorporated.................................
BancBoston Robertson Stephens Inc..................................
---
Total............................................................
===
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of class A common stock in the offering if any are
purchased other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an
underwriter defaults, the purchase commitments of non-defaulting underwriters
may be increased or the offering of class A common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase up to
400,000 additional shares from us at the public offering price less the
underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of class A common stock.
The underwriters propose to offer the shares of class A common stock
initially at the public offering price on the cover page of this prospectus,
and to selling group members at that price less a concession of $ per share.
The underwriters and selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to broker/dealers may be
changed by the representatives.
The following table summarizes the compensation and estimated expenses we
and the selling stockholders will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------- --------------------
Without With Without
Over- Over- Over- With Over-
allotment allotment allotment allotment
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us .....
Expenses payable by us......
Underwriting Discounts and
Commissions paid by selling
stockholders ...............
</TABLE>
The offering is being made in compliance with the requirements of Rule
2710(c)(8) of the National Association of Securities Dealers, Inc. Conduct
Rules.
76
<PAGE>
We are currently in compliance in all material respects with the terms of
our credit agreement with lenders including Credit Suisse First Boston, New
York branch, an affiliate of Credit Suisse First Boston Corporation. The
decision of Credit Suisse First Boston Corporation to distribute the class A
common stock was made in accordance with its customary procedures. Credit
Suisse First Boston Corporation will not receive any benefit from this offering
other than its respective portion of the underwriting discounts as set forth on
the cover page of this prospectus.
Radio One, Catherine L. Hughes, Alfred C. Liggins, III, the selling
stockholders and certain other holders of Common Stock of Radio One have agreed
that they will not offer, sell, contract to sell or otherwise dispose of,
directly or indirectly, or file with the SEC a registration statement under the
Securities Act relating to, any additional shares of class A common stock or
securities convertible into or exchangeable or exercisable for any of our class
A common stock, or publicly disclose the intention to make an offer, sale
disposition or filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 90 days after the date of this prospectus,
except, in our case, issuances pursuant to the exercise of employee stock
options outstanding on the date hereof.
We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities under the Securities Act, or contribute to payments
which the underwriters may be required to make in that respect.
Credit Suisse First Boston Corporation has provided customary financial
advisory services to Radio One, for which it has received customary
compensation and indemnification, and in the future may provide such services.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and passive market making in
accordance with Regulation M under the Securities Exchange Act of 1934, as
amended.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the class A common
stock in the open market after the distribution has been completed in
order to cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the class A common stock originally sold by
such syndicate member are purchased in a syndicate covering transaction
to cover syndicate short positions.
. In passive market making, market makers in the class A common stock who
are underwriters or prospective underwriters may, subject to
limitations, make bids for or purchases of the class A common stock
until the time, if any, at which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the class A common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
77
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the class A common stock in Canada is being made only on
a private placement basis exempt from the requirement that we and the selling
stockholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of the class A common stock are
effected. Accordingly, any resale of the class A common stock in Canada must be
made in accordance with applicable securities laws which will vary depending on
the relevant jurisdiction, and which may require resales to be made in
accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the class A
common stock.
Representations of Purchasers
Each purchaser of the class A common stock in Canada who receives a purchase
confirmation will be deemed to represent to us, the selling stockholders and
the dealer from whom such purchase confirmation is received that (1) such
purchaser is entitled under applicable provincial securities laws to purchase
such class A common stock without the benefit of a prospectus qualified under
such securities laws, (2) where required by law, that such purchaser is
purchasing as principal and not as agent, and (3) such purchaser has reviewed
the text above under "Resale Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein and the selling stockholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of the class A common stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any class A common stock acquired by such purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from Radio
One. Only one report must be filed in respect of the class A common stock
acquired on the same date and under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of the class A common stock should consult their own
legal and tax advisors with respect to the tax consequences of an investment in
the class A common stock in their particular circumstances and with respect to
the eligibility of the class A common stock for investment by the purchaser
under relevant Canadian legislation.
78
<PAGE>
LEGAL MATTERS
Kirkland & Ellis will pass upon the legality of the common stock offered by
this prospectus and other matters specified in the underwriting agreement for
Radio One. Davis Wright Tremaine LLP will pass upon legal matters regarding FCC
issues for Radio One. Skadden, Arps, Slate, Meagher & Flom LLP will pass upon
matters specified in the underwriting agreement for the underwriters.
EXPERTS
The audited consolidated financial statements of Radio One, Inc. and
subsidiaries as of December 31, 1997 and 1998, and for each of the years in the
three-year period ended December 31, 1998, included in the prospectus and
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
The audited consolidated financial statements of Radio One of Atlanta, Inc.
and subsidiary as of December 31, 1997 and 1998, and for each of the years in
the three-year period ended December 31, 1998, included in the prospectus and
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
The audited financial statements of Bell Broadcasting Company as of December
31, 1997 and for each of the years in the two-year period ended December 31,
1997, included in the prospectus and registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The audited financial statements of Allur-Detroit, Inc., as of December 31,
1997, and for the year then ended, included in the prospectus and registration
statement have been audited by Mitchell & Titus, LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
The audited financial statements of the Richmond Operations of Sinclair
Telecable, Inc. as of December 31, 1997 and 1998, and for each of the years in
the two-year period ended December 31, 1998, included in the prospectus and
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
The audited financial statements of stations WKJS-FM and WARV-FM of FM 100,
Inc. as of December 31, 1998, and for the year then ended, included in the
prospectus and registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto and are included herein in reliance upon the authority of said firm as
experts in giving said report.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended, and, in accordance therewith, file reports, proxy
statements and other information with the SEC. Such reports, proxy statements
and other information may be inspected and copied at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the SEC's regional offices located at the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661 and Seven World
Trade Center, 13th Floor, New York, NY 10048. Copies of such material can be
obtained from the Public Reference Section of the SEC upon payment of certain
fees prescribed by the SEC. The SEC's Web site contains reports,
79
<PAGE>
proxy and information statements and other information regarding registrants
that file electronically with the SEC. The address of that site is
http://www.sec.gov.
We have filed a registration statement on Form S-1 with the SEC under the
Securities Act of 1933, as amended in respect of the class A common stock
offered pursuant to this prospectus. This prospectus, which is a part of the
registration statement, omits certain information contained in the registration
statement as permitted by the SEC's rules and regulations. For further
information with respect to Radio One and the class A common stock offered
hereby, please reference the registration statement, including its exhibits.
Statements in this prospectus concerning the contents of any contract or other
document filed with the SEC as an exhibit to the registration statement are
summaries of the material provisions of those documents and we recommend that
you also refer to those exhibits in evaluating Radio One. Copies of the
registration statement, including all related exhibits and schedules, may be
inspected without charge at the public reference facilities maintained by the
SEC, or obtained at prescribed rates from the Public Reference Section of the
SEC at the address set forth above.
80
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Radio One, Inc. and Subsidiaries
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and June 30,
1999 (unaudited)........................................................ F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997, and 1998 and the six months ended June 30, 1998 and 1999
(unaudited)............................................................. F-4
Consolidated Statements of Changes in Stockholders' Deficit for the years
ended December 31, 1996, 1997, and 1998, and the six months ended June
30, 1999 (unaudited).................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997, and 1998 and the six months ended June 30, 1998 and 1999
(unaudited)............................................................. F-6
Notes to Consolidated Financial Statements............................... F-7
Radio One of Atlanta, Inc.
Report of Independent Public Accountants................................. F-17
Consolidated Balance Sheets as of December 31, 1997 and 1998 and March
31, 1999 (unaudited).................................................... F-18
Consolidated Statements of Operations for the years ended December 31,
1996, 1997, and 1998 and the three months ended March 31, 1998 and 1999
(unaudited)............................................................. F-19
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1996, 1997, and 1998 and the three months ended March
31, 1999 (unaudited).................................................... F-20
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997, and 1998 and the three months ended March 31, 1998 and 1999
(unaudited)............................................................. F-21
Notes to Consolidated Financial Statements............................... F-22
Bell Broadcasting Company
Report of Independent Public Accountants................................. F-29
Balance Sheets as of December 31, 1997, and June 30, 1998 (unaudited).... F-30
Statements of Operations for the years ended December 31, 1996 and 1997,
and the six months ended June 30, 1997 and 1998 (unaudited)............. F-31
Statements of Changes in Stockholders' Equity for the years ended
December 31, 1996, and 1997, and the six months ended June 30, 1998
(unaudited)............................................................. F-32
Statements of Cash Flows for the years ended December 31, 1996, and 1997,
and the six months ended June 30, 1997 and 1998 (unaudited)............. F-33
Notes to Financial Statements............................................ F-34
Allur-Detroit, Inc.
Report of Independent Public Accountants................................. F-39
Balance Sheets as of December 31, 1997, and September 30, 1998
(unaudited)............................................................. F-40
Statements of Operations for the year ended December 31, 1997, and the
nine months ended September 30, 1997 and 1998 (unaudited)............... F-41
Statements of Changes in Stockholders' Equity for the year ended December
31, 1997, and the nine months ended September 30, 1998 (unaudited)...... F-42
Statements of Cash Flows for the years ended December 31, 1997, and the
nine months ended September 30, 1997 and 1998 (unaudited)............... F-43
Notes to Financial Statements............................................ F-44
Richmond Operations of Sinclair Telecable, Inc.
Report of Independent Public Accountants................................. F-49
Combined Balance Sheets as of December 31, 1997 and 1998 and March 31,
1999 (unaudited)........................................................ F-50
Combined Statements of Operations and Changes in Station Equity for the
years ended December 31, 1997 and 1998 and the three months ended March
31, 1998 and 1999 (unaudited)........................................... F-51
Combined Statements of Cash Flows for the years ended December 31, 1997
and 1998 and the three months ended March 31, 1998 and 1999
(unaudited)............................................................. F-52
Notes to Combined Financial Statements................................... F-53
Stations WKJS-FM and WSOJ-FM of FM 100, Inc.
Report of Independent Public Accountants................................. F-57
Combined Balance Sheet as of December 31, 1998 and June 30, 1999
(unaudited)............................................................. F-58
Combined Statement of Operations and Changes in Station (Deficit) Equity
for the year ended December 31, 1998 and the six months ended June 30,
1998 and 1999 (unaudited)............................................... F-59
Combined Statement of Cash Flows for the year ended December 31, 1998 and
the six months ended June 30, 1998 and 1999 (unaudited)................. F-60
Notes to Financial Statements............................................ F-61
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Radio One, Inc.:
We have audited the accompanying consolidated balance sheets of Radio One,
Inc. (a Delaware corporation) and subsidiaries (the Company) as of December 31,
1997 and 1998, and the related consolidated statements of operations, changes
in stockholders' deficit and cash flows for each of the years in the three-year
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Radio One,
Inc. and subsidiaries as of December 31, 1997 and 1998 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Baltimore, Maryland,
May 6, 1999
F-2
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and 1998 and June 30, 1999
<TABLE>
<CAPTION>
June 30,
1997 1998 1999
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 8,500,000 $ 4,455,000 $ 5,018,000
Trade accounts receivable, net of
allowance for doubtful accounts of
$904,000, $1,243,000 and
$1,977,000, respectively.......... 8,722,000 12,026,000 16,879,000
Prepaid expenses and other......... 315,000 334,000 766,000
Deferred taxes..................... -- 826,000 826,000
------------ ------------ ------------
Total current assets............. 17,537,000 17,641,000 23,489,000
PROPERTY AND EQUIPMENT, net.......... 4,432,000 6,717,000 15,349,000
INTANGIBLE ASSETS, net............... 54,942,000 127,639,000 200,181,000
OTHER ASSETS......................... 2,314,000 1,859,000 4,757,000
------------ ------------ ------------
Total assets..................... $ 79,225,000 $153,856,000 $243,776,000
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable................... $ 258,000 $ 1,190,000 $ 3,353,000
Accrued expenses................... 3,029,000 3,708,000 6,052,000
Income taxes payable............... -- 143,000 --
------------ ------------ ------------
Total current liabilities........ 3,287,000 5,041,000 9,405,000
LONG-TERM DEBT AND DEFERRED INTEREST,
net of current portion.............. 74,954,000 131,739,000 96,498,000
DEFERRED TAX LIABILITY............... -- 15,251,000 14,943,000
------------ ------------ ------------
Total liabilities................ 78,241,000 152,031,000 120,846,000
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
SENIOR CUMULATIVE REDEEMABLE
PREFERRED STOCK:
Series A, $.01 par value, 140,000
shares authorized,
84,843 shares issued and
outstanding....................... 9,310,000 10,816,000 --
Series B, $.01 par value, 150,000
shares authorized,
124,467 shares issued and
outstanding....................... 13,658,000 15,868,000 --
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock--class A, $.001 par
value, 30,000,000 shares
authorized, 33,719 shares issued
and outstanding................... -- -- 12,000
Common stock--class B, $.001 par
value, 30,000,000 shares
authorized, and 1,560,969 shares
issued and outstanding............ 2,000 2,000 3,000
Common stock--class C, $.001 par
value, 30,000,000 shares
authorized, 3,120,915 shares
issued and outstanding............ 3,000 3,000 3,000
Additional paid-in capital......... -- -- 152,933,000
Accumulated deficit................ (21,989,000) (24,864,000) (30,021,000)
------------ ------------ ------------
Total stockholders' equity
(deficit)....................... (21,984,000) (24,859,000) 122,930,000
------------ ------------ ------------
Total liabilities and
stockholders' equity (deficit).. $ 79,225,000 $153,856,000 $243,776,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1997 and 1998
and for the Six Months Ended June 30, 1998 and 1999
<TABLE>
<CAPTION>
December 31, June 30,
---------------------------------------- ------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE:
Broadcast revenue,
including barter
revenue of
$1,122,000,
$1,010,000 and
$644,000,
respectively......... $ 27,027,000 $ 36,955,000 $ 52,696,000 $22,328,000 $37,473,000
Less: Agency
commissions.......... 3,325,000 4,588,000 6,587,000 2,800,000 4,619,000
------------ ------------ ------------ ----------- -----------
Net broadcast
revenue............ 23,702,000 32,367,000 46,109,000 19,528,000 32,854,000
------------ ------------ ------------ ----------- -----------
OPERATING EXPENSES:
Program and
technical............ 4,157,000 5,934,000 8,015,000 3,503,000 5,877,000
Selling, general and
administrative....... 9,770,000 12,914,000 16,486,000 7,007,000 13,206,000
Corporate expenses.... 1,793,000 2,155,000 2,800,000 1,319,000 1,928,000
Stock based
compensation......... -- -- -- -- 225,000
Depreciation and
amortization......... 4,262,000 5,828,000 8,445,000 3,632,000 7,475,000
------------ ------------ ------------ ----------- -----------
Total operating
expenses........... 19,982,000 26,831,000 35,746,000 15,461,000 28,711,000
------------ ------------ ------------ ----------- -----------
Operating income.... 3,720,000 5,536,000 10,363,000 4,067,000 4,143,000
INTEREST EXPENSE,
including amortization
of deferred financing
costs.................. 7,252,000 8,910,000 11,455,000 4,925,000 7,489,000
OTHER (EXPENSE) INCOME,
net.................... (77,000) 415,000 358,000 286,000 141,000
------------ ------------ ------------ ----------- -----------
Loss before benefit
from income
taxes and
extraordinary item... (3,609,000) (2,959,000) (734,000) (572,000) (3,205,000)
BENEFIT (PROVISION) FROM
INCOME TAXES........... -- -- 1,575,000 -- (476,000)
------------ ------------ ------------ ----------- -----------
(Loss) income before
extraordinary item... (3,609,000) (2,959,000) 841,000 (572,000) (3,681,000)
EXTRAORDINARY ITEM:
Loss on early
retirement of debt... -- 1,985,000 -- -- --
------------ ------------ ------------ ----------- -----------
Net (loss) income... $ (3,609,000) $ (4,944,000) $ 841,000 $ (572,000) $(3,681,000)
============ ============ ============ =========== ===========
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS.... $ (3,609,000) $ (6,981,000) $ (2,875,000) $(2,344,000) $(5,157,000)
============ ============ ============ =========== ===========
BASIC AND DILUTED
EARNINGS PER COMMON
SHARE:
Loss before
extraordinary item... $ (.38) $ (.53) $ (.31) $ (.25) $ (.40)
============ ============ ============ =========== ===========
Net loss.............. $ (.38) $ (.74) $ (.31) $ (.25) $ (.40)
============ ============ ============ =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic and diluted..... 9,392,000 9,392,000 9,392,000 9,393,000 12,739,000
============ ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Years Ended December 31, 1996, 1997 and 1998
and the Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Common Common Common Additional Total
Stock Stock Stock Paid-In Accumulated Stockholders'
Class A Class B Class C Capital Deficit Deficit
------- ------- ------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, as of December
31, 1995............... $ -- $2,000 $3,000 $ 1,158,000 $(12,557,000) $(11,394,000)
Net loss.............. -- -- -- -- (3,609,000) (3,609,000)
------- ------ ------ ------------ ------------ ------------
BALANCE, as of December
31, 1996............... -- 2,000 3,000 1,158,000 (16,166,000) (15,003,000)
Net loss.............. -- -- -- -- (4,944,000) (4,944,000)
Effect of conversion
to C corporation..... -- -- -- (1,158,000) 1,158,000 --
Preferred stock
dividends............ -- -- -- -- (2,037,000) (2,037,000)
------- ------ ------ ------------ ------------ ------------
BALANCE, as of December
31, 1997............... -- 2,000 3,000 -- (21,989,000) (21,984,000)
Net income............ -- -- -- -- 841,000 841,000
Preferred stock
dividends............ -- -- -- -- (3,716,000) (3,716,000)
------- ------ ------ ------------ ------------ ------------
BALANCE, as of December
31, 1998............... -- 2,000 3,000 -- (24,864,000) (24,859,000)
Net loss.............. -- -- -- -- (3,681,000) (3,681,000)
Preferred stock
dividends earned..... -- -- -- -- (1,476,000) (1,476,000)
Issuance of stock for
acquisition.......... 2,000 1,000 -- 34,191,000 -- 34,194,000
Stock issued to an
employee............. -- -- -- 225,000 -- 225,000
Conversion of
warrants............. 5,000 -- -- (5,000) -- --
Issuance of common
stock................ 5,000 -- -- 118,522,000 -- 118,527,000
------- ------ ------ ------------ ------------ ------------
BALANCE, as of June 30,
1999 (unaudited)....... $12,000 $3,000 $3,000 $152,933,000 $(30,021,000) $122,930,000
======= ====== ====== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
and for the Six Months Ended June 30, 1998 and 1999
<TABLE>
<CAPTION>
December 31, June 30,
--------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net (loss) income..... $(3,609,000) $ (4,944,000) $ 841,000 $ (572,000) $(3,681,000)
Adjustments to
reconcile net (loss)
income to net cash
from operating
activities:
Depreciation and
amortization......... 4,262,000 5,828,000 8,445,000 3,632,000 7,475,000
Amortization of debt
financing costs,
unamortized
discount and deferred
interest............. 3,005,000 3,270,000 4,110,000 1,804,000 2,180,000
Loss on disposals..... 153,000 -- -- -- --
Loss on extinguishment
of debt.............. -- 1,985,000 -- -- --
Deferred income taxes
and reduction in
valuation
reserve on deferred
taxes................ -- -- (2,038,000) -- --
Noncash compensation
to officer........... -- -- -- -- 225,000
Effect of change in
operating assets and
liabilities--
Trade accounts
receivable.......... (656,000) (2,302,000) (1,933,000) (1,319,000) (3,160,000)
Prepaid expenses and
other............... 114,000 (198,000) (4,000) 166,000 (159,000)
Other assets......... (71,000) (147,000) (1,391,000) (442,000) (98,000)
Accounts payable..... (818,000) (131,000) 830,000 223,000 2,059,000
Accrued expenses..... 234,000 1,576,000 296,000 804,000 1,143,000
Income tax payable... -- -- 143,000 --
----------- ------------ ------------ ----------- -----------
Net cash flows from
operating
activities......... 2,614,000 4,937,000 9,299,000 4,296,000 5,984,000
----------- ------------ ------------ ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment........ (252,000) (2,035,000) (2,236,000) (1,103,000) (2,119,000)
Proceeds from disposal
of property and
equipment............ -- -- 150,000 (32,529,000) --
Purchase of
Investments.......... -- -- -- (1,000,000)
Deposits and payments
for station
purchases............ (1,000,000) (21,164,000) (59,085,000) -- (38,911,000)
----------- ------------ ------------ ----------- -----------
Net cash flows from
investing
activities......... (1,252,000) (23,199,000) (61,171,000) (33,632,000) (42,030,000)
----------- ------------ ------------ ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayment of debt..... (2,408,000) (45,599,000) (485,000) (453,000) (69,476,000)
Proceeds from new
debt................. 51,000 72,750,000 49,350,000 25,350,000 16,000,000
Deferred debt
financing costs...... -- (2,148,000) (1,038,000) (630,000) (282,000)
Repayment of Senior
Cumulative Redeemable
Preferred Stock...... -- -- -- -- (28,160,000)
Proceeds from issuance
of common stock, net
of issuance costs.... -- -- -- -- 118,527,000
Financed equipment
purchases............ -- 51,000 -- -- --
----------- ------------ ------------ ----------- -----------
Net cash flows from
financing
activities......... (2,357,000) 25,054,000 47,827,000 24,267,000 36,609,000
----------- ------------ ------------ ----------- -----------
(DECREASE) INCREASE IN
CASH AND CASH
EQUIVALENTS........... (995,000) 6,792,000 (4,045,000) (5,069,000) 563,000
CASH AND CASH
EQUIVALENTS, beginning
of year............... 2,703,000 1,708,000 8,500,000 8,500,000 4,455,000
----------- ------------ ------------ ----------- -----------
CASH AND CASH
EQUIVALENTS, end of
year.................. $ 1,708,000 $ 8,500,000 $ 4,455,000 $ 3,431,000 $ 5,018,000
=========== ============ ============ =========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid for--
Interest.............. $ 4,815,000 $ 4,413,000 $ 7,192,000 $ 3,104,000 $ 5,207,000
=========== ============ ============ =========== ===========
Income taxes.......... $ 50,000 $ -- $ 338,000 $ -- $ 312,000
=========== ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1997 and 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
Radio One, Inc. (a Delaware corporation referred to as Radio One) and its
subsidiaries, Radio One Licenses, Inc. and WYCB Acquisition Corporation
(Delaware corporations), Broadcast Holdings, Inc. (a Washington, D.C.
corporation), Bell Broadcasting Company (a Michigan corporation), Radio One of
Detroit, Inc., Allur-Detroit, Inc. and Allur Licenses, Inc. (Delaware
corporations) (collectively referred to as the Company) were organized to
acquire, operate and maintain radio broadcasting stations. The Company owns and
operates radio stations in Washington, D.C.; Baltimore, Maryland; Philadelphia,
Pennsylvania; Detroit, Michigan; and Kingsley, Michigan markets. The Company is
highly leveraged, which requires substantial semi-annual and other periodic
interest payments and may impair the Company's ability to obtain additional
working capital financing. The Company's operating results are significantly
affected by its share of the audience in markets where it has stations.
Radio One intends to offer Common A shares to the public in an initial
public offering (IPO). The proceeds of the IPO will be used to repay certain
outstanding debt, to finance pending and future acquisitions, to redeem all of
the Senior Cumulative Redeemable Preferred Stock and for other general
corporate purposes.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Radio One, Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The
accompanying consolidated financial statements are presented on the accrual
basis of accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Statements (unaudited)
The interim consolidated financial statements included herein for Radio One,
Inc. and subsidiaries have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. In management's opinion, the interim financial data presented
herein include all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. Results for interim periods are
not necessarily indicative of results to be expected for the full year.
Subsequent to year end, the Company completed the acquisition of Radio One
of Atlanta, Inc. for approximately 3.3 million shares of its stock and the
assumption of debt (see Note 6). The Company also consummated certain of the
acquisitions addressed in Note 8 and acquired the assets of a station in Boston
for approximately $10 million.
Acquisitions
On December 28, 1998, Radio One purchased all of the outstanding stock of
Allur-Detroit, Inc. (Allur), which owned one radio station in Detroit,
Michigan, for approximately $26.5 million. Radio One financed this acquisition
through a combination of cash and $24.0 million borrowed under the Company's
line of credit. The acquisition of Allur resulted in the recording of
approximately $31.7 million of intangible assets (including the recording of a
deferred tax liability for the difference in book and tax basis in the assets
acquired from the Allur purchase price being in excess of the net book value of
Allur).
F-7
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
On June 30, 1998, Radio One purchased all of the outstanding stock of Bell
Broadcasting Company (Bell), which owned three radio stations in Michigan, for
approximately $34.2 million. Radio One financed this acquisition through a
combination of cash and approximately $25.4 million borrowed under the
Company's line of credit. The acquisition of Bell resulted in the recording of
approximately $42.5 million of intangible assets (including the recording of a
deferred tax liability for the difference in book and tax basis in the assets
acquired from the Bell purchase price being in excess of the net book value of
Bell).
On March 16, 1998, WYCB Acquisition Corporation, an unrestricted subsidiary
of Radio One, acquired all the stock of Broadcast Holdings, Inc. for
$3,750,000. The acquisition was financed with a promissory note for $3,750,000
at 13%, due 2001, which pays quarterly cash interest payments at an annual rate
of 10% through 2001, with the remaining interest being added to the principal.
On February 8, 1997, under a local marketing agreement with the former
owners of WDRE-FM licensed to Jenkintown, Pennsylvania, Radio One began to
provide programming to and selling advertising for WDRE-FM. On May 19, 1997,
Radio One acquired the broadcast assets of WDRE-FM for approximately
$16,000,000. In connection with the purchase, Radio One entered into a three-
year noncompete agreement totaling $4,000,000 with the former owners. Radio One
financed this purchase with a portion of the proceeds from the issuance of
approximately $85,500,000 of 12% Senior Subordinated Notes due 2004. Following
this acquisition, Radio One converted the call letters of the radio station
from WDRE-FM to WPHI-FM.
The unaudited pro forma summary consolidated results of operations for the
years ended December 31, 1996, 1997 and 1998, assuming the acquisitions of
WPHI-FM, WYCB-AM, Bell Broadcasting and Allur-Detroit had occurred in the
beginning of the fiscal years, are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net broadcast revenue............. $33,021,000 $39,475,000 $50,988,000
Operating expenses, excluding
depreciation and amortization.... 23,650,000 27,077,000 31,435,000
Depreciation and amortization..... 12,742,000 12,165,000 12,115,000
Interest expense.................. 14,301,000 14,295,000 15,114,000
Other (expense) income, net....... 16,000 666,000 322,000
(Benefit) provision for income
taxes............................ (7,979,000) (6,360,000) (4,064,000)
Extraordinary loss................ -- 1,985,000 --
----------- ----------- -----------
Net loss........................ $(9,677,000) $(9,021,000) $(3,290,000)
=========== =========== ===========
</TABLE>
On November 23, 1998, Radio One signed an agreement to purchase the assets
of a radio station located in the St. Louis area, for approximately $13.6
million. Radio One made a deposit of approximately $700,000 towards the
purchase price. This deposit is included in other assets in the accompanying
consolidated balance sheet as of December 31, 1998.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market accounts at
various commercial banks. All cash equivalents have original maturities of 90
days or less. For cash and cash equivalents, cost approximates market value.
F-8
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
Property and Equipment
Property and equipment are recorded at cost and are being depreciated on a
straight-line basis over various periods. The components of the Company's
property and equipment as of December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
Period of
1997 1998 Depreciation
---------- ----------- -------------
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT:
Land................................. $ 117,000 $ 590,000 --
Building and improvements............ 148,000 248,000 31 years
Transmitter towers................... 2,146,000 2,282,000 7 or 15 years
Equipment............................ 3,651,000 5,609,000 5 to 7 years
Leasehold improvements............... 1,757,000 2,577,000 Life of Lease
---------- -----------
7,819,000 11,306,000
Less: Accumulated depreciation....... 3,387,000 4,589,000
---------- -----------
Property and equipment, net........ $4,432,000 $ 6,717,000
========== ===========
</TABLE>
Depreciation expenses for the fiscal years ended December 31, 1996, 1997 and
1998, were $706,000, $746,000 and $1,202,000, respectively.
Revenue Recognition
In accordance with industry practice, revenue for broadcast advertising is
recognized when the commercial is broadcast.
Barter Arrangements
The Company broadcasts certain customers' advertising in exchange for
equipment, merchandise and services. The estimated fair value of the equipment,
merchandise or services received is recorded as deferred barter costs and the
corresponding obligation to broadcast advertising is recorded as deferred
barter revenue. The deferred barter costs are expensed or capitalized as they
are used, consumed or received. Deferred barter revenue is recognized as the
related advertising is aired.
Financial Instruments
Financial instruments as of December 31, 1997 and 1998, consist of cash and
cash equivalents, trade accounts receivable, accounts payable, accrued
expenses, long-term debt and preferred stock, all of which the carrying amounts
approximate fair value except for the Senior Subordinated Notes as of December
31, 1998, which have a fair value of approximately $84.5 million, as compared
to a carrying value of $78.5 million. The Company has estimated the fair value
of the debt, based on its estimate of what rate it could have issued that debt
as of December 31, 1998.
Comprehensive Income
The Company has adopted SFAS, No. 130, "Reporting Comprehensive Income" and
has determined that the Company does not have any comprehensive income
adjustments for the periods presented.
F-9
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
Segment Reporting
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" as of December 31, 1998, and has determined
that the Company has only one segment, radio broadcasting. The Company came to
this conclusion because the Company has one product or service, has the same
type of customer and operating strategy in each market, operates in one
regulatory environment, has only one management group that manages the entire
Company and provides information on the Company's results as one segment to the
key decision-maker to make decisions. All of the Company's revenue is derived
from the eastern half of the United States.
Earnings Available for Common Stockholders
The Company has certain senior cumulative redeemable preferred stock
outstanding which pays dividends at 15% per annum (see Note 3). The Company
accretes dividends on this preferred stock, which is payable when the preferred
stock is redeemed. The earnings available for common stockholders for the years
ended December 31, 1997 and 1998, is the net loss or income for each of the
years, less the accreted dividend of $2,037,000 and $3,716,000 during 1997 and
1998, respectively on the preferred stock.
Earnings Per Share
Earnings per share are based on the weighted average number of common and
diluted common equivalent shares for stock options and warrants outstanding
during the period the calculation is made, divided into the earnings available
for common stockholders. Diluted common equivalent shares consist of shares
issuable upon the exercise of stock options and warrants, using the treasury
stock method at the estimated IPO price. All warrants outstanding to acquire
common stock as of December 31, 1996, 1997 and 1998, will be exercised
concurrent with the closing of the IPO and have been reflected in the
calculation of earnings per share as if the stock granted from the exercise was
outstanding for all periods presented. The Company also issued stock to an
employee subsequent to year-end at a price below market value. The stock issued
has been reflected in the earnings per share calculation as if it was
outstanding for all periods presented (see Note 8). The weighted average shares
outstanding is calculated as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Common stock outstanding..................... 4,716,000 4,716,000 4,716,000
Common stock issued from exercise of
warrants.................................... 4,625,000 4,625,000 4,625,000
Stock issued subsequent to year end.......... 51,000 51,000 51,000
--------- --------- ---------
Weighted average shares outstanding for both
basic and diluted earnings per share........ 9,392,000 9,392,000 9,392,000
========= ========= =========
</TABLE>
The Company effected a 34,061 for one stock split, effective May 6, 1999, in
conjunction with the planned IPO. All share data included in the accompanying
consolidated financial statements and notes thereto are as if the stock split
had occurred prior to the periods presented.
Also, effective February 25, 1999, the Company converted certain class A
common stock held by the principal stockholders to class B common stock which
will have ten votes per share, as compared to class A common stock which has
one vote per share, and certain of their class A common stock to class C common
stock. Class C common stock will have no voting rights except as required by
Delaware law. All share data included in the accompanying consolidated
financial statements and notes thereto are as if the stock conversion had
occurred prior to the periods presented.
F-10
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
2. INTANGIBLE ASSETS:
Intangible assets are being amortized on a straight-line basis over various
periods. The intangible asset balances and periods of amortization as of
December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
Period of
1997 1998 Amortization
----------- ------------ ------------
<S> <C> <C> <C>
FCC broadcast license................ $56,179,000 $103,792,000 7-15 Years
Goodwill............................. 7,609,000 39,272,000 15 Years
Debt financing....................... 2,147,000 3,186,000 Life of Debt
Favorable transmitter site and other
intangibles......................... 1,922,000 1,924,000 6-17 Years
Noncompete agreement................. 4,900,000 4,000,000 3 Years
----------- ------------
Total.............................. 72,757,000 152,174,000
Less: Accumulated amortization..... 17,815,000 24,535,000
----------- ------------
Net intangible assets.............. $54,942,000 $127,639,000
=========== ============
</TABLE>
Amortization expense for the fiscal years ended December 31, 1996, 1997 and
1998, was $3,556,000, $5,082,000 and $7,243,000, respectively. The amortization
of the deferred financing cost was charged to interest expense.
3. DEBT AND SENIOR CUMULATIVE REDEEMABLE PREFERRED STOCK:
As of December 31, 1997 and 1998, the Company's outstanding debt is as
follows:
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
Senior subordinated notes (net of $10,640,000 and
$7,020,000 unamortized discounts, respectively)... $74,838,000 $ 78,458,000
Line of credit..................................... -- 49,350,000
WYCB note payable and deferred interest............ -- 3,841,000
Other notes payable................................ 35,000 23,000
Capital lease obligations.......................... 81,000 67,000
----------- ------------
Total, noncurrent................................ $74,954,000 $131,739,000
=========== ============
</TABLE>
Senior Subordinated Notes
To finance the WPHI-FM acquisition (as discussed in Note 1) and to refinance
certain other debt, Radio One issued approximately $85,500,000 of 12% Senior
Subordinated notes due 2004. The notes were sold at a discount, with the net
proceeds to Radio One of approximately $72,750,000. The notes pay cash interest
at 7% per annum through May 15, 2000, and at 12% thereafter. In connection with
this debt offering, Radio One retired approximately $45,600,000 of debt
outstanding under a NationsBank credit agreement with the proceeds from the
offering. Radio One also exchanged approximately $20,900,000 of 15% Senior
Cumulative Redeemable Preferred Stock which must be redeemed by May 2005, for
an equal amount of Radio One's then outstanding subordinated notes and accrued
interest.
The 12% notes due 2004 are redeemable at any time and from time to time at
the option of the Company, in whole or in part, on or after May 15, 2001 at the
redemption prices set forth in the 12% notes due 2004, plus accrued and unpaid
interest to the date of redemption. In addition, on or prior to May 15, 2000,
the Company may redeem, at its option, up to 25% of the aggregate original
principal amount of the 12% notes due 2004 with the net proceeds of one or more
Public Equity Offerings at 112% of the Accreted Value thereof, together with
accrued and unpaid interest, if any, to the date of redemption, as long as at
least approximately $64.1 million of the aggregate principal amount of the 12%
notes due 2004 remains outstanding after each
F-11
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
such redemption. Upon a Change of Control (as defined in the indenture), the
Company must commence an offer to repurchase the 12% notes due 2004 at 101% of
the Accreted Value thereof, plus accrued and unpaid interest, if any, to the
date of repurchase.
Lines of Credit
To finance the Bell Broadcasting and Allur-Detroit Acquisitions during 1998,
Radio One borrowed $49,350,000 from Credit Suisse First Boston, New York
Branch, and other financial institutions which is to mature on December 31,
2003. This credit agreement bears interest at the Eurodollar rate plus an
applicable margin. The average interest rate for the year ended December 31,
1998, was 7.58%. This credit agreement is secured by the property of the
Company (other than Unrestricted Subsidiaries), and interest and proceeds of
real estate and Key Man life insurance policies. During 1998, the month-end
weighted average and the highest month-end balances were $28,779,000 and
$49,350,000, respectively. Subsequent to December 31, 1998, the Company
increased its availability under the line of credit.
As of December 31, 1997, Radio One had a $7,500,000 outstanding line of
credit with NationBank. The interest rate was a base rate plus 1.375%. Radio
One's collateral for this line of credit consisted of liens and security
interest in all common and voting securities convertible or exchangeable into
common stock of the Company and substantially all of its assets (other than
WYCB Acquisition). This line of credit was not drawn on as of December 31,
1997. NationsBank was a participating financial institution in the line of
credit above, and this line of credit agreement was terminated when the Company
entered into the line of credit agreement with Credit Suisse First Boston and
one other financial institution, as discussed above.
During 1995, through a revolving credit agreement (the NationsBank Credit
Agreement) with NationsBank of Texas, N.A. and the other lenders who were
parties, Radio One borrowed $53,000,000 which was to mature on March 31, 2002.
The NationsBank Credit Agreement was refinanced on May 19, 1997, as part of the
Senior Subordinated Notes financing discussed above. The NationsBank Credit
Agreement bore interest at the LIBOR 30-day rate, plus an applicable margin.
The average interest rate for the years ending December 31, 1996 and 1997, was
8.25% and 9.28%, respectively. The credit agreement was secured by all property
of the Company (other than unrestricted subsidiaries) and interest and proceeds
of real estate and Key Man life insurance policies.
Senior Cumulative Redeemable Preferred Stock
On May 19, 1997, concurrent with the debt issuance, all of the holders of
Radio One Subordinated Promissory Notes converted all of their existing
subordinated notes consisting of approximately $17,000,000, together with any
and all accrued interest thereon of approximately $3,900,000 and outstanding
warrants, for shares of Senior Cumulative Redeemable Preferred Stock, which
must be redeemed in May 2005, and stock warrants to purchase 147.04 shares of
common stock. The Senior Cumulative Redeemable Preferred Stock can be redeemed
at 100% of its liquidation value, which is the principal and accreted
dividends. The dividends on each share accrues on a daily basis at a rate of
15% per annum. Preferred stock dividends of approximately $2,037,000 and
$3,716,000 were accrued during the years ended December 31, 1997 and 1998,
respectively. If Radio One does not redeem all of the issued and outstanding
preferred shares on the mandatory redemption date or upon the occurrence of an
event of noncompliance, the holders may elect to have the Dividend Rate
increase to 18% per annum. In the event Radio One does not meet any required
performance target relating exclusively to the operation of WPHI-FM, the
Dividend Rate for each preferred share shall be increased to 17% per annum.
Other Notes Payable
During 1996, Radio One entered into two notes totaling $51,000 with
NationsBank to purchase vehicles. These notes bear interest at 8.74% and 8.49%,
require monthly principal and interest payments of $789 and $471 and mature on
April 30, 2000, and December 2, 2000.
F-12
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
Refinancing of Debt
During 1997, Radio One retired $45,600,000 of outstanding debt. Associated
with the retirement of the debt, Radio One incurred certain early prepayment
penalties and legal fees, and had to write-off certain deferred financing costs
associated with the debt retired. These costs amounted to $1,985,000 and were
recorded as an extraordinary item in the accompanying statements of operations.
4. COMMITMENTS AND CONTINGENCIES:
Leases
Radio One has various operating leases for office space, studio space,
broadcast towers and transmitter facilities which expire on various dates
between May 1999 through October 15, 2003. One of these leases is for office
and studio space in Baltimore, Maryland, and is with a partnership in which two
of the partners are stockholders of the Company (see Note 6).
The following is a schedule of the future minimum rental payments required
under the operating leases that have an initial or remaining noncancelable
lease term in excess of one year as of December 31, 1998.
<TABLE>
<CAPTION>
Year
----
<S> <C>
1999........................................................ $1,007,000
2000........................................................ 1,055,000
2001........................................................ 1,075,000
2002........................................................ 838,000
2003........................................................ 830,000
Thereafter.................................................. 4,578,000
</TABLE>
Total rent expense for the years ended December 31, 1996, 1997 and 1998, was
$777,000, $809,000 and $888,000, respectively.
FCC Broadcast Licenses
Each of the Company's radio stations operates pursuant to one or more
licenses issued by the Federal Communications Commission (FCC) that have a
maximum term of eight years prior to renewal. The Company's radio operating
licenses expire at various times from October 1, 2003, to August 1, 2006.
Although the Company may apply to renew its FCC licenses, third parties may
challenge the Company's renewal applications. The Company is not aware of any
facts or circumstances that would prevent the Company from having its current
licenses renewed.
Litigation
The Company has been named as a defendant in several legal actions occurring
in the ordinary course of business. It is management's opinion, after
consultation with its legal counsel, the outcome of these claims will not have
a material adverse effect on the Company's financial position or results of
operations.
5. INCOME TAXES:
Effective January 1, 1996, Radio One elected to be treated as an S
Corporation under Subchapter S of the Internal Revenue Code. As an S
Corporation, the stockholders separately account for their pro-rata share of
Radio One's income, deductions, losses and credits. Effective May 19, 1997, the
Company's S Corporation status was terminated.
F-13
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
In connection with the conversion to a C corporation, in accordance with SEC
Staff Accounting Bulletin 4.B, Radio One transferred the amount of the
undistributed losses up to the amount of additional paid-in capital at the date
of conversion to additional paid-in capital.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under SFAS 109, deferred income taxes reflect the impact of temporary
differences between the assets and liabilities recognized for financial
reporting purposes and amounts recognized for tax purposes. Deferred taxes are
based on tax laws as currently enacted.
During 1998, the Company acquired the stock of three companies. Associated
with these stock purchases, the Company allocated the purchase price to the
related assets acquired, with the excess purchase price allocated to goodwill.
In a stock purchase, for income tax purposes, the underlying assets of the
acquired companies retain their historical tax basis. Accordingly, the Company
recorded a deferred tax liability of approximately $16,863,000 related to the
difference between the book and tax basis for all of the assets acquired
(excluding goodwill). The result of recording this deferred tax liability is
reflected as additional goodwill of $16,863,000 related to these acquisitions.
A reconciliation of the statutory federal income taxes to the recorded
income tax provision for the years ended December 31, 1996, 1997 and 1998, is
as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Statutory tax (@ 35% rate).......... $(1,263,000) $(1,730,000) $ (257,000)
Effect of state taxes, net of
federal............................ (217,000) (245,000) (29,000)
Establishment of S corporation loss
to its stockholders................ 1,480,000 984,000 --
Effect of net deferred tax asset in
conversion to
C corporation...................... -- (1,067,000) --
Nondeductible goodwill.............. -- -- 769,000
Valuation reserve................... -- 2,058,000 (2,058,000)
----------- ----------- -----------
Benefit for income taxes.......... $ -- $ -- $(1,575,000)
=========== =========== ===========
</TABLE>
The components of the provision for income taxes for the years ended
December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Current.......................................... $ -- $ 463,000
Deferred......................................... (991,000) 20,000
Establishment of net deferred tax asset in
conversion to C corporation..................... (1,067,000) --
Valuation reserve................................ 2,058,000 (2,058,000)
----------- -----------
Benefit for income taxes....................... $ -- $(1,575,000)
=========== ===========
</TABLE>
F-14
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
Deferred income taxes reflect the net tax effect of temporary differences
between the financial statement and tax basis of assets and liabilities. The
significant components of the Company's deferred tax assets and liabilities as
of December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
Deferred tax assets--
FCC and other intangibles amortization.......... $ 246,000 $ 1,152,000
Reserve for bad debts........................... 353,000 473,000
NOL carryforward................................ 1,746,000 400,000
Accruals........................................ -- 268,000
Barter activity................................. -- 85,000
Interest expense................................ -- 479,000
Other........................................... 2,000 20,000
----------- ------------
Total deferred tax assets..................... 2,347,000 2,877,000
----------- ------------
Deferred tax liabilities--
FCC license..................................... -- (16,525,000)
Depreciation.................................... (279,000) (539,000)
Other........................................... (10,000) (238,000)
----------- ------------
Total deferred tax liabilities................ (289,000) (17,302,000)
----------- ------------
Net deferred tax asset (liability)................ 2,058,000 (14,425,000)
Less: Valuation reserve........................... (2,058,000) --
----------- ------------
Net deferred taxes included in the accompanying
consolidated balance sheets...................... $ -- $(14,425,000)
=========== ============
</TABLE>
A 100% valuation reserve was applied against the net deferred tax asset as
of December 31, 1997, as its realization was not more likely than not to be
realized. During the year ended December 31, 1998, this valuation allowance was
reversed as the deferred tax assets were likely to be realized.
During 1998, the Company utilized its entire NOL carryforward, but acquired
an approximate $1,200,000 net operating loss from the purchase of Allur-
Detroit, Inc. This net operating loss acquired can only be utilized as Allur-
Detroit, Inc. has taxable income.
6. RELATED PARTY TRANSACTIONS:
Radio One leases office space for $8,000 per month from a partnership in
which two of the partners are stockholders of Radio One (Note 4). Total rent
paid to the stockholders for fiscal years 1996, 1997 and 1998, was $96,000,
$96,000 and $96,000, respectively. Radio One also has a net receivable as of
December 31, 1997 and 1998, of approximately $68,000 and $4,000, respectively,
due from Radio One of Atlanta, Inc. (ROA), of which an executive officer and
stockholder of Radio One is a major stockholder of ROA. Effective January 1,
1998 Radio One charged ROA a management fee of $300,000 per year, and prior to
January 1, 1998, the fee was $100,000 per year.
The stockholders of Radio One of Atlanta, Inc. have agreed in principle to
sell their shares of Radio One of Atlanta, Inc. to the Company in exchange for
shares of the Company's Common Stock.
As of December 31, 1998, the Company has a loan outstanding of $380,000, and
accrued interest of $7,000 from an officer. The loan is due May 2003 and bears
interest at 5.6%.
F-15
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
7. PROFIT SHARING:
Radio One has a 401(k) profit sharing plan for its employees. Radio One can
contribute to the plan at the discretion of its board of directors. Radio One
made no contribution to the plan during fiscal year 1996, 1997 or 1998.
8. SUBSEQUENT EVENTS:
In January 1999, the Company granted shares of common stock of the Company
to an officer of the Company. These shares will vest over three years. The
Company recognized compensation expense of approximately $200,000 during 1999,
which is the difference between the fair value of the stock on the grant date
and the exercise price of stock.
On February 26, 1999, Radio One signed an asset purchase agreement for the
broadcasting assets of two radio stations located in Richmond, Virginia, for
approximately $12,000,000. The Company expects to complete this transaction
during the second quarter of 1999.
On February 10, 1999, Radio One signed an agreement to purchase the assets
of a radio station located in the Richmond, Virginia, area for approximately
$4,600,000. Radio One made a deposit of $200,000 related to this purchase.
In February 1999, Radio One signed a letter of intent to purchase the
broadcasting assets of two radio stations located in Cleveland, Ohio, for
approximately $20,000,000. The Company expects to complete this transaction
during the first half of 1999.
In March 1999, Radio One signed a letter of intent to purchase the
broadcasting assets of four radio stations located in Richmond, Virginia for
approximately $34,000,000. The Company expects to complete this transaction
during the first half of 1999.
In March 1999, the Company adopted a stock option and grant plan which
provides for the issuance of qualified and nonqualified stock options and
grants to full-time key employees. The Plan allows the issuance of common stock
at the discretion of the Company's board of directors. There are no options
currently outstanding under this plan. In May 1999, the Company granted 213,395
options to certain employees.
During 1999, the Company made a $1,000,000 investment in PNE Media Holdings,
LLC, a privately-held outdoor advertising company.
F-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Radio One of Atlanta, Inc.:
We have audited the accompanying consolidated balance sheets of Radio One of
Atlanta, Inc. (a Delaware corporation) and subsidiary as of December 31, 1997
and 1998, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Radio One
of Atlanta, Inc. and subsidiary as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Baltimore, Maryland,
February 19, 1999
F-17
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and 1998, and March 31, 1999
<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1997 1998 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ 1,117,000 $ 1,711,000 $ 2,133,000
Trade accounts receivable, net of
allowance for doubtful accounts of
$112,000 and $312,000 as of December
31, 1997 and 1998, respectively...... 1,259,000 2,479,000 1,694,000
Prepaid expenses and other............ 59,000 82,000 937,000
Due from Mableton..................... 77,000 120,000 --
Income tax receivable................. -- 164,000 --
----------- ----------- -----------
Total current assets................ 2,512,000 4,556,000 4,764,000
PROPERTY AND EQUIPMENT, net............. 585,000 1,758,000 2,097,000
INTANGIBLE ASSETS, net.................. 10,994,000 10,867,000 11,187,000
OTHER ASSETS............................ 112,000 40,000 52,000
DEFERRED TAXES.......................... -- 60,000 117,000
----------- ----------- -----------
Total assets........................ $14,203,000 $17,281,000 $18,217,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................... $ 108,000 $ 276,000 $ 339,000
Accrued expenses...................... 782,000 909,000 1,168,000
Current portion of long-term debt..... 568,000 327,000 269,000
Due to affiliate...................... 68,000 4,000 304,000
----------- ----------- -----------
Total current liabilities........... 1,526,000 1,516,000 2,080,000
LONG-TERM DEBT AND DEFERRED INTEREST,
net of current portion................. 13,398,000 15,525,000 15,727,000
----------- ----------- -----------
Total liabilities................... 14,924,000 17,041,000 17,807,000
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 14,670
shares authorized, 10,000 shares
issued and outstanding............... 10,000 10,000 10,000
Additional paid-in capital............ 978,000 1,390,000 1,390,000
Accumulated deficit................... (1,709,000) (1,160,000) (990,000)
----------- ----------- -----------
Total stockholders' (deficit)
equity............................. (721,000) 240,000 410,000
----------- ----------- -----------
Total liabilities and stockholders'
equity............................. $14,203,000 $17,281,000 $18,217,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-18
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1997 and 1998
And for the Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
December 31, March 31,
----------------------------------- ----------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE:
Broadcast revenue,
including barter
revenue of $112,000,
$86,000 and $51,000,
respectively......... $4,257,000 $6,525,000 $11,577,000 $1,684,000 $2,803,000
Less: Agency
commissions.......... 497,000 794,000 1,437,000 195,000 356,000
---------- ---------- ----------- ---------- ----------
Net broadcast
revenue............ 3,760,000 5,731,000 10,140,000 1,489,000 2,447,000
---------- ---------- ----------- ---------- ----------
OPERATING EXPENSES:
Program and
technical............ 1,017,000 1,432,000 1,418,000 303,000 478,000
Selling, general and
administrative....... 1,426,000 1,994,000 4,111,000 673,000 910,000
Corporate expenses.... 241,000 637,000 667,000 80,000 96,000
Depreciation and
amortization......... 429,000 577,000 896,000 129,000 202,000
---------- ---------- ----------- ---------- ----------
Total operating
expenses........... 3,113,000 4,640,000 7,092,000 1,185,000 1,686,000
---------- ---------- ----------- ---------- ----------
Operating income.... 647,000 1,091,000 3,048,000 304,000 761,000
INTEREST EXPENSE,
including amortization
of deferred financing
costs.................. 839,000 1,663,000 2,007,000 471,000 491,000
OTHER EXPENSES (INCOME),
net.................... -- 111,000 (7,000) (9,000) --
---------- ---------- ----------- ---------- ----------
(Loss) income before
provision for
income taxes....... (192,000) (683,000) 1,048,000 (158,000) 270,000
PROVISION (BENEFIT) FOR
INCOME TAXES........... -- -- 499,000 (74,000) 100,000
---------- ---------- ----------- ---------- ----------
Net (loss) income... $ (192,000) $ (683,000) $ 549,000 $ (84,000) $ 170,000
========== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-19
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1997 and 1998
And for the Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
Total
Additional Stockholders'
Common Paid-In Accumulated (Deficit)
Stock Capital Deficit Equity
------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995....... $ -- $ -- $ (834,000) $ (834,000)
Net loss....................... -- -- (192,000) (192,000)
------- ---------- ----------- -----------
BALANCE, December 31, 1996....... -- -- (1,026,000) (1,026,000)
Net loss....................... -- -- (683,000) (683,000)
Issuance of stock options below
market........................ -- 264,000 -- 264,000
Tax benefit of issuance of
stock options below market.... -- 106,000 -- 106,000
Allocation for stock issued in
conjunction with debt......... -- 608,000 -- 608,000
Issuance of common stock....... 10,000 -- -- 10,000
------- ---------- ----------- -----------
BALANCE, December 31, 1997....... 10,000 978,000 (1,709,000) (721,000)
Net income..................... -- -- 549,000 549,000
Issuance of stock options below
market........................ -- 294,000 -- 294,000
Tax benefit of issuance of
stock options below market.... -- 118,000 -- 118,000
------- ---------- ----------- -----------
BALANCE, December 31, 1998....... 10,000 1,390,000 (1,160,000) 240,000
Net income..................... -- -- 170,000 170,000
------- ---------- ----------- -----------
BALANCE, March 31, 1999
(unaudited)..................... $10,000 $1,390,000 $ (990,000) $ 410,000
======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-20
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
And for the Three Months Ended March 31, 1998 and 1999
<TABLE>
<CAPTION>
December 31, March 31,
--------------------------------- ----------------------
1996 1997 1998 1998 1999
--------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss).... $(192,000) $ (683,000) $ 549,000 $ (84,000) $ 170,000
Adjustments to
reconcile net income
(loss) to net cash
from operating
activities:
Depreciation and
amortization...... 429,000 577,000 896,000 129,000 202,000
Amortization of
debt financing
costs and
unamortized
discount.......... 399,000 172,000 630,000 276,000 424,000
Compensation
expense from stock
options granted... -- 264,000 294,000 -- --
Loss on disposals.. -- 157,000 -- -- --
Deferred tax
liability......... -- -- 58,000 -- (57,000)
Effect of change in
operating assets
and liabilities--
Trade accounts
receivable...... (774,000) (243,000) (1,220,000) 322,000 785,000
Prepaid expenses
and other....... (16,000) (4,000) (23,000) (35,000) (855,000)
Due from
Mableton........ -- (77,000) (43,000) -- 120,000
Income tax
receivable...... -- -- (164,000) -- 164,000
Other assets..... -- (112,000) 72,000 -- (12,000)
Accounts
payable......... (22,000) 97,000 168,000 -- 63,000
Accrued
expenses........ 423,000 386,000 127,000 (419,000) 259,000
Due to
affiliate....... (19,000) (10,000) (64,000) 25,000 300,000
--------- ---------- ---------- ---------- ----------
Net cash flows
from operating
activities.... 228,000 524,000 1,280,000 214,000 1,563,000
--------- ---------- ---------- ---------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment....... (235,000) (385,000) (1,242,000) (179,000) (421,000)
Acquisition of
Dogwood............. -- (6,792,000) -- --
Acquisition of
intangibles......... -- -- (678,000) (100,000) (440,000)
--------- ---------- ---------- ---------- ----------
Net cash flows
from investing
activities.... (235,000) (7,177,000) (1,920,000) (279,000) (861,000)
--------- ---------- ---------- ---------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from debt
issuance............ -- 7,577,000 2,000,000 -- --
Repayment of debt.... -- -- (744,000) (198,000) (280,000)
Deferred debt
financing costs..... -- (60,000) (22,000) -- --
Issuance of common
stock............... -- 10,000 -- -- --
--------- ---------- ---------- ---------- ----------
Net cash flows
from financing
activities.... -- 7,527,000 1,234,000 (198,000) (280,000)
--------- ---------- ---------- ---------- ----------
(DECREASE) INCREASE IN
CASH AND
CASH EQUIVALENTS...... (7,000) 874,000 594,000 (263,000) 422,000
CASH AND CASH
EQUIVALENTS, beginning
of period............. 250,000 243,000 1,117,000 1,117,000 1,711,000
--------- ---------- ---------- ---------- ----------
CASH AND CASH
EQUIVALENTS, end of
period................ $ 243,000 $1,117,000 $1,711,000 $ 854,000 $2,133,000
========= ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid for
interest............ $ 441,000 $1,305,000 $1,616,000 $ 400,000 $ 400,000
========= ========== ========== ========== ==========
Income taxes paid.... $ -- $ -- $ 499,000 $ -- $ 100,000
========= ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-21
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
Radio One of Atlanta, Inc. (the Company) owns and operates a radio station
serving the Atlanta, Georgia, market, and its subsidiary, Dogwood
Communications, Inc. (Dogwood) owns a radio station serving the Atlanta,
Georgia market. The Company started operations in June, 1995. The Company is
highly leveraged, which requires substantial interest payments and may impair
the Company's ability to obtain additional financing. The Company's operating
results are significantly affected by its market share in the Atlanta, Georgia
market.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiary, Dogwood (see Note 2). All significant
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements are presented on the accrual
basis of accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market accounts at
various commercial banks. All cash equivalents have original maturities of 90
days or less. For cash and cash equivalents, cost approximates market value.
Property and Equipment
Property and equipment are recorded at cost and are being depreciated on a
straight-line basis over various periods. The components of the Company's
property and equipment as of December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------- Period of
1997 1998 Depreciation
-------- ---------- -------------
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT:
Transmitter towers....................... $335,000 $ 493,000 7 Years
Equipment................................ 364,000 967,000 5 to 7 Years
Leasehold improvements................... 14,000 14,000 Life of Lease
Furniture and fixtures................... -- 185,000 5 to 7 Years
Construction in progress................. -- 296,000
-------- ----------
713,000 1,955,000
Less: Accumulated depreciation........... 128,000 197,000
-------- ----------
Property and equipment, net............ $585,000 $1,758,000
======== ==========
</TABLE>
Depreciation expense for the fiscal years ended December 31, 1996, 1997 and
1998, was $38,000, $64,000 and $69,000, respectively.
F-22
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Organizational Costs
As of December 31, 1998, Dogwood had $24,000 of unamortized organization
costs. In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
98-5 (the "SOP") regarding financial reporting on the costs of start-up
activities. Under the SOP, organizational costs are considered start-up costs
and, commencing with fiscal years beginning after December 15, 1998, entities
are required to expense such costs as they are incurred. The Company decided to
expense the unamortized organizational costs as of December 31, 1998.
Revenue Recognition
In accordance with industry practice, revenue for commercial broadcasting
advertisements is recognized when the commercial is broadcast.
Barter Arrangements
Certain program contracts provide for the exchange of advertising air time
in lieu of cash payments for the rights to such programming. These contracts
are recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights.
The Company broadcasts certain customers' advertising in exchange for
equipment, merchandise and services. The estimated fair value of the equipment,
merchandise or services received is recorded as deferred barter costs and the
corresponding obligation to broadcast advertising is recorded as deferred
barter revenue. The deferred barter costs are expensed or capitalized as they
are used or received. Deferred barter revenue is recognized as the related
advertising is aired.
Financial Instruments
Financial instruments as of December 31, 1997 and 1998, consist of cash and
cash equivalents, trade accounts receivable, accounts payable, accrued
expenses, and long-term debt, all of which the carrying amounts approximate
fair value.
Reclassifications
Certain reclassifications have been made to the 1997 financial statements in
order to conform with the 1998 presentation.
Comprehensive Income
The Company has adopted SFAS, No. 130, "Reporting Comprehensive Income." The
Company does not have any comprehensive income adjustments.
Segment Reporting
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" as of December 31, 1998, and has determined
the Company has only one segment, radio broadcasting.
F-23
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Interim Financial Statements (unaudited)
The interim consolidated financial statements included herein for the
Company have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. In management's
opinion, the interim financial data presented herein include all adjustments
(which include only normal recurring adjustments) necessary for a fair
presentation. Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. Results for interim periods are not necessarily indicative of
results to be expected for the full year.
On March 30, 1999, Radio One, Inc. acquired the Company for approximately
3.3 million shares of Radio One's common stock and the assumption of
indebtedness of the Company and Dogwood. Also, on March 30, 1999, the Company
acquired the remaining approximate 67% of Dogwood for $3.6 million. Upon the
completion of these acquisitions, the Company became a wholly owned subsidiary
of Radio One, and Dogwood became a wholly owned subsidiary of the Company. (See
Notes 2 and 8)
2. DOGWOOD COMMUNICATIONS, INC.:
In April 1997, the Company's founder and stockholder transferred his 33 1/3%
ownership interest in Dogwood to the Company in return for the Company assuming
responsibility for certain liabilities of Dogwood. Concurrent with the transfer
of ownership, the Company contributed approximately $6 million to Dogwood to
retire Dogwood's outstanding debt. This stockholder also assigned to the
Company his option to purchase the portion of Dogwood owned by others. The
Company exercised the option to purchase up to 80% of Dogwood during 1998, for
$100,000. The Company intends to exercise its option to purchase the remaining
20% for $3.5 million during 1999.
The Company owns 33 1/3% of Dogwood, it has the ability to acquire an
additional 46 2/3% for $100,000, it has 45 1/2% of the voting control of
Dogwood, and it programs the station owned by Dogwood through a local marketing
agreement (LMA). During the years ended December 31, 1997 and 1998, Dogwood's
primary activity was an LMA of the station to the Company (the station went on
the air on December 16, 1997). As the Company controls Dogwood's operations,
Dogwood has been consolidated with the Company in the accompanying financial
statements.
3. INTANGIBLE ASSETS:
Intangible assets are being amortized on a straight-line basis over various
periods. The intangible asset balances and periods of amortization as of
December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------- Period of
1997 1998 Amortization
----------- ----------- ------------
<S> <C> <C> <C>
Debt financing costs.................... $ 313,000 $ 335,000 Life of debt
FCC broadcast license and other......... 11,602,000 12,280,000 15 Years
Organizational costs.................... 203,000 -- 5 Years
----------- -----------
Total................................. 12,118,000 12,615,000
Less: Accumulated amortization.......... 1,124,000 1,748,000
----------- -----------
Net intangible assets................. $10,994,000 $10,867,000
=========== ===========
</TABLE>
Amortization expense for the years ended December 31, 1996, 1997 and 1998,
was $391,000, $513,000 and $827,000, respectively. The amortization of the debt
financing costs was charged to interest expense.
F-24
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. LONG-TERM DEBT:
The Company is obligated under a long-term senior note and various
subordinated notes payable as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
----------- -----------
<S> <C> <C>
Allied Investment Corporation and its affiliates
(senior)........................................... $10,000,000 $12,000,000
Alta Subordinated Debt Partners III, L.P. (net of
$508,000 and $360,000 of unamortized discount
allocated to stock issuance)....................... 1,069,000 1,217,000
Syncom Capital Corporation (subordinate)............ 1,000,000 1,000,000
Shareholder (subordinate)........................... 1,000,000 960,000
Design Media, Inc. (subordinate).................... 235,000 --
Accrued interest on senior and subordinated notes... 662,000 675,000
----------- -----------
Total............................................. 13,966,000 15,852,000
Less: Current portion of long-term debt............. 568,000 327,000
----------- -----------
Total............................................. $13,398,000 $15,525,000
=========== ===========
</TABLE>
Allied Investment Corporation Debt
The start-up of the Company was partially financed through a $4,000,000
long-term debt agreement with Allied Investment Corporation and certain of its
affiliates (collectively Allied). The loan bore interest at 14%. Terms of the
note required only partial interest payments until January 1, 1997.
In April 1997, the Company renegotiated the prior Allied debt. In connection
with that renegotiation, Allied amended and restated the prior Allied debt to
provide the Company and Dogwood (see Note 2) to become co-borrowers with
respect to the $4,000,000 debt and to jointly borrow an additional $6,000,000.
In connection with this amended and restated loan, new senior secured
debentures totaling $10,000,000 were issued jointly by the Company and Dogwood,
whereby the Company will carry the debt on its books and Dogwood will act as
the guarantor. The agreements have an interest rate that ranges from 12.5% to
13.5% and matures on March 1, 2001. Interest only payments are due monthly
until May 1, 1999. Subsequent to that date, monthly principal and interest
payments are due. Also, as part of the renegotiation, the Company signed notes
for interest that had accrued but was unpaid as of December 31, 1996, on the
prior Allied debt.
In September 1998, the Company borrowed an additional $2,000,000 from
Allied. This debt has an interest rate ranging from 12.5% to 13.5%, and
principal and interest payments are due monthly until the debt matures on March
1, 2001.
In April 1997, the Company also amended and restated its Security Agreement
with Allied which grants them a security interest in all of the Company's
collateral, which includes all tangible and intangible property, all the issued
and outstanding stock of the Company, and the Company's rights and interest in
Dogwood.
The prior Allied debt was issued with detachable warrants that granted
Allied the right to acquire an equity interest in the Company. The warrants
have an aggregate exercise price of $100 per share. During 1997, the warrants
were exercised and the Company issued Allied 1,430 shares of common stock.
Subordinated Notes
In April 1997, the Company also entered into a $1,577,000 Senior Secured
Subordinated Promissory Note with Alta Subordinated Debt Partners III, L.P. The
note has an interest rate of 11%, and the unpaid principal
F-25
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and accrued interest on the note is due on April 1, 2001. The Company also
issued 1,500 shares of common stock in connection with the note. The Company
allocated the proceeds between debt and additional paid-in capital, based on
the pro-rata value of the debt and the common stock. As such, $969,000 was
assigned to the debt and $608,000 was assigned to the value of the common
stock. The value assigned to the common stock was recorded as an increase in
additional paid-in capital. The value assigned to the debt was less than the
face value, and such discount will be amortized over the life of the related
debt using the effective interest method.
The Syndicated Communications Venture Partners II, L.P. (Syncom) debt bears
an interest rate of 11% on the original principal balance of $1,000,000. In
April 1997, the Company amended the subordinated note with Syncom. Under the
new terms of the agreement, interest accrues and is added to the principal
balance, except that beginning with the period of June 20, 1998, the Company is
required to make $18,958 monthly payments. Unpaid principal and accrued
interest is due April 1, 2001.
During 1995, the Syncom note was issued with detachable stock warrants
allowing Syncom to purchase 2,400 shares of the Company for a purchase price of
$100. During 1997, the warrants were exercised and the Company issued Syncom
2,400 shares of common stock.
This note is also secured by a security agreement for the property and
equipment of the Company.
The Company has a note payable to its shareholder of $1,000,000, which bears
interest at 8%. Interest only payments were made monthly until July 1, 1998. At
that time, monthly principal and interest payments of $12,133 began. Unpaid
principal is due June 20, 2002.
The Design Media, Inc.'s note of $235,000 bore interest at 8%. Interest only
payments were made monthly until July 1, 1998. During 1998, the note was repaid
in full.
The aggregate maturities of debt as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Year Total
---- -----------
<S> <C>
1999........................................................... $ 327,000
2000........................................................... 1,620,000
2001........................................................... 13,175,000
2002........................................................... 730,000
-----------
Total........................................................ $15,852,000
===========
</TABLE>
5. LEASES:
The Company leases office space which expires in October 2004 and broadcast
towers which expire through December 2009.
The following is a schedule of the future minimum rental payments required
under the operating leases that have an initial or remaining noncancellable
lease term in excess of one year as of December 31, 1998:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1999.............................................................. $170,000
2000.............................................................. 163,000
2001.............................................................. 164,000
2002.............................................................. 170,000
2003.............................................................. 170,000
Thereafter........................................................ 259,000
</TABLE>
F-26
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Total rent expense for the years ending December 31, 1996, 1997 and 1998,
was $54,000, $57,000 and $93,000, respectively.
6. STOCK OPTION PLAN:
During 1997, the Company granted stock options to an officer of the Company
for up to 700 shares of the Company's common stock for $1.00 each. Of the 700
shares, 400 shares vested immediately and were exercised during 1997. The
officer was granted the remaining options after certain performance results
were achieved during 1998. These options granted in 1998 vested immediately. As
the options to acquire 400 shares and 300 shares granted and vested during 1997
and 1998, respectively, were significantly below their estimated fair market
value, the Company recognized compensation expense of $264,000 and $294,000
during 1997 and 1998, respectively. Compensation expense represented the
difference between the estimated fair market value of the stock and the
exercise price. The Company also recognized an income tax benefit of $106,000
and $118,000 during 1997 and 1998, respectively, related to the options, which
has been recorded as additional paid-in capital.
7. INCOME TAXES:
Effective March 31, 1997, the Company converted from an S corporation to a C
corporation. At the date of conversion, the Company had no additional paid-in
capital to convert to retained earnings.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under SFAS 109, deferred income taxes reflect the impact of temporary
differences between the assets and liabilities recognized for financial
reporting purposes and amounts recognized for tax purposes. Deferred taxes are
based on tax laws as currently enacted.
A reconciliation of the statutory federal income taxes to the recorded
income tax provision for the years ended December 31, 1996, 1997 and 1998, is
as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- --------- --------
<S> <C> <C> <C>
Statutory tax (@ 35% rate)................... $(67,000) $(239,000) $367,000
Effect of state taxes, net of federal........ (9,000) (32,000) 42,000
Nondeductible amortization................... -- -- 154,000
Effect of losses while an S corporation...... 76,000 264,000 --
Establish benefit for deferred taxes at C
corporation
Conversion.................................. -- (57,000) --
Valuation reserve............................ -- 64,000 (64,000)
-------- --------- --------
Provision for income taxes................. $ -- $ -- $499,000
======== ========= ========
</TABLE>
The components of the provision for income taxes for the years ended
December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Current................................................ $ -- $335,000
Deferred............................................... (64,000) 228,000
Valuation reserve...................................... 64,000 (64,000)
-------- --------
Provision for income taxes........................... $ -- $499,000
======== ========
</TABLE>
F-27
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes reflect the net tax effect of temporary differences
between the financial statement and tax basis of assets and liabilities. The
significant components of the Company's deferred tax assets and liabilities as
of December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets--
Reserve for bad debts................................ $ 44,000 $118,000
NOL carryforward..................................... 79,000 --
-------- --------
Total deferred tax assets.......................... 123,000 118,000
Deferred tax liabilities--
Depreciation and amortization........................ (59,000) (58,000)
-------- --------
Net deferred tax asset................................. 64,000 60,000
Less: Valuation reserve................................ (64,000) --
-------- --------
Net deferred taxes included in the accompanying
consolidated balance sheets........................... $ -- $ 60,000
======== ========
</TABLE>
A 100% valuation reserve was applied against the net deferred tax asset as
of December 31, 1997, as its realization was not more likely than not to be
realized. During 1998, this valuation allowance was reversed as the deferred
tax assets would likely be realized. During 1998, the Company utilized its
entire net operating loss carryforward.
8. RELATED PARTY TRANSACTIONS:
The Company is affiliated with Radio One, Inc., as a stockholder of the
Company is also a stockholder of Radio One, Inc. The Company has a due to
affiliate of $68,000 and $4,000 as of December 31, 1997 and 1998, respectively,
for expenses paid by Radio One, Inc. on behalf of the Company and for
administrative services. During the years ended December 31, 1996, 1997 and
1998, the Company incurred expenses of $100,000, $100,000 and $300,000,
respectively, for administrative services which Radio One, Inc. performed for
the Company.
The Company has $77,000 and $120,000 recorded as a receivable from Mableton
Investment Group (Mableton) as of December 31, 1997 and 1998, respectively.
These balances represent costs incurred by the Company for research and
feasibility studies on behalf of a new radio station to be owned by Mableton, a
company owned by a stockholder of the Company.
The stockholders of the Company agreed in principle to sell their shares of
the Company to Radio One, Inc. in exchange for shares of Radio One, Inc.'s
common stock. A stockholder of the Company will receive a $1.2 million fee
related to this acquisition.
Subsequent to year end, the Company made a $263,000 unsecured loan to an
employee. The loan bears interest at 5.56% and is payable on demand.
9. PROFIT SHARING:
The Company's employees participate in a 401K profit sharing plan sponsored
by Radio One, Inc., an affiliate of the Company (see Note 8). The Company's
contribution is at the direction of its board of directors. The Company made no
contributions to the plan during fiscal years 1996, 1997 or 1998.
F-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Radio One, Inc.:
We have audited the accompanying balance sheet of Bell Broadcasting Company
(a Michigan Corporation) (the Company) as of December 31, 1997, and the related
statements of operations, changes in stockholders' equity and cash flows for
the years ended December 31, 1996 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bell Broadcasting Company
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1996 and 1997, in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland,
August 28, 1998
F-29
<PAGE>
BELL BROADCASTING COMPANY
BALANCE SHEETS
As of December 31, 1997 and June 30, 1998
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................ $ 226,000 $ 186,000
Trade accounts receivable, net of allowance for
doubtful accounts of $28,000 and $69,000,
respectively....................................... 951,000 918,000
Current portion of notes receivable................. 13,000 14,000
Prepaid expenses and other.......................... 34,000 6,000
---------- ----------
Total current assets.............................. 1,224,000 1,124,000
PROPERTY AND EQUIPMENT, net........................... 859,000 1,139,000
NOTES RECEIVABLE, net of current portion.............. 491,000 184,000
OTHER ASSETS.......................................... 38,000 20,000
---------- ----------
Total assets...................................... $2,612,000 $2,467,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $ 251,000 $ 92,000
Accrued expenses.................................... 198,000 61,000
Current portion of long-term debt................... 149,000 --
---------- ----------
Total current liabilities......................... 598,000 153,000
LONG-TERM DEBT, net of current portion................ 592,000 --
---------- ----------
Total liabilities................................. 1,190,000 153,000
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock--Class A, $2.00 par value, 800 shares
authorized, issued and outstanding................. 2,000 2,000
Common stock--Class B, $2.00 par value, 24,000
shares authorized,
20,071 and 20,071 shares issued and outstanding,
respectively....................................... 40,000 40,000
Additional paid-in capital.......................... 198,000 1,308,000
Retained earnings................................... 1,182,000 964,000
---------- ----------
Total stockholders' equity........................ 1,422,000 2,314,000
---------- ----------
Total liabilities and stockholders' equity........ $2,612,000 $2,467,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-30
<PAGE>
BELL BROADCASTING COMPANY
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996 and 1997
and the Six Months Ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------ ------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUE:
Broadcast revenue, including
barter revenue of $121,000,
$151,000, $14,000 and
$73,000, respectively...... $ 3,917,000 $ 4,571,000 $1,916,000 $2,326,000
Less: Agency commissions.... 537,000 537,000 229,000 301,000
----------- ----------- ---------- ----------
Net broadcast revenue..... 3,380,000 4,034,000 1,687,000 2,025,000
----------- ----------- ---------- ----------
OPERATING EXPENSES:
Programming and technical... 1,154,000 1,335,000 723,000 675,000
Selling, general and
administrative............. 1,520,000 1,544,000 715,000 748,000
Corporate expenses.......... 849,000 816,000 301,000 663,000
Depreciation and
amortization............... 130,000 148,000 68,000 63,000
----------- ----------- ---------- ----------
Total operating expenses.. 3,653,000 3,843,000 1,807,000 2,149,000
----------- ----------- ---------- ----------
Operating (loss) income... (273,000) 191,000 (120,000) (124,000)
----------- ----------- ---------- ----------
INTEREST EXPENSE.............. 75,000 81,000 38,000 52,000
OTHER (INCOME) EXPENSE, net... (5,000) 54,000 59,000 28,000
----------- ----------- ---------- ----------
(Loss) income before
(benefit) provision for
income taxes............. (343,000) 56,000 (217,000) (204,000)
(BENEFIT) PROVISION FOR INCOME
TAXES........................ (78,000) 44,000 (164,000) 14,000
----------- ----------- ---------- ----------
Net (loss) income......... $ (265,000) $ 12,000 $ (53,000) $ (218,000)
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-31
<PAGE>
BELL BROADCASTING COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996 and 1997
and the Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
Common Common Additional Total
Stock Stock Paid-In Retained Stockholders'
Class A Class B Capital Earnings Equity
------- ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1996.. $2,000 $39,000 $ 98,000 $1,435,000 $1,574,000
Net loss................ -- -- -- (265,000) (265,000)
Stock options granted
below market........... -- -- 9,000 -- 9,000
Stock bonus
compensation........... -- -- 16,000 -- 16,000
Issuance of common
stock.................. -- -- 9,000 -- 9,000
------ ------- ---------- ---------- ----------
BALANCE, December 31,
1996..................... 2,000 39,000 132,000 1,170,000 1,343,000
Net income.............. -- -- -- 12,000 12,000
Stock options granted
below market........... -- -- 17,000 -- 17,000
Stock bonus
compensation........... -- 1,000 32,000 -- 33,000
Issuance of common
stock.................. -- -- 17,000 -- 17,000
------ ------- ---------- ---------- ----------
BALANCE, December 31,
1997..................... 2,000 40,000 198,000 1,182,000 1,422,000
Net loss................ -- -- -- (218,000) (218,000)
Capital contributed from
former owners.......... -- -- 672,000 -- 672,000
Capital contributed from
owners................. -- -- 438,000 -- 438,000
------ ------- ---------- ---------- ----------
BALANCE, June 30, 1998
(Unaudited).............. $2,000 $40,000 $1,308,000 $ 964,000 $2,314,000
====== ======= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-32
<PAGE>
BELL BROADCASTING COMPANY
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996 and 1997
and the Six Months Ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
December 31, June 30,
-------------------- -----------------------
1996 1997 1997 1998
--------- --------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) income.............. $(265,000) $ 12,000 $ (53,000) $(218,000)
Adjustments to reconcile net
(loss) income to net cash from
operating activities:
Depreciation and
amortization................ 130,000 148,000 68,000 63,000
Compensation expense related
to stock bonus plan and
stock granted below market
price....................... 25,000 50,000 -- --
Loss on disposal of assets... -- (8,000) (8,000) --
Effect of change in operating
assets and liabilities--
Trade accounts receivable.. 190,000 (156,000) (35,000) 33,000
Prepaid expenses and
other..................... (101,000) 119,000 19,000 19,000
Other assets............... (1,000) (17,000) -- 18,000
Accounts payable........... 56,000 (94,000) (108,000) (159,000)
Accrued expenses........... (125,000) 41,000 (68,000) (137,000)
--------- --------- --------- ---------
Net cash flows from
operating activities.... (91,000) 95,000 (185,000) (381,000)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets... -- 22,000 22,000 --
Principal payments received on
notes......................... -- 6,000 -- 306,000
Acquisition of property and
equipment..................... (140,000) (211,000) (109,000) (403,000)
--------- --------- --------- ---------
Net cash flows from
investing activities.... (140,000) (183,000) (87,000) (97,000)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from the issuance of
debt.......................... 739,000 220,000 103,000 438,000
Repayment of debt.............. (642,000) (211,000) -- (438,000)
Issuance of common stock....... 9,000 17,000 -- --
Contributed capital............ -- -- -- 438,000
--------- --------- --------- ---------
Net cash flows from
financing activities.... 106,000 26,000 103,000 438,000
--------- --------- --------- ---------
DECREASE IN CASH................. (125,000) (62,000) (169,000) (40,000)
CASH, beginning of period........ 413,000 288,000 288,000 226,000
--------- --------- --------- ---------
CASH, end of period.............. $ 288,000 $ 226,000 $ 119,000 $ 186,000
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid.................. $ 73,000 $ 81,000 $ 38,000 $ 55,000
========= ========= ========= =========
Income taxes paid.............. $ 117,000 $ -- $ -- $ 7,000
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-33
<PAGE>
BELL BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
Bell Broadcasting Company (the Company), a Michigan corporation, is a radio
broadcaster, broadcasting on two stations, WCHB-AM and WDTJ-FM (formerly WCHB-
FM), both located in the Detroit metropolitan area. During 1996, the Federal
Communications Commission (FCC) approved the construction permit to increase
WCHB-AM's signal from 25 kilowatts to 50 kilowatts. In addition, in September
1997, the Canadian government approved WCHB-AM's proposal for a nighttime
increase to 15 kilowatts, and the FCC granted a construction permit for the
nighttime increase. The Company also owns one station in Kingsley, Michigan,
WJZZ-AM.
The financial statements for the six months ended June 30, 1997 and 1998,
are unaudited, but, in the opinion of management, such financial statements
have been presented on the same basis as the audited financial statements for
the year ended December 31, 1997, and include all adjustments, consisting only
of normal recurring adjustments necessary for a fair presentation of the
financial position and results of operations and cash flows for these periods.
Financial Instruments
Financial instruments as of December 31, 1997, consist of cash, trade
accounts receivables, notes receivables, accounts payable, accrued expenses and
long-term debt, all of which the carrying amounts approximate fair value.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
accelerated and straight-line methods over the estimated useful lives of the
related assets.
The components of the Company's property and equipment as of December 31,
1997, are as follows:
<TABLE>
<CAPTION>
December 31, Period of
1997 Depreciation
------------ --------------
<S> <C> <C>
Construction in progress....................... $ 122,000 --
Land........................................... 581,000 --
Buildings and improvements..................... 149,000 10 to 31 years
Transmitter towers............................. 754,000 7 to 15 years
Equipment...................................... 555,000 5 to 15 years
Leasehold improvements......................... 12,000 7 to 19 years
----------
Total property and equipment................. 2,173,000
Less: Accumulated depreciation................. 1,314,000
----------
Property and equipment, net.................... $ 859,000
==========
</TABLE>
F-34
<PAGE>
BELL BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
Depreciation expense for the fiscal years ended December 31, 1996 and 1997,
were $120,000 and $141,000, respectively.
Revenue Recognition
In accordance with industry practice, revenue for broadcast advertising is
recognized when the commercial is broadcast.
Barter Arrangements
Certain program contracts provide for the exchange of advertising air time
in lieu of cash payments for the rights to such programming. These contracts
are recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights.
The Company broadcasts certain customers' advertising in exchange for
equipment, merchandise and services. The estimated fair value of the equipment,
merchandise or services received is recorded as deferred barter costs and the
corresponding obligation to broadcast advertising is recorded as deferred
barter revenue. The deferred barter costs are expensed or capitalized as they
are used, consumed or received. Deferred barter revenue is recognized as the
related advertising is aired.
Sale of WKNX
In June 1997, the Company sold the assets and rights of WKNX-AM for
approximately $210,000 and recognized a loss of approximately $22,000. In
connection with the sale, the Company obtained a note receivable from the
purchasers of the station. The terms of the sale call for a note receivable
bearing interest at 10% per annum, requiring monthly payments of approximately
$3,000 through June 2007. The note is secured by certain real estate and
personal property and the pledge of the stock of Frankenmuth.
Supplemental Cash Flow Information
The Company issued 200 and 400 shares each of class B common stock to two
former officers of the Company during 1996 and 1997, respectively, at a price
below the stock's estimated fair market value. Compensation expense of $25,000
and $50,000 was recorded in 1996 and 1997, respectively, in connection with the
issuance (Note 6). In June 1997, the Company sold the assets and rights to
WKNX-AM for a note receivable in the amount of $210,000. (Also see Note 7.)
New Accounting Standards
During 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income" (SFAS No. 130), which is effective for
fiscal years beginning after December 15, 1997. This statement establishes
standards for reporting and display of comprehensive income and its components.
The Company believes the adoption of SFAS No. 130 will have no impact on the
financial statements as the Company has no comprehensive income adjustments.
F-35
<PAGE>
BELL BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
During 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" (SFAS No. 131), which is effective for
fiscal years beginning after December 15, 1997. This statement establishes a
new approach for determining segments within a company and reporting
information on those segments. The Company has performed a preliminary
assessment of this statement and believes that no disclosure is necessary as
the Company has only one segment.
2. NOTES RECEIVABLE--RELATED PARTY:
In 1995, the Company loaned the trust of a deceased shareholder $300,000
and received a note receivable. The note bears interest at the mid-term
applicable federal rate (6.31% and 5.63% as of December 31, 1996 and 1997,
respectively), with principal and interest due December 2000. The principal
and all interest due were paid on June 30, 1998.
3. DEBT:
Debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Note payable to bank, payable in monthly installments of
$12,000, including interest at 9.35% per annum, secured by
land, equipment and the Company's AM broadcast license...... $641,000
Note payable to bank, payable in monthly installments of
$7,000, including interest at 9.35% per annum, secured by
land, equipment and the Company's FM broadcast license...... 51,000
Note payable to bank, payable in monthly installments of
$1,000, including interest at 8.99% per annum, secured by
vehicles.................................................... 40,000
Note payable in monthly installments of $400, including
interest at 11% per annum, secured by transportation
equipment................................................... 9,000
--------
Total...................................................... 741,000
Less: Current portion...................................... 149,000
--------
Total long-term debt....................................... $592,000
========
</TABLE>
This outstanding debt was repaid as of June 30, 1998.
4. COMMITMENTS AND CONTINGENCIES:
Leases
During 1996 and 1997, the Company leased the facilities under three
separate operating leases, one of which was with a related party (the former
owners of the Company). The related party lease was on a month-to-month basis
for the FM station building, at a rate of $800 per month. The second lease
covers the FM tower and transmitter space and expires in May 1999, with one
optional renewal of five years. Monthly rent under this lease is currently
$4,000. In addition, the Company leases equipment under two operating leases
expiring in 1999. Monthly rent under the equipment leases is $450.
Rental expense for the years ended December 31, 1996 and 1997, was $70,000
and $60,000, respectively.
F-36
<PAGE>
BELL BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
Litigation
The Company has been named as defendant in various legal proceedings arising
out of the normal course of business. It is the opinion of management, after
consultation with legal counsel, that the amount, if any, of the Company's
ultimate liability under all current legal proceedings will not have a material
adverse effect on the financial position or results of operations of the
Company.
5. STOCK OPTION AND BONUS PLANS:
The Company had an Incentive stock option plan (the stock option plan). The
Company granted options to two employees of the Company to purchase up to 200
shares each of class B common stock at a price equal to 50% of the fair market
value of the stock on the exercise date. In 1996, the stock option plan was
extended for two years (January 1, 1996 to December 31, 1997). During 1996 and
1997, the Company granted options under the plan and recognized compensation
expense because the option price was below the estimated market price of the
stock.
The Company also had a Stock Bonus Plan (the Bonus Plan). Under provisions
of the Bonus Plan, the Company could, at its discretion, award two employees of
the Company up to an aggregate of 200 shares each of class B common stock. The
Bonus Plan was extended in 1996 for two years. During 1996, the Company awarded
50 shares to each employee under the Bonus Plan. During 1997, the Company
awarded 100 shares to each employee for services performed. Compensation
expense equal to the fair market value of the class B common stock awarded has
been recorded for 1996 and 1997 to reflect such awards.
Agreements between the Company and three of its former stockholders
generally provide that none of their shares (as specifically defined) may be
sold, transferred or exchanged without the prior written consent of the
Company.
In addition, the agreements specify the rights of the stockholders and the
obligations of the Company in the event of death, termination of employment or
change in control of the Company. The agreements state that if a change in
control of the Company occurs, the employees' right to exercise their options
will cease. If the Company is required to repurchase any of the shares, the
purchase price shall be the fair market value of such shares (as specifically
defined). As of June 30, 1998, all options terminated.
The Company accounts for its stock option plans in accordance with
Accounting Principles Board Opinion No. 25. Had compensation cost for the plans
been determined consistent with Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation," the difference in the Company's
pro forma net income would have been immaterial.
F-37
<PAGE>
BELL BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
6. INCOME TAXES:
A reconciliation of the statutory federal income taxes to the recorded
income tax (benefit) provision for the years ended December 31, 1996 and 1997
is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1997
--------- --------
<S> <C> <C>
Statutory tax (@ 35% rate)............................ $(120,000) $ 19,000
Effect of state taxes, net of federal................. 16,000 3,000
Effect of graduated tax rate.......................... -- (12,000)
Other nondeductible items............................. 23,000 28,000
Nondeductible compensation expense.................... 3,000 6,000
--------- --------
(Benefit) provision for income taxes................ $ (78,000) $ 44,000
========= ========
</TABLE>
The components of the (benefit) provision for income taxes for the years
ended December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1996 1997
--------- -------
<S> <C> <C>
Current................................................ $(105,000) $20,000
Deferred............................................... 27,000 24,000
--------- -------
(Benefit) provision for income taxes................... $ (78,000) $44,000
========= =======
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the financial statement and tax basis of assets and liabilities. The
significant components of the Company's deferred tax assets and liability as of
December 31, 1997, are as follows:
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Deferred tax assets--
Reserve for bad debts....................................... $ 10,000
Deferred tax liability--
Other....................................................... (13,000)
--------
Net deferred tax liability.................................... $ (3,000)
========
</TABLE>
7. SALE OF CAPITAL STOCK:
On December 23, 1997, the stockholders of the Company entered into an
Agreement with Radio One, Inc. to sell all of the issued and outstanding shares
of the capital stock of the Company for approximately $34 million. Prior to the
sale, the stockholders of the Company assumed certain debt totaling $771,000
and acquired certain assets of the Company totaling $99,000. The net book value
of the assets acquired and the liabilities assumed prior to the sale was
recorded as a capital contribution from the owners. The sale to Radio One, Inc.
was completed on June 30, 1998.
F-38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Allur-Detroit, Inc.:
We have audited the accompanying balance sheet of Allur-Detroit, Inc. (a
wholly owned subsidiary of Syndicated Communications Venture Partners II, LP)
for the year ended December 31, 1997, and the related statements of operations,
changes in stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of Allur-Detroit, Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Allur-Detroit, Inc. for the
year ended December 31, 1997, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
/s/ MITCHELL & TITUS LLP
Washington, D.C.,
March 25, 1998
F-39
<PAGE>
ALLUR-DETROIT, INC.
BALANCE SHEETS
As of December 31, 1997 and September 30, 1998
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................................. $ 86,000 $ 172,000
Trade accounts receivable, net of allowance of
$77,000.......................................... 410,000 805,000
Prepaid expenses and other........................ 55,000 42,000
---------- ----------
Total current assets............................ 551,000 1,019,000
PROPERTY AND EQUIPMENT, net......................... 75,000 82,000
INTANGIBLE ASSETS, net.............................. 7,563,000 7,429,000
---------- ----------
Total assets.................................... $8,189,000 $8,530,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable an accrued expenses.............. $ 829,000 $1,056,000
---------- ----------
NOTES PAYABLE AND DEFERRED INTEREST................. 3,229,000 3,892,000
---------- ----------
Total liabilities............................... 4,058,000 4,948,000
---------- ----------
COMMITMENTS
CUMULATIVE REDEEMABLE PREFERRED STOCK,
$2,000 par value, 1,050 shares authorized, 1,050
and 975 shares issued and outstanding,
respectively....................................... 2,100,000 1,950,000
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value, 1,000 shares
authorized and 975 shares issued and
outstanding...................................... 1,000 1,000
Additional paid-in capital........................ 2,463,000 2,463,000
Accumulated deficit............................... (433,000) (832,000)
---------- ----------
Total stockholders' equity...................... 2,031,000 1,632,000
---------- ----------
Total liabilities and stockholders' equity...... $8,189,000 $8,530,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-40
<PAGE>
ALLUR-DETROIT, INC.
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997
and for the Nine Months Ended September 30, 1997 and 1998
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
December 31, ------------------------
1997 1997 1998
------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUE:
Broadcast revenue....................... $2,473,000 $1,884,000 $2,509,000
Less: Agency commissions................ 259,000 207,000 379,000
---------- ---------- ----------
Net broadcast revenue................. 2,214,000 1,677,000 2,130,000
---------- ---------- ----------
OPERATING EXPENSES:
Programming and technical............... 894,000 477,000 592,000
Selling, general and administrative..... 1,467,000 1,247,000 1,412,000
Corporate expenses...................... 36,000 27,000 27,000
Depreciation and amortization........... 245,000 183,000 167,000
---------- ---------- ----------
Total operating expenses.............. 2,642,000 1,934,000 2,198,000
---------- ---------- ----------
Operating loss........................ (428,000) (257,000) (68,000)
---------- ---------- ----------
INTEREST EXPENSE.......................... 222,000 147,000 281,000
OTHER INCOME (EXPENSE), net............... 217,000 126,000 (50,000)
---------- ---------- ----------
Loss before provision for income
taxes................................ (433,000) (278,000) (399,000)
PROVISION FOR INCOME TAXES................ -- -- --
---------- ---------- ----------
Net loss.............................. $ (433,000) $ (278,000) $ (399,000)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-41
<PAGE>
ALLUR-DETROIT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Year Ended December 31, 1997
and for the Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Equity
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996........ $1,000 $2,463,000 $ -- $2,464,000
Net loss........................ -- -- (433,000) (433,000)
------ ---------- --------- ----------
BALANCE, December 31, 1997........ 1,000 2,463,000 (433,000) 2,031,000
Net loss........................ -- -- (399,000) (399,000)
------ ---------- --------- ----------
BALANCE, September 30, 1998
(unaudited)...................... $1,000 $2,463,000 $(832,000) $1,632,000
====== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-42
<PAGE>
ALLUR-DETROIT, INC.
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1997
and for the Nine Months Ended September 30, 1997 and 1998
<TABLE>
<CAPTION>
September 30,
December 31, ------------------------
1997 1997 1998
------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................... $ (433,000) $ (278,000) $(399,000)
Adjustments to reconcile net loss to
net cash from operating activities:
Depreciation and amortization........ 245,000 183,000 167,000
Effect of change in operating assets
and liabilities--
Trade accounts receivable.......... 32,000 (95,000) (395,000)
Prepaid expenses and other......... (45,000) (59,000) 13,000
Accounts payable and accrued
expenses.......................... (172,000) (60,000) 227,000
----------- ----------- ---------
Net cash flows from operating
activities...................... (373,000) (309,000) (387,000)
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment.................. (39,000) -- (40,000)
----------- ----------- ---------
Net cash flows from investing
activities...................... (39,000) -- (40,000)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of preferred stock.......... -- -- (150,000)
Repayment of debt...................... (1,676,000) (1,257,000) --
Proceeds from notes payable............ 2,152,000 1,614,000 663,000
----------- ----------- ---------
Net cash flows from financing
activities...................... 476,000 357,000 513,000
----------- ----------- ---------
NET INCREASE IN CASH..................... 64,000 48,000 86,000
CASH, beginning of period................ 22,000 22,000 86,000
----------- ----------- ---------
CASH, end of period...................... $ 86,000 $ 70,000 $ 172,000
=========== =========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING INFORMATION:
Interest paid.......................... $ 81,000 $ -- $ --
=========== =========== =========
Income taxes paid...................... $ -- $ -- $ --
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-43
<PAGE>
ALLUR-DETROIT, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Allur-Detroit, Inc. (the Company) is a subsidiary of Syndicated
Communications Ventures Partners II, LP (SYNCOM II). The Company's sole
activity is to operate WWBR-FM, a radio station that broadcasts from Detroit,
Michigan.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying financial statements are presented on the accrual basis of
accounting in accordance with generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Interim Financial Statements
The financial statements for the nine months ended September 30, 1997 and
1998, are unaudited but, in the opinion of management, such financial
statements have been presented on the same basis as the audited financial
statements for the year ended December 31, 1997, and include all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the financial position and results of operations and cash flows
for these periods.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method.
The components of property and equipment as of December 31, 1997 and
September 30, 1998, are as follows:
<TABLE>
<CAPTION>
December 31, September 30, Period of
1997 1998 Depreciation
------------ ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Leasehold improvements........... $ 7,000 $ 8,000 10 years
Transmitter equipment............ 17,000 17,000 5 years
Studio and other technical
equipment....................... 46,000 59,000 7 years
Office furniture and equipment... 45,000 54,000 5 years
Automobiles...................... -- 17,000 5 years
-------- --------
115,000 155,000
Less: Accumulated depreciation
and
amortization.................... 40,000 73,000
-------- --------
Property and equipment, net...... $ 75,000 $ 82,000
======== ========
</TABLE>
Intangible Assets
Management periodically reviews its unamortized intangible asset balances to
ensure that those assets have not been impaired in accordance with the
definition of Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived assets and for Long-Lived assets to be
disposed of." As of
F-44
<PAGE>
ALLUR-DETROIT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1998, management has made such evaluations and believes that the
net intangible asset is realizable. In any period which management believes an
impairment has occurred, management will write down the asset in accordance
with this standard.
Revenue Recognition
Revenue for advertising is recognized when the commercial is broadcasted.
Barter Arrangements
Certain program contracts provide for the exchange of advertising air time
in lieu of cash payments for the rights to such programming. These contracts
are recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights.
The Company broadcasts certain customers' advertising in exchange for
equipment, merchandise and services. The estimated fair value of the equipment,
merchandise or services received is recorded as deferred barter costs and the
corresponding obligation to broadcast advertising is recorded as deferred
barter revenue. The deferred barter costs are expensed or capitalized as they
are used, consumed or received. Deferred barter revenue is recognized as the
related advertising is aired.
Financial Instruments
Financial instruments as of December 31, 1997, and September 30, 1998,
consist of cash, trade accounts receivable, accounts payable, accrued expenses,
preferred stock, and notes payable all of which the carrying amounts
approximate fair value.
New Accounting Standards
During 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income" (SFAS No. 130), which is effective for
fiscal years beginning after December 15, 1997. This statement establishes
standards for reporting and display of comprehensive income and its components.
The Company adopted SFAS No. 130 during the nine months ended September 30,
1998, and has determined that the adoption of this statement has no impact on
the financial statements, as the Company has no comprehensive income
adjustments.
During 1997, the FASB issues SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131), which is effective for
fiscal years beginning after December 15, 1997. This statement establishes a
new approach for determining segments within a company and reporting
information on those segments. The Company adopted this statement during the
nine months ended September 30, 1998 and concluded that it had only one
segment.
3. INTANGIBLE ASSETS:
Intangible asset balances and periods of amortization as of December 31,
1997, and September 30, 1998, are as follows:
<TABLE>
<CAPTION>
December 31, September 30, Period of
1997 1998 Amortization
------------ ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Goodwill and FCC license.......... $7,768,000 $7,768,000 40 years
Less: Accumulated amortization.... 205,000 339,000
---------- ----------
$7,563,000 $7,429,000
========== ==========
</TABLE>
F-45
<PAGE>
ALLUR-DETROIT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Depreciation and amortization expense for the year ended December 31, 1997,
and for the nine months ended September 30, 1997 and 1998, was $245,000,
$183,000 and $167,000, respectively.
4. RELATED PARTY TRANSACTIONS:
Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(Unaudited)
<S> <C> <C>
SYNCOM II--long-term debt--10% annually......... $1,676,000 $1,676,000
SYNCOM III--long-term debt--10% annually........ 1,362,000 1,362,000
SYNCOM II--line of credit--8% annually.......... 191,000 854,000
---------- ----------
Total......................................... $3,229,000 $3,892,000
========== ==========
</TABLE>
The debt owed to SYNCOM II and SYNCOM III are due and payable in lump-sum
the earlier of a sale of the license of Allur-Detroit, a sale of substantially
all of the assets of Allur-Detroit, a sale of a controlling interest in the
common stock shares of Allur-Detroit, or at December 31, 1999 (see Note 7). The
debt is secured by the FCC license and assets of the Company.
Management Fee
The Company entered into an agreement with Syncom Management, Inc. whereby
it pays $36,000 per year for accounting services. Syncom Management, Inc. also
provides management and financial services to SYNCOM II, the owner of the
Company.
5. COMMITMENTS:
Operating Leases
The Company rents office space and transmittal sites under several operating
leases. These leases expire at various dates through 2002, with most containing
renewal options.
Future minimum rental payments under such noncancellable operating leases as
of September 30, 1998, are as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1998 (remaining)................................................ $37,000
1999............................................................ 148,000
2000............................................................ 148,000
2001............................................................ 91,000
2002............................................................ 98,000
</TABLE>
F-46
<PAGE>
ALLUR-DETROIT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. CUMULATIVE REDEEMABLE PREFERRED STOCK:
On December 4, 1992, the Company issued 1,050 shares of cumulative
redeemable preferred stock to PNC Bank, formerly Continental Bank. The
preferred stock earns cumulative annual dividends of eight percent (8%) of par
value.
Under the terms of the PNC Bank/Allur-Detroit settlement agreement of
December 31, 1996, redemption of the preferred stock shall occur at the date
when: (i) repayment is effected in full of principal and interest on lenders'
new notes, or (ii) at the maturity date of the new notes when the lenders
shall cause the Company to repay, whichever happens first. In such a
situation, all outstanding shares of preferred stock shall be redeemed at a
price equal to the par value, plus an amount equal to both accrued and
undeclared dividends payable from available funds as stipulated in Section 2.2
of the Shareholders Agreement dated December 4, 1992. As of September 30,
1998, circumstances supporting the redemption of the preferred stock did not
occur.
The Company had not declared and has not recorded an accrual for cumulative
preferred stock dividends. At September 30, 1998, cumulative unpaid preferred
dividends amounted to $958,667. Such dividends, if declared, would have been
paid out of cumulative retained earnings of the Company, if any.
On February 20, 1998, the Company paid $150,000, representing a partial
payment toward the required redemption of the preferred stock held by PNC
Bank. From this date hereof, the balance due for payment on the preferred
stock is $1,950,000. Subsequent to September 30, 1998, the $1,950,000 of
preferred stock was redeemed for the face value without the dividend being
declared.
7. INCOME TAXES:
The Company accounted for income taxes in accordance with Statement of
Financial Accounting standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under SFAS 109, deferred income taxes reflect the impact of temporary
differences between the assets and liabilities recognized for financial
reporting purposes and amounts recognized for tax purposes. Deferred taxes are
based on tax laws as currently enacted.
A reconciliation of the statutory federal income taxes to the recorded
income tax provision for the year ended December 31, 1997, is as follows:
<TABLE>
<S> <C>
Statutory Tax (@ 35% rate)..................................... $(152,000)
Effect of state taxes, net of federal.......................... (18,000)
Effect of graduated tax rate................................... 5,000
Valuation reserve.............................................. 165,000
---------
Provision for income taxes................................... $ --
=========
</TABLE>
The components of the provision for income taxes for the years ended
December 31, 1997 are as follows:
<TABLE>
<S> <C>
Current......................................................... $ --
Deferred........................................................ (165,000)
Valuation reserve............................................... 165,000
---------
Provision for income taxes.................................... $ --
=========
</TABLE>
F-47
<PAGE>
ALLUR-DETROIT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Deferred income taxes reflect the net tax effect of temporary differences
between the financial statement and tax basis of assets and liabilities. The
significant components of the Company's deferred tax assets and liabilities as
of December 31, 1997, are as follows:
<TABLE>
<S> <C>
Deferred tax assets--
NOL carryforward............................................. $180,000
Deferred tax liabilities--
Depreciation................................................. (15,000)
Net deferred tax asset-- ...................................... 165,000
Less:Valuation reserve......................................... (165,000)
--------
Deferred taxes included in the accompanying consolidated
balance sheets................................................ $ --
========
</TABLE>
A 100% valuation reserve has been applied against the net deferred tax
asset, as its realization is not considered to be more likely than not to be
realized.
As of December 31, 1997, there was approximately $400,000 of available net
operating loss carry forwards that expire through 2011.
8. SUBSEQUENT EVENTS:
On October 26, 1998, the stockholders of the Company entered into a stock
purchase agreement with Radio One, Inc. to sell all of the issued and
outstanding shares of capital stock of the Company for approximately $27
million. The sale is expected to be completed by December 31, 1998.
F-48
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Radio One, Inc.:
We have audited the accompanying combined balance sheets of the Richmond
operations of Sinclair Telecable, Inc., consisting of stations WCDX-FM, WPLZ-
FM, WJRV-FM and WGCV-AM (the Stations) as of December 31, 1997 and 1998, and
the related combined statements of operations and changes in station equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Stations' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The accompanying combined financial statements have been prepared from the
separate records maintained by the Stations and may not be indicative of the
conditions that would have existed or the results of operations had the
Stations been operated as an unaffiliated entity. As discussed in Note 1,
certain corporate overhead and other expenses represent allocations made by the
Stations' parent.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Richmond
operations of Sinclair Telecable, Inc., consisting of stations WCDX-FM, WPLZ-
FM, WJRV-FM and WGCV-AM as of December 31, 1997 and 1998 and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Baltimore, Maryland,
March 5, 1999
F-49
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
COMBINED BALANCE SHEETS
As of December 31, 1997 and 1998
and March 31, 1999
<TABLE>
<CAPTION>
March 31,
1997 1998 1999
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 55,000 $ 142,000 $ 36,000
Trade accounts receivable, net of allowance
for doubtful accounts of $39,000, $50,000,
44,000 respectively....................... 1,282,000 1,400,000 1,447,000
Prepaid expenses and other................. 47,000 31,000 18,000
---------- ---------- ----------
Total current assets..................... 1,384,000 1,573,000 1,501,000
PROPERTY AND EQUIPMENT, net.................. 922,000 1,202,000 1,192,000
INTANGIBLE ASSETS, net....................... 4,065,000 3,692,000 3,599,000
---------- ---------- ----------
Total assets............................. $6,371,000 $6,467,000 $6,292,000
========== ========== ==========
LIABILITIES AND STATION EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses...... $ 423,000 $ 566,000 $ 200,000
COMMITMENTS
STATION EQUITY............................... 5,948,000 5,901,000 6,092,000
---------- ---------- ----------
Total liabilities and station equity..... $6,371,000 $6,467,000 $6,292,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-50
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN STATION EQUITY
For the Years Ended December 31, 1997 and 1998
and the Three Months Ended March 31, 1998 and 1999
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1997 1998 1998 1999
----------- ----------- -------------- --------------
(unaudited)
<S> <C> <C> <C> <C>
REVENUE:
Broadcast revenue,
including barter
revenue of $249,000,
$304,000, 79,495 and
37,440 respectively.. $ 8,330,000 $ 8,509,000 $ 1,785,000 $ 1,625,000
Less: Agency
commissions.......... 1,041,000 1,051,000 299,000 227,000
----------- ----------- -------------- --------------
Net broadcast
revenue............ 7,289,000 7,458,000 1,486,000 1,398,000
----------- ----------- -------------- --------------
OPERATING EXPENSES:
Program and
technical............ 1,313,000 1,498,000 273,000 354,000
Selling, general and
administrative....... 3,025,000 3,170,000 587,000 589,000
Corporate
allocations.......... 311,000 413,000 90,000 122,000
Depreciation and
amortization......... 569,000 648,000 142,000 162,000
----------- ----------- -------------- --------------
Total operating
expenses........... 5,218,000 5,729,000 1,092,000 1,227,000
----------- ----------- -------------- --------------
Net income.......... 2,071,000 1,729,000 394,000 171,000
STATION EQUITY,
beginning of year...... 6,548,000 5,948,000 5,948,000 5,901,000
NET TRANSFER (TO) FROM
PARENT................. (2,671,000) (1,776,000) (516,000) 20,000
----------- ----------- -------------- --------------
STATION EQUITY, end of
year................... $ 5,948,000 $ 5,901,000 $ 5,826,000 $ 6,092,000
=========== =========== ============== ==============
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-51
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997 and 1998
and the Three Months Ended March 31, 1998 and 1999
<TABLE>
<CAPTION>
December 31, March 31,
------------------------ --------------------
1997 1998 1998 1999
----------- ----------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income................... $ 2,071,000 $ 1,729,000 $ 394,000 $ 171,000
Adjustments to reconcile net
income to net cash from
operating activities--
Depreciation and
amortization.............. 569,000 648,000 142,000 162,000
Effect of change in
operating assets and
liabilities--
Trade accounts
receivable.............. 109,000 (118,000) 161,000 (47,000)
Prepaid expenses and
other................... (33,000) 16,000 27,000 13,000
Accounts payable and
accrued expenses........ (63,000) 143,000 (180,000) (366,000)
----------- ----------- --------- ---------
Net cash flows from
operating activities.. 2,653,000 2,418,000 544,000 (67,000)
----------- ----------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment................... (49,000) (555,000) (59,000) (59,000)
----------- ----------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net transfer (to) from
parent...................... (2,671,000) (1,776,000) (516,000) 20,000
----------- ----------- --------- ---------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS.............. (67,000) 87,000 (31,000) (106,000)
CASH AND CASH EQUIVALENTS,
beginning of year............. 122,000 55,000 55,000 142,000
----------- ----------- --------- ---------
CASH AND CASH EQUIVALENTS, end
of year....................... $ 55,000 $ 142,000 $ 24,000 $ 36,000
=========== =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-52
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1997 and 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
The radio stations, WCDX-FM, WPLZ-FM, WJRV-FM and WGCV-AM (Stations) are
broadcast in the Richmond area. WCDX-FM, WPLZ-FM and WGCV-AM are owned by
Sinclair Telecable, Inc. (Sinclair). WJRV-FM is owned by Commonwealth
Broadcasting LLC (Commonwealth), a related party. Sinclair owns 25% of
Commonwealth. The remaining 75% of Commonwealth is owned by some of the
shareholders of Sinclair. Commonwealth has been fully consolidated into the
combined financial statements of Sinclair Telecable, Inc. and Affiliates
(combined, Sinclair).
In March 1999, Sinclair entered into a letter of intent with Radio One, Inc.
to sell ultimately all of the tangible and intangible assets of these Richmond
operations for approximately $34 million. Sinclair and Radio One, Inc. intend
to enter into a local marketing agreement under which Radio One, Inc. will
operate these Richmond operations prior to completing its acquisition of these
operations. Accordingly, these combined financial statements of the Richmond
operations include the stations to be purchased by Radio One, Inc. All inter-
station transactions have been eliminated in consolidation.
Basis of Presentation
The accompanying combined financial statements are presented on the accrual
basis of accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Statements (unaudited)
The interim combined financial statements included herein for the Richmond
operations of Sinclair Telecable, Inc. have been prepared by management,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In management's opinion, the interim financial data
presented herein include all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation. Certain information and
footnote disclosure normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. Results for interim periods are
not necessarily indicative of results to be expected for the full year.
Corporate Expenses
The Stations are allocated certain corporate expenses for services provided
by Sinclair based upon the percentage of revenue of each station to total
revenue of all stations operated by Sinclair. Though management is of the
opinion that all allocations used are reasonable and appropriate, other
allocations might be used that could produce results substantially different
from those reflected herein and these cost allocations might not be indicative
of amounts which might be paid to unrelated parties for similar services or if
Stations had been operated on a stand-alone basis.
Sinclair corporate departmental expenses of $311,000 and $413,000 have been
allocated to the Stations during 1997 and 1998, respectively, for management
salaries and benefits, legal services, corporate office, and other
miscellaneous expenses.
F-53
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998
The acquisition of station WJRV-FM was partially financed with debt which
was allocated to the Stations. This debt and related accrued interest expense
was eliminated through cash transfers to the parent. Cash transfers in excess
of amounts required to repay debt and secured interest reduces the Stations
equity and is recorded as net transfer to parent.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market accounts at
various commercial banks. All cash equivalents have original maturities of 90
days or less. For cash and cash equivalents, cost approximates market value.
Property and Equipment
Property and equipment are recorded at cost and are being depreciated on a
straight-line basis over various periods. The components of the Stations'
property and equipment as of December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
Period of
1997 1998 Depreciation
--------- ---------- --------------
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT:
Land.................................. $ 57,000 $ 57,000 --
Building and leasehold improvements... 140,000 147,000 31 or 10 years
Furniture and fixtures................ 179,000 241,000 7 or 10 years
Broadcasting equipment................ 2,145,000 2,611,000 5 to 7 years
Vehicles.............................. 55,000 75,000 5 years
--------- ----------
2,576,000 3,131,000
Less: Accumulated depreciation........ 1,654,000 1,929,000
--------- ----------
Property and equipment, net........ $ 922,000 $1,202,000
========= ==========
</TABLE>
Depreciation expenses for the fiscal years ended December 31, 1997 and 1998,
were $263,000 and $275,000, respectively.
Revenue Recognition
In accordance with industry practice, revenue for broadcast advertising is
recognized when the commercial is broadcast.
Barter Arrangements
Certain program contracts provide for the exchange of advertising air time
in lieu of cash payments for the rights to such programming. These contracts
are recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights.
Financial Instruments
Financial instruments as of December 31, 1997 and 1998, consist of cash and
cash equivalents, trade accounts receivables, accounts payable and accrued
expenses, all of which the carrying amounts approximate fair value except.
F-54
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998
2. INTANGIBLE ASSETS:
Intangible assets are being amortized on a straight-line basis over various
periods. The intangible asset balances and periods of amortization as of
December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
Period of
1997 1998 Amortization
---------- ---------- ------------
<S> <C> <C> <C>
FCC broadcast license..................... $4,489,000 $4,489,000 15 Years
Goodwill.................................. 45,000 45,000 40 Years
Debt financing............................ 27,000 27,000 Life of Debt
Organizational costs...................... 99,000 -- 5 Years
---------- ----------
Total................................... 4,660,000 4,561,000
Less: Accumulated amortization.......... 595,000 869,000
---------- ----------
Net intangible assets................... $4,065,000 $3,692,000
========== ==========
</TABLE>
Amortization expense for the fiscal years ended December 31, 1997 and 1998,
was $306,000 and $373,000, respectively. During 1998, the Stations wrote off
approximately $69,000 of unamortized start-up costs.
3. INCOME TAXES:
As the Stations' parent company is an S corporation, no provision for income
taxes has been included in the accompanying statements of operations.
4. COMMITMENTS:
The Stations lease office space for its office and broadcast studios and a
tower site under operating leases which expire through January 1, 2020. Rent
expense for the years ended December 31, 1997 and 1998, was $152,000 and
$154,000, respectively. The future minimum rental payments for the next five
years are as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1999........................................................... $ 185,000
2000........................................................... 183,000
2001........................................................... 189,000
2002........................................................... 196,000
2003........................................................... 104,000
Thereafter..................................................... 1,335,000
</TABLE>
5. PROFIT SHARING:
Sinclair Telecable, Inc. has a 401(k) profit sharing plan for its employees.
Sinclair Telecable, Inc. can contribute to the plan at the discretion of its
board of directors. Sinclair Telecable, Inc. did not contribute to the plan
during fiscal year 1997 or 1998.
F-55
<PAGE>
6. SUBSEQUENT EVENT (unaudited):
Effective June 1, 1999, Sinclair entered into a local marketing agreement
with Radio One, Inc. As a result of the local marketing agreement, Sinclair's
only operations, subsequent to the local marketing agreement, was the
maintenance of the assets used by Radio One, Inc. in the local marketing
agreement. As such, the three-month period ending March 31, 1999 was the last
full quarter that Sinclair had operating results from operating the stations.
As of June 30, 1999 the broadcast revenues and receivables from these stations
were included in the financial statements of Radio One, Inc.
F-56
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Radio One, Inc.:
We have audited the accompanying combined balance sheet of the stations WKJS-FM
and WSOJ- FM of FM-100 (the Stations) as of December 31, 1998, and the related
combined statements of operations and changes in station (deficit) equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Stations' management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying combined financial statements have been prepared from the
separate records maintained by the Stations and may not be indicative of the
conditions that would have existed or the results of operations had the
Stations been operated as an unaffiliated entity. As discussed in Note 1,
certain corporate overhead and other expenses represent allocations made by the
Stations' parent.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the stations WKJS-
FM and WSOJ-FM of FM-100, Inc., as of December 31, 1998, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Baltimore, Maryland,
March 10, 1999
F-57
<PAGE>
STATIONS WKJS-FM AND WSOJ-FM OF FM 100 INC.
COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1998 AND JUNE 30, 1999
ASSETS
<TABLE>
<CAPTION>
December June 30,
31, 1998 1999
---------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 34,000 $ 87,000
Trade accounts receivable, net of allowance for
doubtful
accounts of $28,000 and $61,000 respectively 326,000 773,000
Prepaids and other -- 10,000
---------- ----------
Total current assets 360,000 870,000
PROPERTY AND EQUIPMENT, net 1,079,000 1,041,000
INTANGIBLE ASSETS, net 3,343,000 3,282,000
---------- ----------
Total assets $4,782,000 $5,193,000
========== ==========
LIABILITIES AND STATION (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 168,000 $ 102,000
Capital lease obligations 13,000 16,000
---------- ----------
Total current liabilities 181,000 118,000
LONG-TERM LIABILITIES:
Allocation of long-term debt 5,000,000 5,006,000
Capital lease obligations 49,000 48,000
---------- ----------
Total liabilities 5,230,000 5,172,000
COMMITMENTS AND CONTINGENCIES
STATION (DEFICIT) EQUITY (448,000) 21,000
---------- ----------
Total liabilities and station (deficit) equity $4,782,000 $5,193,000
========== ==========
</TABLE>
The accompanying notes are an integral part of this combined balance sheet.
F-58
<PAGE>
STATIONS WKJS-FM AND WSOJ-FM OF FM 100 INC.
COMBINED STATEMENT OF OPERATIONS AND CHANGES IN STATION (DEFICIT) EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999
<TABLE>
<CAPTION>
December June 30,
31, ---------------------
1998 1998 1999
---------- --------- ----------
(unaudited)
<S> <C> <C> <C>
REVENUE:
Broadcast revenue, including barter
revenue of $169,000 $1,187,000 $ 320,000 $1,420,000
Less: Agency commissions 125,000 -- --
---------- --------- ----------
Net broadcast revenue 1,062,000 320,000 1,420,000
---------- --------- ----------
OPERATING EXPENSES:
Program and technical 192,000 86,000 131,000
Selling, general and administrative 810,000 383,000 528,000
Corporate allocations 15,000 9,000 8,000
Depreciation and amortization 416,000 172,000 182,000
---------- --------- ----------
Total operating expenses 1,433,000 650,000 849,000
---------- --------- ----------
Operating loss (371,000) (330,000) 571,000
---------- --------- ----------
OTHER INCOME (EXPENSE):
Interest expense (500,000) (240,000) (231,000)
Other income 21,000 3,000 8,000
---------- --------- ----------
Total other income (expense), net (479,000) (237,000) (223,000)
---------- --------- ----------
Net (loss) income (850,000) (567,000) 348,000
STATION EQUITY (DEFICIT), beginning of
year 177,000 177,000 (448,000)
NET TRANSFER FROM PARENT 225,000 -- 121,000
---------- --------- ----------
STATION EQUITY (DEFICIT), end of year $ (448,000) $(390,000) $ 21,000
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of this combined balance sheet.
F-59
<PAGE>
STATIONS WKJS-FM AND WSOJ-FM OF FM 100 INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
<TABLE>
<CAPTION>
December 31, June 30,
------------ -------------------
1998 1998 1999
------------ --------- --------
(unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(850,000) $(567,000) $348,000
Adjustments to reconcile net loss to net
cash used in
operating activities-
Depreciation and amortization 416,000 172,000 182,000
Effect of change in operating assets and
liabilities-
Trade accounts receivable (257,000) (350,000) (447,000)
Prepaid expenses and other 3,000 (2,000) (10,000)
Accounts payable and accrued expenses 99,000 (50,000) (66,000)
--------- --------- --------
Net cash flows (used in) provided by
operating activities (589,000) (797,000) 7,000
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (58,000) (40,000) (81,000)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net transfer from parent 225,000 339,000 121,000
Proceeds from parent debt 427,000 500,000 6,000
--------- --------- --------
Net cash flows from financing activities 652,000 839,000 127,000
--------- --------- --------
INCREASE IN CASH 5,000 2,000 53,000
CASH AND CASH EQUIVALENTS, beginning of year 29,000 29,000 34,000
--------- --------- --------
CASH AND CASH EQUIVALENTS, end of year $ 34,000 $ 31,000 $ 87,000
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 477,000 $ 217,000 $254,000
========= ========= ========
</TABLE>
The accompanying notes are an integral part of this combined balance sheet.
F-60
<PAGE>
STATIONS WKJS-FM AND WSOJ-FM OF FM 100 INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
The radio stations, WKJS-FM and WSOJ-FM (the Stations) are broadcast in the
Richmond area. The combined financial statements of the Stations were formed
effective January 4, 1998, when FM 100, Inc. purchased station WKJS-FM for
$4,500,000. Station WSOJ-FM was owned by FM 100, Inc. since 1994.
In February 1999, FM 100, Inc. signed an agreement with Radio One, Inc. to sell
all tangible and intangible assets for approximately $12,000,000, subject to
certain earn-out adjustments. The sale is expected to close during 1999. The
accompanying combined financial statements include the assets, liabilities and
results of operations of those stations to be acquired by Radio One, Inc. and
were prepared from the financial statements of FM 100, Inc. All inter-station
transactions have been eliminated in consolidation.
The Stations have incurred an operating loss of $371,000 and a net loss of
$850,000 for the year ended December 31, 1998. Also, as of December 31, 1998,
the Stations had a station deficit of $448,000. These factors, along with
others could negatively impact future operations of the Stations.
Basis of Presentation
The accompanying combined financial statements are presented on the accrual
basis of accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Statements
The interim combined financial statements included herein for the Stations have
been prepared by management without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In management's opinion,
the interim financial data presented herein include all adjustments (which
include only normal recurring adjustments) necessary for a fair presentation.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. Results
for interim periods are not necessarily indicative of results to be expected
for the full year.
On July 1, 1999, Radio One purchased the assets of the Stations for $4,600,000.
Certain Corporate Expenses
The Stations are allocated certain corporate expenses for services provided by
FM 100, Inc. based upon the percentage of revenue of each station to total
revenue of all stations operated by FM 100, Inc. Though management is of the
opinion that all allocations used are reasonable and appropriate, other
allocations might be used that could produce results substantially different
from those reflected herein and these cost allocations might not be indicative
of amounts which might be paid to unrelated parties for similar services if the
Stations had been operated on a stand-alone basis.
FM 100, Inc. corporate departmental expenses of $15,000 have been allocated to
the Stations during 1998 for accounting services and other miscellaneous
expenses.
F-61
<PAGE>
STATIONS WKJS-FM AND WSOJ-FM OF FM 100 INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment are recorded at cost and are being depreciated on a
straight-line basis over various periods. The components of the Stations's
property and equipment as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Period of
1998 Depreciation
---------- ------------
<S> <C> <C>
PROPERTY AND EQUIPMENT:
Land.................................................. $ 173,000 --
Building.............................................. 646,000 15 years
Furniture and fixtures................................ 211,000 10 years
Broadcasting equipment................................ 262,000 7 years
Vehicles.............................................. 17,000 5 years
----------
1,309,000
Less: Accumulated depreciation........................ 230,000
----------
Property and equipment, net......................... $1,079,000
==========
</TABLE>
Depreciation expense for the fiscal year ended December 31, 1998, was $102,000.
Revenue Recognition
In accordance with industry practice, revenue for broadcast advertising is
recognized when the commercial is broadcast.
Barter Arrangements
Certain program contracts provide for the exchange of advertising air time in
lieu of cash payments for the rights to such programming. These contracts are
recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights.
Financial Instruments
Financial instruments as of December 31, 1998, consist of cash and cash
equivalents, trade accounts receivables, accounts payable, accrued expenses,
long-term debt, and capital leases, all of which the carrying amounts
approximate fair value.
Supplemental Cash Flow Information
During 1998, FM 100, Inc. obtained a $5,000,000 loan from a bank of which
$4,500,000 was used to finance the purchase of WKJS-FM and $73,000 was used to
pay debt issuance cost. The remaining $427,000 transferred to the Stations for
operating purposes.
F-62
<PAGE>
STATIONS WKJS-FM AND WSOJ-FM OF FM 100 INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
2. INTANGIBLE ASSETS:
Intangible assets are being amortized on a straight-line basis over various
periods. The intangible asset balances and periods of amortization as of
December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Period of
1998 Amortization
---------- ------------
<S> <C> <C>
FCC broadcast license................................. $3,628,000 15 Years
Debt financing........................................ 73,000 Life of Debt
----------
Total............................................... 3,701,000
Less: Accumulated amortization...................... 358,000
----------
Net intangible assets............................... $3,343,000
==========
</TABLE>
Amortization expense for the fiscal year ended December 31, 1998, was $314,000.
3. LONG-TERM DEBT:
The acquisition of WKJS-FM was financed with $4,500,000 of debt which has been
allocated to the Stations. The debt accrued interest at 10% during 1998 and was
originally due January 6, 1999, and has been refinanced to be due January 6,
2000.
FM 100, Inc. has borrowed $500,000 from a bank which has been allocated down to
the Stations. The debt accrued interest at 10% during 1998 and was originally
due January 6, 1999 and has been refinanced to be due January 6, 2000.
As of December 31, 1998, the Stations had various capital leases for equipment.
4. INCOME TAXES:
As the Stations' parent company is an S-Corporation, no provision for income
taxes has been included in the accompanying statements of operations.
5. COMMITMENTS:
The Stations lease office space for their office and broadcast studios under an
operating lease which expires during 1999. Rent expense for the year ended
December 31, 1998, was $16,064. The future minimum rental payment is $9,311.
F-63
<PAGE>
[logo of Radio One appears here]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimates
except the registration fee, the NASD filing fee and the Nasdaq National Market
listing fee. None of the expenses will be borne by the selling stockholders.
<TABLE>
<CAPTION>
Amount
to be
Paid
----------
<S> <C>
Registration fee.................................................... $ 63,944
NASD filing fee..................................................... 26,066
Nasdaq National Market listing fee.................................. 17,500
Printing and engraving expenses..................................... 375,000
Legal fees and expenses............................................. 210,000
Accounting fees and expenses........................................ 220,000
Transfer agent & registrar fees..................................... 3,800
Miscellaneous....................................................... 125,000
----------
Total............................................................. $1,041,310
</TABLE>
- --------
Item 14. Indemnification of Directors and Officers.
Radio One's Amended and Restated By-Laws incorporate substantially the
provisions of the General Corporation Law of the State of Delaware (the "DGCL")
in providing for indemnification of directors and officers against expenses,
judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason of the fact that
such person is or was an officer or director of Radio One. In addition, Radio
One is authorized to indemnify employees and agents of Radio One and may enter
into indemnification agreements with its directors and officers providing
mandatory indemnification to them to the maximum extent permissible under
Delaware law.
Radio One's Amended and Restated Certificate of Incorporation provides that
Radio One shall indemnify (including indemnification for expenses incurred in
defending or otherwise participating in any proceeding) its directors and
officers to the fullest extent authorized or permitted by the DGCL, as it may
be amended, and that such right to indemnification shall continue as to a
person who has ceased to be a director or officer of Radio One and shall inure
to the benefit of his or her heirs, executors and administrators except that
such right shall not apply to proceedings initiated by such indemnified person
unless it is a successful proceeding to enforce indemnification or such
proceeding was authorized or consented to by the board of directors. Radio
One's certificate of incorporation also specifically provides for the
elimination of the personal liability of a director to the corporation and its
stockholders for monetary damages for breach of fiduciary duty as director. The
provision is limited to monetary damages, applies only to a director's actions
while acting within his or her capacity as a director, and does not entitle
Radio One to limit director liability for any judgment resulting from (a) any
breach of the director's duty of loyalty to Radio One or its stockholders;
(b) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of the law; (c) paying an illegal dividend or approving
an illegal stock repurchase; or (d) any transaction from which the director
derived an improper benefit.
Section 145 of the DGCL provides generally that a person sued (other than in
a derivative suit) as a director, officer, employee or agent of a corporation
may be indemnified by the corporation for reasonable expenses, including
counsel fees, if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that the person's conduct was unlawful. In the case
of a derivative suit, a director, officer, employee or agent of the corporation
may be indemnified by the corporation for reasonable expenses, including
attorneys' fees, if the person has acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in the case of a
derivative suit in respect of any claim as to, which such director, officer,
II-1
<PAGE>
for reasonable expenses, including attorneys' fees, if the person has acted in
good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation, except that no
indemnification shall be made in the case of a derivative suit in respect of
any claim as to, which such director, officer, employee or agent has been
adjudged to be liable to the corporation unless the Delaware Court of Chancery
or the court in which such action or suit was brought shall determine that such
person is fairly and reasonably entitled to indemnity for proper expenses.
Indemnification is mandatory under section 145 of the DGCL in the case of a
director or officer who is successful on the merits in defense of a suit
against him.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify Radio One, the directors, certain
officers and controlling persons of Radio One, Inc. against certain
liabilities, including liabilities under the Securities Act. Reference is made
to the form of Underwriting Agreement filed as Exhibit 1.1 hereto.
Radio One maintains directors and officers liability insurance for the
benefit of its directors and certain of its officers.
Item 15. Recent Sales of Unregistered Securities.
On May 19, 1997, Radio One issued approximately $85.0 million (aggregate
principal amount) of 12% senior subordinated notes to certain investors. Such
notes were offered pursuant to Rule 144A under the Securities Act.
On May 19, 1997, Radio One issued approximately $20.9 million of Series A
and Series B 15% senior cumulative preferred stock to certain investors. Such
shares were issued pursuant to the exemption from registration provided by
Section 4(2) of Securities Act.
On January 25, 1999, Radio One issued an aggregate of 51,192 shares of
common stock to its Chief Financial Officer. These shares were issued pursuant
to the exemption from registration provided by Rule 701 under the Securities
Act.
On February 25, 1999, pursuant to a plan of recapitalization, Radio One
issued to the holders of its class A common stock, in exchange for all of the
outstanding shares of class A common stock, 46.15 shares of class B common
stock and 92.3 shares of class C common stock. These shares were issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act.
On March 30, 1999, Radio One issued approximately 3.3 million shares of
common stock to the shareholders of ROA in connection with Radio One's
acquisition of ROA. These shares were issued pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed as part of this registration statement.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of Radio One, Inc. (incorporated by
reference to Radio One's Amendment to its Registration Statement on
Form S-1 filed on May 4, 1999 (File No. 333-74351; Film No. 99610524)).
3.2 Amended and Restated By-laws of Radio One, Inc. (incorporated by
reference to Radio One's Quarterly Report on Form 10-Q for the period
ended June 30, 1999 (File No. 000-25969; Film No. 99686684)).
4.1 Indenture dated as of May 15, 1997 among Radio One, Inc., Radio One
Licenses, Inc. and United States Trust Company of New York
(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)).
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
4.2 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 (incorporated by reference to Radio One's Current Report on
Form 8-K filed July 13, 1998 (File No. 333-30795; Film
No. 98665139)).
4.3 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
(incorporated by reference to Radio One's Current Report on Form 8-
K filed January 12, 1999 (File No. 333-30795; Film No. 99504706)).
4.7 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 (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)).
4.9 Stockholders Agreement dated as of March 2, 1999 among Catherine L.
Hughes and Alfred C. Liggins, III (incorporated by reference to
Radio One's Quarterly Report on Form 10-Q for the period ended June
30, 1999 (File No. 000-25969; Film No. 99686684)).
5.1 Form of Opinion and consent of Kirkland & Ellis.
10.1 Office Lease dated February 3, 1997 between National Life Insurance
Company and Radio One, Inc. for premises located at 5900 Princess
Garden Parkway, Lanham, Maryland, as amended on February 24, 1997
(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)).
10.1(a) Amendment to Office Lease dated January 22, 1999 between National
Life Insurance Company and Radio One, Inc. for premises located at
5900 Princess Garden Parkway, Lanham, Maryland (incorporated by
reference to Radio One's Quarterly Report on Form 10-Q for the
period ended June 30, 1999 (File No. 000-25969; Film No.
99686684)).
10.3 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 (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)).
10.6 Warrantholders' Agreement dated as of June 6, 1995, as amended by
the First Amendment to Warrantholders' Agreement dated as of May
19, 1997, among Radio One, Inc., Radio One Licenses, Inc. and the
other parties thereto (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)).
10.7(a) Second Amendment to the Warrantholders' Agreement dated as of May
3, 1999, among Radio One, Inc., Radio One Licenses, Inc. and the
other parties thereto (incorporated by reference to Radio One's
Quarterly Report on Form 10-Q for the period ended June 30, 1999
(File No. 000-25969; Film No. 99686684)).
10.17 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 (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)).
10.21 Time Management and Services Agreement dated March 17, 1998, among
WYCB Acquisition Corporation, Broadcast Holdings, Inc., and Radio
One, Inc. (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)).
10.22 Stock Purchase Agreement dated December 23, 1997, between the
shareholders of Bell Broadcasting Company and Radio One, Inc.
(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)).
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.28 Amendment to Preferred Stockholders' Agreement dated as of
December 31, 1997 among Radio One, Inc., Radio One Licenses, Inc.
and the other parties thereto (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)).
10.30 Agreement dated February 20, 1998 between WUSQ License Limited
Partnership and Radio One, Inc. (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)).
10.40 Merger Agreement dated as of March 30, 1999 relating to the
acquisition of Radio One of Atlanta, Inc. (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)).
10.41 Asset Purchase Agreement dated as of November 23, 1998 (as amended
on December 4, 1998) relating to the acquisition of WFUN-FM,
licensed to Bethalto, Illinois (incorporated by reference to Radio
One's Amendment No. 3 to its registration statement on Form S-1
filed on April 14, 1999 (File No. 333-74351; Film No. 99593769)).
10.42 Asset Purchase Agreement relating to the Acquisition of WENZ-FM
and WERE-AM, both licensed to Cleveland, Ohio (incorporated by
reference to Radio One's Amendment No. 3 to its registration
statement on Form S-1 filed on April 14, 1999 (File No. 333-74351;
Film No. 99593769)).
10.43 Asset Purchase Agreement dated as of February 10, 1999 relating to
the acquisition of WDYL-FM, licensed to Chester, Virginia
(incorporated by reference to Radio One's Amendment No. 3 to its
registration statement on Form S-1 filed on April 14, 1999 (File
No. 333-74351; Film No. 99593769)).
10.44 Asset Purchase Agreement dated as of February 26, 1999 relating to
the acquisition of WJKS-FM, licensed to Crewe Virginia, and WARV-
FM, licensed Petersburg, Virginia (incorporated by reference to
Radio One's Amendment No. 3 to its registration statement on Form
S-1 filed on April 14, 1999 (File No. 333-74351; Film No.
99593769)).
10.45 Asset Purchase Agreement dated as of May 6, 1999 relating to the
acquisition of WCDX-FM, licensed to Mechanicsville, Virginia,
WPLZ-FM, licensed to Petersburg, Virginia, WJRV-FM licensed to
Richmond, Virginia, and WGCV-AM licensed to Petersburg, Virginia
(previously filed).
10.45(a) Time Brokerage Agreement dated May 5, 1999 among Radio One, Inc.
and Sinclair Telecable, Inc. Commonwealth Broadcasting, L.L.C. and
Radio One, Inc. (incorporated by reference to Radio One's
Quarterly Report on Form 10-Q for the period ended June 30, 1999
(File No. 000-25969; Film No. 99686684)).
10.46 Stock Purchase Agreement dated as of October 26, 1998, by and
between Radio One and Syndicated Communications Venture Partners,
II, L.P. (incorporated by reference to Radio One's Annual Report
on Form 10-K for the period ended December 31, 1998
(File No. 333-30795; Film No. 99581532)).
10.50 Amended and Restated Credit Agreement dated as of February 26,
1999, among Radio One, Inc., as the borrower, and Nations Bank,
N.A., as Administrative Agent, and Credit Suisse First Boston, as
the Documentation Agent (incorporated by reference to Radio One's
Amendment No. 3 to its registration statement on Form S-1 filed on
April 14, 1999 (File No. 333-74351; Film No. 99593769)).
10.52 Asset Purchase Agreement dated as of May 24, 1999 relating to the
acquisition of WBOT-FM, licensed to Brockton, Massachusetts
(incorporated by reference to Radio One's Quarterly Report on Form
10-Q for the period ended June 30, 1999 (File No. 000-25969; Film
No. 99686684)).
10.53 Time Brokerage Agreement dated May 24, 1999 among Radio One, Inc.
and Radio Station WBOT-FM, Brockton, Massachusetts (incorporated
by reference to Radio One's Quarterly Report on Form 10-Q for the
period ended June 30, 1999 (File No. 000-25969; Film
No. 99686684)).
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S> <C>
10.54 Agreement and Plan of Warrant Recapitalization dated as of
February 25, 1999, among Radio One, Inc., Radio One
Licenses, Inc. and the other parties thereto (incorporated
by reference to Radio One's Quarterly Report on Form 10-Q
for the period ended June 30, 1999 (File No. 000-25969; Film
No. 99686684)).
10.55 Employment Agreement between Radio One, Inc. and Scott R.
Royster dated effective as of January 1, 1999 (previously
filed).
10.56 Employment and Stock Option Agreement dated as of January 1,
1998 between Radio One, Inc. and Mary Catherine Sneed
(previously filed).
10.56(a) First Amendment dated as of January 1, 1999 to the
Employment and Stock Option Agreement dated as of January 1,
1998 between Radio One, Inc. and Mary Catherine Sneed
(previously filed).
21.1 Subsidiaries of Radio One, Inc. (incorporated by reference
to Radio One's Registration Statement on Form S-1 filed on
March 12, 1999 (File No. 333-74351; Film No. 99564316)).
23.1 Consent of Arthur Andersen, L.L.P.
23.2 Consent of Mitchell & Titus, L.L.P.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
27.1 Financial Data Schedule (previously filed).
</TABLE>
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 424 (b) (1) or (4)
or 497 (h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Lanham, Maryland on
November 10, 1999.
Radio One, Inc.
By: /s/ Alfred C. Liggins, III
---------------------------------
Name: Alfred C. Liggins, III
Title: President and Chief Executive
Officer
II-6
<PAGE>
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Radio One, Inc., hereby
severally constitute and appoint Alfred C. Liggins, III and Scott R. Royster
and each of them singly, our true and lawful attorneys, with full power to them
and each of them singly, to sign for us in our names in the capacities
indicated below, all pre-effective and post-effective amendments to this
Registration Statement (or any other registrar on statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act), and generally to do all things in our names and on our behalf
in such capacities to enable Radio One, Inc. to comply with the provisions of
the Securities Act, as amended, and all requirements of the SEC.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on behalf of the following persons by
Scott R. Royster, their true and lawful attorney, on the date indicated.
Radio One, Inc.
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----
<S> <C> <C>
/s/ Catherine L. Hughes Chairperson of the Board of November 10, 1999
____________________________________ Directors
Catherine L. Hughes
/s/ Terry L. Jones Director November 10, 1999
____________________________________
Terry L. Jones
/s/ Brian W. McNeill Director November 10, 1999
____________________________________
Brian W. McNeill
/s/ Larry D. Marcus Director November 10, 1999
____________________________________
Larry D. Marcus
/s/ Alfred C. Liggins, III President and Chief November 10, 1999
____________________________________ Executive Officer
Alfred C. Liggins, III (Principal Executive
Officer) and Director
/s/ Scott R. Royster Executive Vice President and November 10, 1999
____________________________________ Chief Financial Officer
Scott R. Royster (Principal Financial and
Accounting Officer)
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of Radio One, Inc. (incorporated
by reference to Radio One's Amendment to its Registration
Statement on Form S-1 filed on May 4, 1999 (File No. 333-
74351; Film No. 99610524)).
3.2 Amended and Restated By-laws of Radio One, Inc. (incorporated
by reference to Radio One's Quarterly Report on Form 10-Q for
the period ended June 30, 1999 (File No. 000-25969; Film
No. 99686684)).
4.1 Indenture dated as of May 15, 1997 among Radio One, Inc.,
Radio One Licenses, Inc. and United States Trust Company of
New York (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)).
4.2 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 (incorporated by reference to
Radio One's Current Report on Form 8-K filed July 13, 1998
(File No. 333-30795; Film No. 98665139)).
4.3 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 (incorporated by reference to Radio One's Current
Report on Form 8-K filed January 12, 1999 (File No. 333-30795;
Film No. 99504706)).
4.7 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
(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)).
4.9 Stockholders Agreement dated as of March 2, 1999 among
Catherine L. Hughes and Alfred C. Liggins, III (incorporated
by reference to Radio One's Quarterly Report on Form 10-Q for
the period ended June 30, 1999 (File No. 000-25969; Film No.
99686684)).
5.1 Form of Opinion and consent of Kirkland & Ellis.
10.1 Office Lease dated February 3, 1997 between National Life
Insurance Company and Radio One, Inc. for premises located at
5900 Princess Garden Parkway, Lanham, Maryland, as amended on
February 24, 1997 (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)).
10.1(a) Amendment to Office Lease dated January 22, 1999 between
National Life Insurance Company and Radio One, Inc. for
premises located at 5900 Princess Garden Parkway, Lanham,
Maryland (incorporated by reference to Radio One's Quarterly
Report on Form 10-Q for the period ended June 30, 1999 (File
No. 000-25969; Film No. 99686684)).
10.3 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
(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)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page
------- ----------- ----
<C> <S> <C>
10.6 Warrantholders' Agreement dated as of June 6, 1995, as amended
by the First Amendment to Warrantholders' Agreement dated as
of May 19, 1997, among Radio One, Inc., Radio One Licenses,
Inc. and the other parties thereto (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)).
10.7(a) Second Amendment to the Warrantholders' Agreement dated as of
May 3, 1999, among Radio One, Inc., Radio One Licenses, Inc.
and the other parties thereto (incorporated by reference to
Radio One's Quarterly Report on Form 10-Q for the period ended
June 30, 1999 (File No. 000-25969; Film No. 99686684)).
10.17 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 (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)).
10.21 Time Management and Services Agreement dated March 17, 1998,
among WYCB Acquisition Corporation, Broadcast Holdings, Inc.,
and Radio One, Inc. (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)).
10.22 Stock Purchase Agreement dated December 23, 1997, between the
shareholders of Bell Broadcasting Company and Radio One, Inc.
(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)).
10.28 Amendment to Preferred Stockholders' Agreement dated as of
December 31, 1997 among Radio One, Inc., Radio One Licenses,
Inc. and the other parties thereto (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)).
10.30 Agreement dated February 20, 1998 between WUSQ License Limited
Partnership and Radio One, Inc. (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)).
10.40 Merger Agreement dated as of March 30, 1999 relating to the
acquisition of Radio One of Atlanta, Inc. (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)).
10.41 Asset Purchase Agreement dated as of November 23, 1998 (as
amended on December 4, 1998) relating to the acquisition of
WFUN-FM, licensed to Bethalto, Illinois (incorporated by
reference to Radio One's Amendment No. 3 to its registration
statement on Form S-1 filed on April 14, 1999 (File No. 333-
74351; Film No. 99593769)).
10.42 Asset Purchase Agreement relating to the Acquisition of WENZ-
FM and WERE-AM, both licensed to Cleveland, Ohio (incorporated
by reference to Radio One's Amendment No. 3 to its
registration statement on Form S-1 filed on April 14, 1999
(File No. 333-74351; Film No. 99593769)).
10.43 Asset Purchase Agreement dated as of February 10, 1999
relating to the acquisition of WDYL-FM, licensed to Chester,
Virginia (incorporated by reference to Radio One's Amendment
No. 3 to its registration statement on Form S-1 filed on April
14, 1999 (File No. 333-74351; Film No. 99593769)).
10.44 Asset Purchase Agreement dated as of February 26, 1999
relating to the acquisition of WJKS-FM, licensed to Crewe
Virginia, and WARV-FM, licensed Petersburg, Virginia
(incorporated by reference to Radio One's Amendment No. 3 to
its registration statement on Form S-1 filed on April 14, 1999
(File No. 333-74351; Film No. 99593769)).
10.45 Asset Purchase Agreement dated as of May 6, 1999 relating to
the acquisition of WCDX-FM, licensed to Mechanicsville,
Virginia, WPLZ-FM, licensed to Petersburg, Virginia, WJRV-FM
licensed to Richmond, Virginia, and WGCV-AM licensed to
Petersburg, Virginia (previously filed).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page
------- ----------- ----
<C> <S> <C>
10.45(a) Time Brokerage Agreement dated May 5, 1999 among Radio One,
Inc. and Sinclair Telecable, Inc. Commonwealth Broadcasting,
L.L.C. and Radio One, Inc. (incorporated by reference to
Radio One's Quarterly Report on Form 10-Q for the period
ended June 30, 1999 (File No. 000-25969; Film No. 99686684)).
10.46 Stock Purchase Agreement dated as of October 26, 1998, by and
between Radio One and Syndicated Communications Venture
Partners, II, L.P. (incorporated by reference to Radio One's
Annual Report on Form 10-K for the period ended December 31,
1998 (File No. 333-30795; Film No. 99581532)).
10.50 Amended and Restated Credit Agreement dated as of February
26, 1999, among Radio One, Inc., as the borrower, and Nations
Bank, N.A., as Administrative Agent, and Credit Suisse First
Boston, as the Documentation Agent (incorporated by reference
to Radio One's Amendment No. 3 to its registration statement
on Form S-1 filed on April 14, 1999 (File No. 333-74351; Film
No. 99593769)).
10.52 Asset Purchase Agreement dated as of May 24, 1999 relating to
the acquisition of WBOT-FM, licensed to Brockton,
Massachusetts (incorporated by reference to Radio One's
Quarterly Report on Form 10-Q for the period ended June 30,
1999 (File No. 000-25969; Film No. 99686684)).
10.53 Time Brokerage Agreement dated May 24, 1999 among Radio One,
Inc. and Radio Station WBOT-FM, Brockton, Massachusetts
(incorporated by reference to Radio One's Quarterly Report on
Form 10-Q for the period ended June 30, 1999 (File No. 000-
25969; Film No. 99686684)).
10.54 Agreement and Plan of Warrant Recapitalization dated as of
February 25, 1999, among Radio One, Inc., Radio One Licenses,
Inc. and the other parties thereto (incorporated by reference
to Radio One's Quarterly Report on Form 10-Q for the period
ended June 30, 1999 (File No. 000-25969; Film No. 99686684)).
10.55 Employment Agreement between Radio One, Inc. and Scott R.
Royster dated effective as of January 1, 1999 (previously
filed).
10.56 Employment and Stock Option Agreement dated as of January 1,
1998 between Radio One, Inc. and Mary Catherine Sneed
(previously filed).
10.56(a) First Amendment dated as of January 1, 1999 to the Employment
and Stock Option Agreement dated as of January 1, 1998
between Radio One, Inc. and Mary Catherine Sneed (previously
filed).
21.1 Subsidiaries of Radio One, Inc. (incorporated by reference to
Radio One's Registration Statement on Form S-1 filed on March
12, 1999 (File No. 333-74351; Film No. 99564316)).
23.1 Consent of Arthur Andersen, L.L.P.
23.2 Consent of Mitchell & Titus, L.L.P.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
27.1 Financial Data Schedule (previously filed).
</TABLE>
<PAGE>
Exhibit 1.1
4,700,000 Shares
RADIO ONE, INC.
Class A Common Stock, Par Value $.001 Per Share
UNDERWRITING AGREEMENT
----------------------
November ____, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
DEUTSCHE BANK SECURITIES INC.
BANC OF AMERICA SECURITIES LLC
BEAR, STEARNS & CO. INC.
PRUDENTIAL SECURITIES INCORPORATED
BANCBOSTON ROBERTSON STEPHENS INC.
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Radio One, Inc., a Delaware corporation ("Company")
proposes to issue and sell 4,000,000 shares of its Class A Common Stock, par
value $.001 per share ("Securities") and the stockholders listed in Schedule A
hereto ("Selling Stockholders") propose severally to sell an aggregate of
700,000 outstanding shares of the Securities (such 4,700,000 shares of
Securities being hereinafter referred to as the "Firm Securities"). The Company
also proposes to sell to the Underwriters, at the option of the Underwriters, an
aggregate of not more than 400,000 additional shares of its Securities (such
400,000 additional shares being hereinafter referred to as the "Optional
Securities"). The Firm Securities and the Optional Securities are herein
collectively called the "Offered Securities". The Company and the Selling
Stockholders hereby agree with the several Underwriters named in Schedule B
hereto ("Underwriters") as follows:
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2. Representations and Warranties of the Company and the Selling
Stockholders.
(a) The Company represents and warrants to, and agrees with, the several
Underwriters and the Selling Stockholders that:
(i) A registration statement (No. 333-) relating to the Offered
Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("Commission") and either (A) has been
declared effective under the Securities Act of 1933, as amended ("Act") and
is not proposed to be amended or (B) is proposed to be amended by amendment
or post-effective amendment. If such registration statement (the "initial
registration statement") has been declared effective, either (A) an
additional registration statement (the "additional registration statement")
relating to the Offered Securities may have been filed with the Commission
pursuant to Rule 462(b) ("Rule 462(b)") under the Act and, if so filed, has
become effective upon filing pursuant to such Rule and the Offered
Securities all have been duly registered under the Act pursuant to the
initial registration statement and, if applicable, the additional
registration statement or (B) such an additional registration statement is
proposed to be filed with the Commission pursuant to Rule 462(b) and will
become effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration statement
has been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement, means (A) if the
Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment thereto
(if any) filed prior to the execution and delivery of this Agreement, was
declared effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (B) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the Commission. If
an additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with respect
to such additional registration statement means
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the date and time as of which such registration statement is filed and
becomes effective pursuant to Rule 462(b). "Effective Date" with respect to
the initial registration statement or the additional registration statement
(if any) means the date of the Effective Time thereof. The initial
registration statement, as amended at its Effective Time, including all
information contained in the additional registration statement (if any) and
deemed to be a part of the initial registration statement as of the
Effective Time of the additional registration statement pursuant to the
General Instructions of the Form on which it is filed and including all
information (if any) deemed to be a part of the initial registration
statement as of its Effective Time pursuant to Rule 430A(b) ("Rule
430A(b)") under the Act, is hereinafter referred to as the "Initial
Registration Statement". The additional registration statement, as amended
at its Effective Time, including the contents of the initial registration
statement incorporated by reference therein and including all information
(if any) deemed to be a part of the additional registration statement as of
its Effective Time pursuant to Rule 430A(b), is hereinafter referred to as
the "Additional Registration Statement". The Initial Registration Statement
and the Additional Registration Statement are hereinafter referred to
collectively as the "Registration Statements" and individually as a
"Registration Statement". The form of prospectus relating to the Offered
Securities, as first filed with the Commission pursuant to and in
accordance with Rule 424(b) ("Rule 424(b)") under the Act or (if no such
filing is required) as included in a Registration Statement, is hereinafter
referred to as the "Prospectus". No document has been or will be prepared
or distributed in reliance on Rule 434 under the Act.
(ii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all respects to the requirements of the Act and the
rules and regulations of the Commission ("Rules and Regulations") and did
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, (B) on the Effective Date of the
Additional Registration Statement (if any), each Registration Statement
conformed or will conform, in all respects to the requirements of the Act
and the Rules and Regulations and did not include, or will not include, any
untrue statement of a material fact and did not omit, or will not omit, to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and (C) on the date of this
Agreement, the Initial Registration Statement and, if the Effective Time of
the Additional Registration Statement is prior to the execution and
delivery of this Agreement, the Additional Registration Statement each
conforms, and at the time of filing of the Prospectus pursuant to Rule
424(b) or (if no such filing is required) at the Effective Date of the
Additional Registration Statement in which the Prospectus is included, each
Registration Statement and the Prospectus will conform, in all respects to
the requirements of the Act and the Rules and Regulations, and neither of
such documents includes, or will include,
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any untrue statement of a material fact or omits, or will omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement: on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement and the Prospectus will conform in all
respects to the requirements of the Act and the Rules and Regulations,
neither of such documents will include any untrue statement of a material
fact or will omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and no
Additional Registration Statement has been or will be filed. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the only
such information is that described as such in Section 7(c) hereof.
(iii) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except where the
failure to so qualify would not have, individually or in the aggregate, a
material adverse effect on the condition (financial or other), business,
properties or results of operations of the Company and its subsidiaries
taken as a whole ("Material Adverse Effect").
(iv) Each subsidiary of the Company has been duly incorporated and is
an existing corporation in good standing under the laws of the jurisdiction
of its incorporation, with power and authority (corporate and other) to own
its properties and conduct its business as described in the Prospectus; and
each subsidiary of the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires
such qualification, except where the failure to so qualify would not have a
Material Adverse Effect; all of the issued and outstanding capital stock of
each subsidiary of the Company has been duly authorized and validly issued
and is fully paid and nonassessable; and, except as described in the
Prospectus, the capital stock of each subsidiary owned by the Company,
directly or through subsidiaries, is owned free from liens, encumbrances
and defects.
(v) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized and validly issued,
fully paid and nonassessable and conform to the description thereof
contained in the Prospectus; and
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the stockholders of the Company have no preemptive rights with respect to
the Securities.
(vi) The consummation of any or all of the transactions described in
the Prospectus under the caption "RECENT AND PENDING TRANSACTIONS"
(collectively, the "Transactions") will not result in a breach or violation
of any of the terms and provisions of, or constitute a default under, any
statute, any rule, regulation or order of, any governmental agency or body
(including, but not limited to, any order published or otherwise known to
the Company of the Federal Communications Commission ("FCC")) or any court,
domestic or foreign, having jurisdiction over the Company or any subsidiary
of the Company or any of their properties, or any agreement or instrument
to which the Company or any such subsidiary is a party or by which the
Company or any such subsidiary is bound or to which any of the properties
of the Company or any such subsidiary is subject, or the charter or by-laws
of the Company or any such subsidiary. The agreements (collectively, the
"Transaction Agreements") to effectuate the Transactions have been duly
authorized, executed and delivered by the Company and its affiliates which
are parties thereto and constitute valid and binding agreements of the
parties, enforceable against the parties in accordance with their terms
(subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect
relating to creditors' rights generally and general principles of equity,
regardless of whether such enforceability is considered in a proceeding in
equity or at law). No consent, approval, authorization, or order of, or
filing with, any governmental agency or body (including, without
limitation, the FCC) or any court or other person was or is required to be
obtained or made by the Company for the execution and delivery of the
Transaction Agreements and consumma tion of the transactions contemplated
thereby, except such as have been already obtained or may be required under
the Communications Act of 1934, as amended, and the rules, regulations and
published administrative orders promulgated thereunder (collectively, the
"Federal Communications Laws") as described in the Prospectus.
(vii) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection with
this offering.
(viii) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company owned
or to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to a Registration
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Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act.
(ix) The Offered Securities have been approved for listing subject to
notice of issuance on The Nasdaq Stock Market's National Market (the
"Nasdaq National Market").
(x) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body (including, without limitation, the FCC) or
any court or other person is required to be obtained or made by the Company
for the execution and delivery of this Agreement and consummation of the
transactions contemplated by this Agreement in connection with the sale of
the Offered Securities, except such as have been obtained and made under
the Act and such as may be required under state securities laws.
(xi) The execution, delivery and performance of this Agreement, and
the consummation of the transactions herein contemplated will not result in
a breach or violation of any of the terms and provisions of, or constitute
a default under, any statute, any rule, regulation or order of any
governmental agency or body (including, without limitation, any order
published or otherwise known to the Company of the FCC) or any court,
domestic or foreign, having jurisdiction over the Company or any subsidiary
of the Company or any of their properties, or any agreement or instrument
to which the Company or any such subsidiary is a party or by which the
Company or any such subsidiary is bound or to which any of the properties
of the Company or any such subsidiary is subject, or the charter or by-laws
of the Company or any such subsidiary.
(xii) This Agreement has been duly authorized, executed and delivered
by the Company.
(xiii) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and all
other properties and assets owned by them, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them; and
except as disclosed in the Prospectus, the Company and its subsidiaries
hold any leased real or personal property under valid and enforceable
leases with no exceptions that would materially interfere with the use made
or to be made thereof by them.
(xiv) The Company and its subsidiaries possess adequate certificates,
authorities or permits and hold all necessary licenses issued by
appropriate governmen tal agencies or bodies (including, without
limitation, licenses issued by the FCC) necessary to conduct the business
now operated by them and have not received
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any notice of proceedings relating to the revocation or modification of any
such certificate, authority, permit or license that, if determined
adversely to the Company or any of its subsidiaries, would have a Material
Adverse Effect. Neither the Company nor any of its subsidiaries is in
violation of any material requirement of any Federal Communica tions Law or
any published order of any court or administrative agency or authority
relating thereto. The Company and the identified subsidiaries are the
holders of the main commercial radio station licenses issued by the FCC
listed in Attachment I hereto (the "FCC Licenses"), all of which are in
full force and effect, for the maximum term customarily issued, with no
material conditions, restrictions or qualifications other than as described
in the Prospectus or that appear in the ordinary course in the FCC
Licenses, and such FCC Licenses constitute all of the commercial radio
station licenses necessary for the Company and the subsidiaries to own
their properties and to conduct their businesses in the manner and to the
full extent now operated or proposed to be operated upon consummation of
the Transactions. Upon consummation of the Transactions, (i) the Company
and the identified subsidiaries will be the holders of the main commercial
radio station licenses issued by the FCC listed in Attachment II hereto
(the "Current FCC Licenses"), and (ii) the Company has no reason to believe
that all Current FCC Licenses will not be in full force and effect, for the
maximum term customarily issued, with no material conditions, restrictions
or qualifications other than as described in the Prospectus or that appear
in the ordinary course in the FCC Licenses, and such Current FCC Licenses
constitute all of the commercial radio station licenses necessary for the
Company and the subsidiaries to operate the radio stations relating to the
Transactions as described in the Prospectus.
(xv) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
might have a Material Adverse Effect.
(xvi) The Company and its subsidiaries own, possess or can acquire on
reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and
other intellectual property (collectively, "intellectual property rights")
necessary to conduct the business now operated by them, or presently
employed by them, and have not received any notice of infringement of or
conflict with asserted rights of others with respect to any intellectual
property rights that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material
Adverse Effect.
(xvii) Each of the Company and its subsidiaries has filed all
necessary federal, state, local and foreign income and franchise tax
returns that are required to be filed, except where the failure to file
such returns would not have a Material Adverse Effect and each of the
Company and its subsidiaries has paid all taxes shown as due thereon,
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except for any assessment, fine or penalty that is currently being
contested in good faith and for which adequate reserves have been provided
or as described in the Prospectus.
(xviii) Except as disclosed in the Prospectus, neither the Company
nor any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration
of the environment or human exposure to hazardous or toxic substances
(collectively, "environmental laws"), owns or operates any real property
contaminated with any substance that is subject to any environmental laws,
is liable for any off-site disposal or contamination pursuant to any
environmental laws, or is subject to any claim relating to any
environmental laws, which violation, contamination, liability or claim
would individually or in the aggregate have a Material Adverse Effect; and
the Company is not aware of any pending investigation which might lead to
such a claim.
(xix) There are no pending actions, suits, proceedings, inquiries or
investiga tions before or brought by any court or governmental agency or
body (including without limitation, the FCC) against or affecting the
Company, any of its subsidiaries or any of their respective properties
that, if determined adversely to the Company or any of its subsidiaries,
would individually or in the aggregate have a Material Adverse Effect,
would result in the revocation or non-renewal of any of the FCC Licenses,
or would materially and adversely affect the ability of the Company to
perform its obligations under this Agreement, or which are otherwise
material in the context of the sale of the Offered Securities; and no such
actions, suits or proceedings are threatened or, to the Company's
knowledge, contemplated.
(xx) The financial statements included in each Registration Statement
and the Prospectus present fairly the financial position of the Company and
its consolidated subsidiaries as of the dates shown and their results of
operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with the generally accepted
accounting principles in the United States applied on a consistent basis;
and the schedules included in each Registration Statement present fairly
the information required to be stated therein; and the assumptions used in
preparing the pro forma financial statements included in each Registration
Statement and the Prospectus provide a reasonable basis for presenting the
significant effects directly attributable to the transactions or events
described therein, the related pro forma adjustments give appropriate
effect to those assumptions, and the pro forma columns therein reflect the
proper application of those adjustments to the corresponding historical
financial statement amounts.
(xxi) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus, there has
been no material adverse
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change, nor any development or event involving a prospective material
adverse change, in the condition (financial or other), business, properties
or results of operations of the Company and its subsidiaries taken as a
whole, and, except as disclosed in or contemplated by the Prospectus, there
has been no dividend or distribution of any kind declared, paid or made by
the Company on any class of its capital stock.
(xxii) The Company believes the statistical and market-related data
included in the Prospectus are accurate and are based on or derived from
reliable sources.
(xxiii) Each of the Company and its subsidiaries (i) make and keep
accurate books and records and (ii) maintain internal accounting controls
that provide reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions are recorded
as necessary to permit preparation of its financial statements and to
maintain profitability for its assets, (C) access to its assets is
permitted only in accordance with management's authorization and (D) the
reported accountability for its assets is compared with existing assets at
reasonable intervals.
(xxiv) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment company"
as defined in the Investment Company Act of 1940, as amended.
(xxv) The Company has not, directly or indirectly, (i) taken any
action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities or (ii) since the filing of the
Registration Statement (A) sold, bid for, purchased, or paid anyone any
compensation for soliciting purchases of, the Securities or (B) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company (except for the sale of
Securities by the Selling Stockholders under this Agreement).
(xxvi) The Company has not distributed and, prior to the later of (i)
the Closing Date and (ii) the completion of the distribution of the
Securities, will not distribute any offering material in connection with
the offering and sale of the Securities other than the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or other materials, if
any permitted by the Act.
(xxvii) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which they are engaged; neither the Company nor any such subsidiary has
been refused any insurance coverage sought or
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applied for; and neither the Company nor any such subsidiary has any reason
to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its business at a
cost that would not reasonably be expected to have a Material Adverse
Effect, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary
Prospectus).
(b) Each Selling Stockholder severally represents and warrants to, and
agrees with, the several Underwriters that:
(i) Such Selling Stockholder has and on each Closing Date hereinafter
mentioned will have valid and unencumbered title to the Offered Securities
to be delivered by such Selling Stockholder on such Closing Date and full
right, power and authority to enter into this Agreement and to sell,
assign, transfer and deliver the Offered Securities to be delivered by such
Selling Stockholder on such Closing Date hereunder; and upon the delivery
of and payment for the Offered Securities on each Closing Date hereunder
the several Underwriters will acquire valid and unencumbered title to the
Offered Securities to be delivered by such Selling Stockholder on such
Closing Date.
(ii) All information furnished, or to be furnished, in writing to
the Company by the Selling Stockholder regarding the Selling Stockholder
specifically for use in the Registration Statement is on the date of this
Agreement, and will be on any Closing Date, true and correct in all
material respects and does not on the date of this Agreement, and will not
on the Closing Date, contain any untrue statement of a material fact or
omit any material fact required to be stated therein or necessary to make
the statements therein not misleading.
(iii) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between such Selling Stockholder and any
person that would give rise to a valid claim against such Selling
Stockholder or any Underwriter for a brokerage commission, finder's fee or
other like payment in connection with the offering of the Offered
Securities.
(iv) The execution, delivery and performance of this Agreement, the
Power of Attorney and the Custody Agreement (each as defined below) by such
Selling Stockholder, the sale by such Selling Stockholder of the Offered
Securities to be sold by such Selling Stockholder and the consummation by
such Selling Stockholder of the transactions herein and therein
contemplated will not result in a breach or violation of any of the terms
or provisions of, or constitute a default under, any statute, rule,
regulation or published order of any governmental agency or body or any
court, domestic or foreign, having jurisdiction over such Selling
Stockholder or any of its properties, or any agreement or instrument to
which such Selling Stockholder is a party
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or by which it is bound or to which any of its properties is subject, or
the constituent documents, if any, of such Selling Stockholder, except (i)
such as have been obtained and made under the Act, and (ii) such as may
have been already obtained or may be required under the Federal
Communications Laws. Each Selling Stockholder represents and warrants that
the information set forth in the Prospectus concerning such Selling
Stockholder under the headings "Selling Stockholders" and "Principal
Stockholders" is accurate and does not omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading.
(v) No consent, approval, authorization, order or waiver of, or
filing with, any governmental agency or body or any court is required to be
obtained or made by such Selling Stockholder for the consummation of the
transactions contemplated by this Agreement, the Power of Attorney and the
Custody Agreement, including the sale of the Offered Securities to be sold
by such Selling Stockholder, except (i) such as have been obtained and made
under the Act, and (ii) such as may have been already obtained or may be
required under the Federal Communications Laws.
(vi) The Power of Attorney and the Custody Agreement with respect
to each Selling Stockholder have been duly authorized, executed and
delivered by such Selling Stockholder and constitute valid and legally
binding obligations of each such Selling Stockholder enforceable in
accordance with their terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
(vii) Each Selling Stockholder which is not a natural person has been
duly organized and is an existing entity in good standing under the laws of
the jurisdiction of its organization, with power and authority (corporate
and other) to enter into this Agreement, the Custody Agreement and the
Power of Attorney and perform its obligations hereunder, and the execution,
delivery and performance of this Agreement (including the sale of the
Offered Securities), the Custody Agreement and the Power of Attorney by
each such Selling Stockholder have been duly authorized by all requisite
corporate and other action.
(viii) Such Selling Stockholder has duly executed and delivered the
power-of-attorney ("Power-of-Attorney") naming Scott R. Royster and Linda
J. Eckard, Esq. as such Selling Stockholder's attorneys-in-fact (and by
such attorneys-in-fact's execution of this Agreement, each such attorney-
in-fact represents and warrants that he or she has been appointed as
attorney-in-fact by such Selling Stockholder) for the purpose of entering
into and carrying out this Agreement, and in connection therewith such
Selling Stockholder further represents, warrants and agrees that
certificates for securities in negotiable form convertible or exercisable
(and all actions necessary to effect such conversion or exercise in a
manner consistent with performance of this Agreement have
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been taken) for such Selling Stockholder's Offered Securities have been
placed validly in custody with American Stock Transfer & Trust Company, as
custodian (the "Custodian"), and such Offered Securities are validly held
in custody for transfer pursuant to the terms of this Agreement, under a
Custody Agreement duly authorized, executed and delivered by such Selling
Stockholder in the form attached hereto (the "Custody Agreement"), with the
Custodian.
(ix) The Selling Stockholders have not, directly or indirectly, (i)
taken any action designed to cause or to result in, or that has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities or (ii) since the filing of the
Registration Statement (A) sold, bid for, purchased, or paid anyone any
compensation for soliciting purchases of, the Securities or (B) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
(x) This Agreement with respect to each Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representa tions, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and each Selling Stockholder
agree, severally and not jointly, to sell to each Underwriter, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
each Selling Stockholder, at a purchase price of $_________ per share, that
number of Firm Securities (rounded up or down, as determined by Credit Suisse
First Boston Corporation ("CSFBC") in its discretion, in order to avoid
fractions) obtained by multiplying 4,000,000 Firm Securities, in the case of the
Company, and the number of Firm Securities set forth opposite the name of such
Selling Stockholder in Schedule A hereto, in the case of a Selling Stockholder,
in each case by a fraction the numerator of which is the number of Firm
Securities set forth opposite the name of such Underwriter in Schedule B hereto
and the denominator of which is the total number of Firm Securities.
Certificates for securities in negotiable form for the Offered
Securities to be sold by the Selling Stockholders hereunder have been placed in
custody, for delivery under this Agreement, under Custody Agreements made with
the Custodian. Each Selling Stockholder agrees that the shares represented by
the certificates held in custody for the Selling Stockholders under such Custody
Agreements are subject to the interests of the Underwriters hereunder, that the
arrangements made by the Selling Stockholders for such custody are to that
extent irrevocable, and that the obligations of the Selling Stockholders
hereunder shall not be terminated by operation of law, whether by the death of
any individual Selling Stockholder or the occurrence of any other event, or in
the case of a trust, by the death of any trustee or trustees or the termination
of such trust. If any individual Selling Stockholder or any such trustee or
trustees
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should die, or if any other such event should occur, or if any of such trusts
should terminate, before the delivery of the Offered Securities hereunder,
certificates for such Offered Securities shall be delivered by the Custodian in
accordance with the terms and conditions of this Agreement as if such death or
other event or termination had not occurred, regardless of whether or not the
Custodian shall have received notice of such death or other event or
termination.
The Company and the Custodian will deliver the Firm Securities to the
Representatives for the accounts of the Underwriters, against payment of the
purchase price in Federal (same day) funds by official bank check or checks or
wire transfer to an account at a bank acceptable to CSFBC drawn to the order of
the Company in the case of 4,000,000 shares of Firm Securities and the
respective Selling Stockholders in the case of the number of shares of Firm
Securities set forth opposite their name on Schedule A, at the office of CSFBC,
at [10:00A.M.], New York time, on __________, 1999, or at such other time not
later than seven full business days thereafter as CSFBC and the Company
determine, such time being herein referred to as the "First Closing Date". The
certificates for the Firm Securities so to be delivered will be in definitive
form, in such denominations and registered in such names as CSFBC requests and
will be made available for checking and packaging at the office of CSFBC at
least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from time
to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price to be paid for the Firm Securities. The Company agrees to sell to
the Underwriters the number of shares of Optional Securities specified in such
notice and the Underwriters agree, severally and not jointly, to purchase such
Optional Securities. Such Optional Securities shall be purchased for the account
of each Underwriter in the same proportion as the number of shares of Firm
Securities set forth opposite such Underwriter's name bears to the total number
of shares of Firm Securities (subject to adjustment by CSFBC to eliminate
fractions) and may be purchased by the Underwriters only for the purpose of
covering over-allotments made in connection with the sale of the Firm
Securities. No Optional Securities shall be sold or delivered unless the Firm
Securities previously have been, or simultaneously are, sold and delivered. The
right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, against payment of
the purchase price therefor in
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Federal (same day) funds by official bank check or checks or wire transfer to an
account at a bank acceptable to CSFBC drawn to the order of the Company, at the
above office of CSFBC. The certificates for the Optional Securities being
purchased on each Optional Closing Date will be in definitive form, in such
denominations and registered in such names as CSFBC requests upon reasonable
notice prior to such Optional Closing Date and will be made available for
checking and packaging at the office of CSFBC at a reasonable time in advance of
such Optional Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company and the Selling Stockholders. The
Company agrees with the several Underwriters and the Selling Stockholders that:
(a) If the Effective Time of the Initial Registration Statement is prior to
the execution and delivery of this Agreement, the Company will file the
Prospectus with the Commission pursuant to and in accordance with subparagraph
(1) (or, if applicable and if consented to by CSFBC, subparagraph (4)) of Rule
424(b) not later than the earlier of (A) the second business day following the
execution and delivery of this Agreement or (B) the fifteenth business day after
the Effective Date of the Initial Registration Statement. The Company will
advise CSFBC promptly of any such filing pursuant to Rule 424(b). If the
Effective Time of the Initial Registration Statement is prior to the execution
and delivery of this Agreement and an additional registration statement is
necessary to register a portion of the Offered Securities under the Act but the
Effective Time thereof has not occurred as of such execution and delivery, the
Company will file the additional registration statement or, if filed, will file
a post-effective amendment thereto with the Commission pursuant to and in
accordance with Rule 462(b) on or prior to 10:00 P.M., New York time, on the
date of this Agreement or, if earlier, on or prior to the time the Prospectus is
printed and distributed to any Underwriter, or will make such filing at such
later date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed or the
related prospectus or the Initial Registration Statement, the Additional
Registration Statement (if any) or the Prospectus and will not effect such
amendment or supplementation without CSFBC's consent; and the Company will also
advise CSFBC promptly of the effectiveness of each Registration Statement (if
its Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration Statement
or the Prospectus and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its best efforts
to prevent the issuance of any such stop order and to obtain as soon as possible
its lifting, if issued.
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(c) If, at any time when a prospectus relating to the Offered Securities is
required to be delivered under the Act in connection with sales by any
Underwriter or dealer, any event occurs as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the Prospectus to comply
with the Act, the Company will promptly notify CSFBC of such event and will
promptly prepare and file with the Commission, at its own expense, an amendment
or supplement which will correct such statement or omission or an amendment
which will effect such compliance. Neither CSFBC's consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall constitute a
waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date (as
defined below), the Company will make generally available to its security
holders an earnings statement covering a period of at least 12 months beginning
after the Effective Date of the Initial Registration Statement (or, if later,
the Effective Date of the Additional Registration Statement) which will satisfy
the provisions of Section 11(a) of the Act. For the purpose of the preceding
sentence, "Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such Effective Date,
except that, if such fourth fiscal quarter is the last quarter of the Company's
fiscal year, "Availability Date" means the 90th day after the end of such fourth
fiscal quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (five of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a prospectus
relating to the Offered Securities is required to be delivered under the Act in
connection with sales by any Underwriter or dealer, the Prospectus and all
amendments and supplements to such documents, in each case in such quantities as
CSFBC requests. The Prospectus shall be so furnished on or prior to 3:00 P.M.,
New York time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial Registration
Statement. All other such documents shall be so furnished as soon as available.
The Company will pay the expenses of printing and distributing to the
Underwriters all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC designates and
will continue such qualifications in effect so long as required for the
distribution.
(g) During the period of five years hereafter, the Company will furnish to
the Representatives and, upon request, to each of the other Underwriters, as
soon as practicable after the end of each fiscal year, a copy of its annual
report to stockholders for such year; and the Company will furnish to the
Representatives (i) as soon as available, a copy of each report and any
definitive proxy statement of the Company filed with the Commission under the
Securities
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Exchange Act of 1934, as amended or mailed to stockholders, and (ii) from time
to time, such other information concerning the Company as CSFBC may reasonably
request.
(h) For a period of 90 days after the date of the initial public offering
of the Offered Securities, the Company will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Commission a registration statement under the Act relating to, any additional
shares of its Securities or securities convertible into or exchangeable or
exercisable for any shares of its Securities, or publicly disclose the intention
to make any such offer, sale, pledge, disposition or filing, without the prior
written consent of CSFBC.
(i) The Company and each Selling Stockholder agree with the several
Underwriters that the Company will pay all expenses incident to the performance
of the obligations of the Company and such Selling Stockholder, as the case may
be, under this Agreement, for any filing fees and other expenses (including fees
and disbursements of counsel) in connection with qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC designates and
the printing of memoranda relating thereto, for the filing fee incident to, and
the reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the National Association of Securities Dealers,
Inc. of the Offered Securities, for any travel expenses of the Company's
officers and employees and any other expenses of the Company in connection with
attending or hosting meetings with prospective purchasers of the Offered
Securities, for any transfer taxes on the sale by the Selling Stockholders of
the Offered Securities to the Underwriters and for expenses incurred in
distributing preliminary prospectuses and the Prospectus (including any
amendments and supplements thereto) to the Underwriters.
(j) Each Selling Stockholder agrees to deliver to CSFBC, attention:
Transactions Advisory Group, on or prior to the First Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
(k) Each Selling Stockholder agrees, for a period of 90 days after the date
of the initial public offering of the Offered Securities, not to offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, any
additional shares of the Securities of the Company or securities convertible
into or exchangeable or exercisable for any shares of Securities, or publicly
disclose the intention to make any such offer, sale, pledge or disposition,
without the prior written consent of CSFBC.
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein, to
the accuracy of the statements of Company officers made pursuant to
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the provisions hereof, to the performance by the Company and the Selling
Stockholders of their obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall be on
or prior to the date of this Agreement or, if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, shall be prior to the filing of the amendment or post-effective
amendment to the registration statement to be filed shortly prior to such
Effective Time), of Arthur Andersen LLP confirming that they are independent
public accountants within the meaning of the Act and the applicable published
Rules and Regulations thereunder and stating to the effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statements comply as to
form in all material respects with the applicable accounting requirements
of the Act and the related published Rules and Regulations;
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim financial
information as described in Statement of Auditing Standards No. 71, Interim
Financial Information, on the unaudited financial statements included in
the Registration Statements;
(iii) on the basis of the review referred to in clause (ii) above, a
reading of the latest available interim financial statements of the
Company, inquiries of officials of the Company who have responsibility for
financial and accounting matters and other specified procedures, nothing
came to their attention that caused them to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published Rules and Regulations or any material
modifications should be made to such unaudited financial statements
for them to be in conformity with generally accepted accounting
principles;
(B) the unaudited consolidated net sales, net operating
income, net income and net income per share amounts for the three and
six month periods ended June 30, 1998 and 1999 included in the
Prospectus do not agree with the amounts set forth in the unaudited
consolidated financial statements for those same periods or were not
determined on a basis substantially consistent with that of the
corresponding amounts in the audited statements of income;
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(C) at the date of the latest available balance sheet read
by such accountants, or at a subsequent specified date not more than
three business days prior to the date of this Agreement, there was any
change in the capital stock or any increase in short-term indebtedness
or long-term debt of the Company and its consolidated subsidiaries or,
at the date of the latest available balance sheet read by such
accountants, there was any decrease in consolidated net current assets
or net assets, as compared with amounts shown on the latest balance
sheet included in the Prospectus; or
(D) for the period from the closing date of the latest
income statement included in the Prospectus to the closing date of the
latest available income statement read by such accountants there were
any decreases, as compared with the corresponding period of the
previous year and with the period of corresponding length ended the
date of the latest income statement included in the Prospectus, in
consolidated net broadcasting revenue or net operating income in the
total or per share amounts of consolidated net income;
except in all cases set forth in clauses (B) and (D) above for changes,
increases or decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information contained
in the Registration Statements (in each case to the extent that such dollar
amounts, percentages and other financial information are derived from the
general accounting records of the Company and its subsidiaries subject to
the internal controls of the Company's accounting system or are derived
directly from such records by analysis or computation) with the results
obtained from inquiries, a reading of such general accounting records and
other procedures specified in such letter and have found such dollar
amounts, percentages and other financial information to be in agreement
with such results, except as otherwise specified in such letter.
(v) they have --
(A) Read the unaudited pro forma consolidated balance sheet as of
December 31, 1999, and the unaudited pro forma consolidated statement
of operations and other data for the year ended December 31, 1998,
included in the registration statement.
(B) Inquired of certain officials of the Company and the companies
being acquired who have responsibility for financial and accounting
matters about --
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(x) The basis for their determination of the pro forma
adjustments, and
(y) Whether the unaudited pro forma condensed consolidated
financial statements referred to in 7a comply as to form in
all material respects with the applicable accounting
requirements of rule 11-02 of Regulation S-X.
(C) Proved the arithmetic accuracy of the application of the pro
forma adjustments to the historical amounts in the unaudited pro forma
condensed consolidated financial statements.
The foregoing procedures by Arthur Andersen LLP are substantially
less in scope than an examination, the objective of which is the
expression of an opinion on management's assumptions, the pro forma
adjustments, and the application of those adjustments to historical
financial information. Accordingly, they do not express such an
opinion. The foregoing procedures would not necessarily reveal
matters of significance with respect to the comments in the following
paragraph. Accordingly, they make no representation about the
sufficiency of such procedures for the Underwriters' purposes.
(vi) Nothing came to their attention as a result of the
procedures specified in paragraph (v), however, that caused them to believe
that the unaudited pro forma consolidated financial statements referred to
in (v) included in the registration statement do not comply as to form in
all material respects with the applicable accounting requirements of rule
11-02 of Regulation S-X and that the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of those
statements. Had they performed additional procedures or had they made an
examination of the pro forma condensed consolidated financial statements,
other matters might have come to their attention that would have been
reported to the Underwriters.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statements is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statements is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration Statement
is subsequent to such execution and delivery, "Registration Statements" shall
mean the Initial Registration Statement and the additional registration
statement as proposed to be filed or as proposed to be amended by the post-
effective amendment to be filed shortly prior to its Effective Time, and (iii)
"Prospectus" shall mean the prospectus included in the Registration Statements.
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(b) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of this
Agreement or such later date as shall have been consented to by CSFBC. If the
Effective Time of the Additional Registration Statement (if any) is not prior to
the execution and delivery of this Agreement, such Effective Time shall have
occurred not later than 10:00 P.M., New York time, on the date of this Agreement
or, if earlier, the time the Prospectus is printed and distributed to any
Underwriter, or shall have occurred at such later date as shall have been
consented to by CSFBC. If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Prospectus shall have been filed with the Commission in accordance with the
Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing
Date, no stop order suspending the effectiveness of a Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of any Selling Stockholder, the Company or the
Representatives, shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement, there shall
not have occurred (i) any change, or any development or event involving a
prospective change, in the condition (financial or other), business, properties
or results of operations of the Company or its subsidiaries which, in the
judgment of a majority in interest of the Underwriters including the
Representatives, is material and adverse and makes it impractical or inadvisable
to proceed with completion of the public offering or the sale of and payment for
the Offered Securities; (ii) any downgrading in the rating of any debt
securities of the Company by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Act), or any
public announcement that any such organization has under surveillance or review
its rating of any debt securities of the Company (other than an announcement
with positive implications of a possible upgrading, and no implication of a
possible downgrading, of such rating); (iii) any suspension or limitation of
trading in securities generally on The New York Stock Exchange, or any setting
of minimum prices for trading on such exchange, or any suspension of trading of
any securities of the Company on any exchange or in the over-the-counter market;
(iv) any banking moratorium declared by U.S. Federal or New York authorities; or
(v) any outbreak or escalation of major hostilities in which the United States
is involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the judgment of a
majority in interest of the Underwriters, including the Representatives, the
effect of any such outbreak, escalation, declaration, calamity or emergency
makes it impractical or inadvisable to proceed with completion of the public
offering or the sale of and payment for the Offered Securities.
(d) The Representatives shall have received an opinion, dated such Closing
Date, of Kirkland & Ellis, counsel for the Company, to the effect that:
(i) Each of the Company and its subsidiaries is a corporation validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, the
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Company has the full corporate power to enter into and perform its
obligations hereunder and the Company and each of its subsidiaries has the
corporate power to own and lease its properties and to carry on its
business as it is currently being conducted.
(ii) The Company and each of its subsidiaries is duly qualified
to do business as a foreign corporation in and is in good standing in each
jurisdiction listed opposite its name on Attachment III hereto.
(iii) All of the issued and outstanding shares of capital
stock of, or other ownership interests in, each of the subsidiaries listed
on Attachment IV have been duly authorized and validly issued and are fully
paid and nonassessable, and to such counsel's knowledge, all such shares
are owned, directly or through wholly owned subsidiaries of the Company, by
the Company, free and clear of any lien, except as described in the
Prospectus.
(iv) All of the outstanding shares of the Common Stock (including the
Offered Securities to be sold by the Selling Stockholders) have been duly
authorized and validly issued, and are fully paid and nonassessable, and,
to such counsel's knowledge, are not subject to any preemptive or similar
rights.
(v) The Offered Securities to be issued and sold by the Company
pursuant to this Agreement have been duly authorized and when issued and
delivered against payment therefor in accordance with this Agreement, will
have been validly issued, fully paid and nonassessable, and, to such
counsel's knowledge, are not subject to any preemptive or similar rights.
(vi) This Agreement has been duly authorized, executed and delivered
by the Company.
(vii) The Company's authorized capital stock conforms as to legal
matters to the description thereof contained in the Prospectus.
(viii) A member of the Commission's staff has advised us by telephone
that the Commission's Division of Corporation Finance, pursuant to
authority delegated to it by the Commission, has entered an order declaring
the Registration Statement effective under the Securities Act and, to such
counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued and no
proceedings for that purpose are, to such counsel's knowledge, pending
before or contemplated by the Commission.
(ix) No authorization, approval, consent or order of, or filing with,
any court, governmental agency or agency is required for the execution and
delivery of this
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Agreement and consummation of the transactions contemplated hereby,
including the issuance, delivery and sale of the Offered Securities, except
such as have been obtained or made under the Act or state securities laws
or regulations.
(x) The Company's execution, delivery and performance of this
Agreement and the Company's compliance with all of the provisions thereof,
including the issuance and sale of the Offered Securities, do not (i)
violate the Certificate of Incorporation or Bylaws of the Company or any of
its subsidiaries, (ii) breach or result in a default under, any existing
obligation of the Company under, or cause an acceleration of any obligation
under or result in the imposition or creation of (or the obligation to
create or impose) a lien with respect to, any of the agreements listed as
an exhibit to the Registration Statement, (iii) to such counsel's
knowledge, breach or otherwise violate any provision in any order, writ,
judgment or decree of any governmental agency or body or any court having
jurisdiction over the Company or any subsidiary of the Company or any of
their properties, or (iv) constitute a violation by the Company of any
applicable provision of any law, statute or regulation covered by this
opinion.
(xi) Such counsel has no knowledge about any legal or governmental
proceeding that is pending or threatened against the Company that has
caused us to conclude that such proceeding is required by Item 103 of
Regulation S-K to be described in the Prospectus but that is not so
described. We have no knowledge about any contract to which the Company is
a party or to which any of its property is subject that has caused us to
conclude that such contract is required to be described in the Prospectus
but is not so described or is required to be filed as an exhibit to the
Registration Statement but has not been so filed.
(xii) To such counsel's knowledge, there are no outstanding options,
warrants or other rights calling for the issuance of, and no commitments,
plans or arrangements to issue, any shares of capital stock of the Company
or any security convertible into or exchangeable for capital stock of the
Company except as described in the Prospectus.
(xiii) To such counsel's knowledge, there are no outstanding options,
warrants or other rights calling for the issuance of, or any commitment,
plan or arrangement to issue, any shares of capital stock of the Company or
any security convertible into or exchangeable or exercisable for any
capital stock of the Company, except as described in the Prospectus.
(xiv) Each Registration Statement (including any Registration
Statement filed under Section 462(b) of the Act, if any) and the
Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the Rules and Regulations;
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and the Prospectus was filed with the Commission pursuant to the
subparagraph of Rule 424(b) specified in such opinion on the date specified
therein.
(xv) Such counsel have no reason to believe that any part of a
Registration Statement or any amendment thereto, as of its effective date
or as of such Closing Date, contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; or that the
Prospectus or any amendment or supplement thereto, as of its issue date or
as of such Closing Date, contained any untrue statement of a material fact
or omitted to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; it being understood that such counsel need express no
opinion as to the financial statements or other financial data contained in
the Registration Statements or the Prospectus.
(e) The Representatives shall have received an opinion, dated such Closing
Date, of Davis Wright Tremaine LLP, FCC counsel to the Company, to the effect
that:
(i) The information in the Prospectus under the captions "Risk Factors
- Regulation" and "Business - Regulation," to the extent that such
information constitutes a summary of the Federal Communications Laws, has
been reviewed by such counsel and is correct in all material respects.
(ii) Except as previously made or obtained, or as disclosed in the
Prospectus, as the case may be, no filing or registration with, or
authorization, approval, consent, license, order, qualification or decree
of any court or administrative agency or authority is necessary or required
under the Federal Communications Laws to be obtained or made by the Company
or any subsidiary of the Company for the consummation of the Transactions
described in the Prospectus or in connection with the execution or delivery
by the Company and the Selling Stockholders of the Underwriting Agreement,
the performance by the Company and the Selling Stockholders of the
transactions contemplated thereby or the offering, issuance or sale of the
Offered Securities, or the public offering thereof by the Underwriters, as
applicable, all as of the date hereof.
(iii) To their knowledge, neither the Company nor any of its
subsidiaries is in violation in any material respect of any Federal
Communications Law or in violation of any published order of any court or
administrative agency or authority relating thereto.
(iv) The Company and the identified subsidiaries are the holders of
the FCC Licenses, all of which are in full force and effect, for the
maximum term customarily issued, with no material conditions, restrictions
or qualifications other than as described in the Prospectus or that appear
in the ordinary course in the FCC Licenses, and to their
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knowledge, such FCC Licenses constitute all of the commercial radio station
licenses necessary for the Company and the subsidiaries to own their
properties and to conduct their businesses in the manner and to the full
extent now operated as described in the Prospectus. To their knowledge
there are no facts or circumstances which would justify the Commission
denying the pending applications for assignment of any of the Current FCC
Licenses, or approving the assignment for less than the maximum term
customarily issued, or with material conditions, restrictions or
qualifications other than as described in the Prospectus.
(v) The execution, delivery and performance of this Agreement, the
issuance of the Offered Securities to be sold by the Company, the sale of
the Offered Securities by the Company and the Selling Stockholders and the
public offering thereof by the Underwriters, do not and will not violate
any of the terms or provisions of, or constitute a default under (A) the
Federal Communications Laws or (B) the FCC licenses held by the Company or
any subsidiary of the Company.
(vi) There are no published or, to their knowledge, unpublished FCC
orders, decrees or rulings outstanding against the Company or any of its
subsidiaries or any pending or threatened actions, suits or proceedings
against the Company or any of its subsidiaries by or before the FCC that
seek to revoke, or if determined adversely to the Company or any of its
subsidiaries, would have a Material Adverse Effect or would result in a
revocation or non-renewal of, any of the FCC Licenses, other than as
disclosed in the Registration Statement or Prospectus.
(f) The Representatives shall have received the opinion contemplated in the
Power of Attorney executed and delivered on behalf of each Selling Stockholder
and an opinion, dated such Closing Date, of the respective counsel for the
Selling Stockholders, to the effect that:
(i) Upon delivery of certificates for the Offered Securities being
sold by such Selling Stockholder against payment therefor, each Underwriter
who takes such delivery and makes such payment without notice of any
adverse claim will acquire such shares free of any adverse claim, lien,
encumbrance or security interest.
(ii) The execution, delivery and performance of this Agreement, the
Power of Attorney and the Custody Agreement by the Selling Stockholders and
the consummation of the transactions herein and therein contemplated will
not result in a breach or violation of any of the terms or, to such
counsel's knowledge, any provisions of, or constitute a default under, any
statute, rule, regulation or order of any governmental agency or body or
any court, domestic or foreign, having jurisdiction over any Selling
Stockholder or any of their properties or any agreement or instrument to
which any Selling Stockholder is a party or by which any Selling
Stockholder is bound or to which any of the properties
24
<PAGE>
of any Selling Stockholder is subject, or any constituent documents, if
any, of any Selling Stockholder.
(iii) No consent, approval, authorization, order or waiver of, or
filing with, any governmental agency or body or any court is required to be
obtained or made by any Selling Stockholder for the consummation of the
transactions contemplated by the Custody Agreement or this Agreement in
connection with the sale of the Offered Securities sold by the Selling
Stockholders, except such as have been obtained or may be required under
the Federal or state securities Laws or the Federal Communi cations Laws.
(iv) The Power of Attorney and the Custody Agreement with respect to
each Selling Stockholder has been duly authorized, executed and delivered
by such Selling Stockholder and constitute valid and legally binding
obligations of each such Selling Stockholder enforceable in accordance with
their terms, subject to bank ruptcy, insolvency, reorganization, moratorium
and similar laws of general applica bility relating to or affecting
creditors' rights and to general equity principles.
(v) Each Selling Stockholder which is not a natural person has been
duly organized and is an existing entity in good standing under the laws of
the jurisdiction of its organization, with power and authority (corporate
and other) to enter into this Agreement, the Custody Agreement and the
Power of Attorney and perform its obligations hereunder, and the execution,
delivery and performance of this Agree ment (including the sale of the
Offered Securities), the Custody Agreement and the Power of Attorney by
each such Selling Stockholder have been duly authorized by all requisite
corporate and other action.
(vi) Such counsel has no reason to believe that such information or
the disclosure contained in the Prospectus under the headings "Selling
Stockholders" and "Certain Relationships and Related Transactions", as of
the effective date of a Registration Statement or any amendment thereto, or
as of such Closing Date, contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(vii) This Agreement with respect to each Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder.
(g) The Representatives shall have received from Skadden, Arps, Slate,
Meagher & Flom LLP, counsel for the Underwriters, such opinion or opinions,
dated as of the Closing Date, with respect to the incorporation of the Company,
the validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectus and other
25
<PAGE>
related matters as the Representatives may require, and the Selling Stockholders
and the Company shall have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass upon such matters.
(h) The Representatives shall have received from each officer, director and
5% stockholder of the Company in form and substance satisfactory to the
Representatives a letter agreement stating that such stockholder agrees, for a
period of 90 days after the date of the initial public offering of the Offered
Securities, not to offer, sell, contract to sell, pledge or otherwise dispose
of, directly or indirectly, any additional shares of the Securities of the
Company or securities convertible into or exchangeable or exercisable for any
shares of Securities, or publicly disclose the intention to make any such offer,
sale, pledge or disposal, without the prior written consent of CSFBC.
(i) The Representatives shall have received a certificate, dated as of the
Closing Date, of the Chief Executive Officer and Chief Financial Officer of the
Company in which such officers, to the best of their knowledge after reasonable
investigation, shall state that: the representations and warranties of the
Company in this Agreement are true and correct; the Company has complied with
all agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to such Closing Date; no stop order suspending
the effectiveness of any Registration Statement has been issued and no
proceedings for that purpose have been instituted or are contemplated by the
Commission; the Additional Registration Statement (if any) satisfying the
requirements of subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to
Rule 462(b), including payment of the applicable filing fee in accordance with
Rule 111(a) or (b) under the Act, prior to the time the Prospectus was printed
and distributed to any Underwriter; and, subsequent to the date of the most
recent financial statements in the Prospectus, there has been no material
adverse change, nor any development or event involving a prospective material
adverse change, in the condition (financial or other), business, properties or
results of operations of the Company and its subsidiaries taken as a whole
except as set forth in or contemplated by the Prospectus or as described in such
certificate.
(j) The Representatives shall have received a letter, dated as of the
Closing Date, of Arthur Andersen LLP which meets the requirements of subsection
(a) of this Section, except that the specified date referred to in such
subsection will be a date not more than three business days prior to such
Closing Date for the purposes of this subsection.
(k) The Securities to be delivered on such Closing Date shall have been
approved for listing on the Nasdaq National Market, subject, in the case of the
Offered Securities, only to official notice of issuance.
The Selling Stockholders and the Company will furnish the Representatives
with such conformed copies of such opinions, certificates, letters and documents
as
26
<PAGE>
the Representatives reasonably request. CSFBC may in its sole discretion
waive on behalf of the Underwriters compliance with any conditions to the
obligations of the Underwriters hereunder, whether in respect of an Optional
Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any who controls such Underwriter within the meaning of Section 15 of
the Act, against any losses, claims, damages or liabilities, joint or several,
to which such Underwriter or other person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in this Agreement or any
Registra tion Statement, the Prospectus, or any amendment or supplement thereto,
or any related preliminary prospectus, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse each Underwriter and other persons for any legal or other
expenses reasonably incurred by such Underwriter and other persons in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement in or omission or alleged omission from any of such documents
in reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information furnished
by any Underwriter consists of the information described as such in subsection
(c) below.
(b) The Selling Stockholders, severally and not jointly, will indemnify
and hold harmless each Underwriter, its partners, directors and officers and
each person, if any who controls such Underwriter within the meaning of Section
15 of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter and other persons may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement, the Prospectus, or any amendment or supplement thereto, or any
related preliminary prospectus, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse each Underwriter and other persons for any legal or other expenses
reasonably incurred by such Underwriter and other persons in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred; and provided, further, that the Selling Stockholders
shall only be subject to such liability to the extent that the untrue statement
or alleged untrue statement or omission or alleged omission is based upon
information provided in writing by such Selling Stockholder or contained in a
representation or warranty given by such Selling Stockholder in this
27
<PAGE>
Agreement or the Custody Agreement; and provided, further, that the liability
under this subsec tion of each Selling Stockholder shall be limited to an amount
equal to the aggregate gross proceeds to such Selling Stockholder from the sale
of Securities sold by such Selling Stockholder hereunder.
(c) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company, its directors and officers and each person, if any who
controls the Company within the meaning of Section 15 of the Act, and each
Selling Stockholder against any losses, claims, damages or liabilities to which
the Company or such Selling Stockholder may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through the Representatives specifically for use therein, and will reimburse any
legal or other expenses reasonably incurred by the Company and each Selling
Stockholder in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of each
Underwriter: the concession and reallowance figures appearing in the fourth
paragraph under the caption "Underwriting" and the information contained in the
last paragraph under the caption "Underwriting."
(d) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under
subsection (a), (b) or (c) above, notify the indemnifying party of the
commencement thereof; but the omission to notify the indemnify ing party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a), (b) or (c) above. In case any such action
is brought against any indemnified party and it notifies an indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section, as the case may be, for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than
28
<PAGE>
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on any claims that are the subject
matter of such action.
(e) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a), (b) or
(c) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a), (b) or (c) above (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other from the offering of the Securities or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Stockholders on
the one hand and the Underwriters on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Company and the Selling Stockholders bear to the total underwriting discounts
and commissions received by the Underwriters. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, the Selling
Stockholders or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid by an indemnified party as a result of
the losses, claims, damages or liabilities referred to in the first sentence of
this subsection (e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any action or claim which is the subject of this subsection (e).
Notwithstanding the provisions of this subsection (e), no Selling Stockholder
shall be required to contribute any amount in excess of such Selling
Stockholder's gross proceeds from his, her or its sale of Securities hereunder
and no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint. The Selling Stockholders' obligations in
this subsection (e) to contribute are several and not joint and shall apply only
if the indemnification provided for in this Section would by its terms, provide
for indemnification for an indemnified party and is unavailable or insufficient
to hold harmless an indemnified party under subsection (a), (b) or (c) above.
Notwithstanding the foregoing, if the indemnification and contribution provided
in this section by any Selling Stockholder is unavailable or insufficient to
hold harmless an indemnified party under subsection (a), (b) or (c) above or any
Selling Stockholders do not contribute as required above, then the Company shall
contribute any amounts not contributed by such Selling Stockholders.
29
<PAGE>
(f) The obligations of the Company and the Selling Stockholders under
this Section shall be in addition to any liability which the Company and the
Selling Stockholders may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; the obligations of the Underwriters under this Section shall
be in addition to any liability which the respective Underwriters may otherwise
have and shall extend, upon the same terms and conditions, to each director of
the Company, to each officer of the Company who has signed a Registration
Statement and to each person, if any, who controls the Company within the
meaning of the Act; and the obligations of the Company under this Section shall
be in addition to any liability which the Company may otherwise have to the
Selling Stockholders.
8. Default of Underwriters. If any Underwriter or Underwriters default
in their obligations to purchase Offered Securities hereunder on either the
First or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company and the Selling Stockholders for
the purchase of such Offered Securities by other persons, including any of the
Underwriters, but if no such arrangements are made by such Closing Date, the
non-defaulting Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the Offered Securities that such
defaulting Underwrit ers agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of shares of
Offered Securities with respect to which such default or defaults occur exceeds
10% of the total number of shares of Offered Securities that the Underwriters
are obligated to purchase on such Closing Date and arrangements satisfactory to
CSFBC, the Company and the Selling Stockholders for the purchase of such Offered
Securities by other persons are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any non-
defaulting Underwriter, the Company or the Selling Stockholders, except as
provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Selling Stockholders, of the Company or its officers and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation, or statement as to the
results thereof, made by or on behalf of any Underwriter, any Selling
Stockholder, the Company or any of their respective representatives, officers or
directors or any controlling person, and will survive delivery of and payment
for the Offered Securities.
30
<PAGE>
If this Agreement is terminated pursuant to Section 8 or if for any reason the
purchase of the Offered Securities by the Underwriters is not consummated, the
Company and the Selling Stockholders shall remain responsible for the expenses
to be paid or reimbursed by them pursuant to Section 5 and the respective
obligations of the Company, the Selling Stockhold ers, and the Underwriters
pursuant to Section 7 shall remain in effect, and if any Offered Securities have
been purchased hereunder the representations and warranties in Section 2 and all
obligations under Section 5 shall also remain in effect. If the purchase of the
Offered Securities by the Underwriters is not consummated for any reason other
than solely because of the termination of this Agreement pursuant to Section 8
or the occurrence of any event specified in clause (iii), (iv) or (v) of Section
6(c), the Company will reimburse the Under writers for all out-of-pocket
expenses (including fees and disbursements of counsel) reasonably incurred by
them in connection with the offering of the Offered Securities.
11. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Representatives, c/o Credit Suisse First Boston Corporation, Eleven
Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department -Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at Radio One, Inc., 5900
Princess Garden Parkway, Lanham, MD 20706, Attention: Linda J. Eckard, Esq.; or,
if sent to the Selling Stockholders or any of them, will be mailed, delivered or
telegraphed and confirmed to the Attorney at Radio One, Inc., 5900 Princess
Garden Parkway, Lanham, MD 20706, Attention: Linda J. Eckard, Esq. or Scott
Royster; provided, however, that any notice to an Underwriter pursuant to
Section 7 will be mailed, delivered or telegraphed and confirmed to such
Underwriter.
12. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective personal representatives
and successors and the officers and directors and controlling persons referred
to in Section 7, and no other person will have any right or obligation
hereunder.
13. Representation. The Representatives will act for the several
Underwriters in connection with the transactions contemplated by this Agreement,
and any action under this Agreement taken by the Representatives jointly or by
CSFBC will be binding upon all the Underwriters. The Attorneys will act for the
Selling Stockholders in connection with such transactions, and any action under
or in respect of this Agreement taken by the Attorneys will be binding upon all
the Selling Stockholders.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
31
<PAGE>
15. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, without regard to
principles of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
32
<PAGE>
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, where upon it will become a binding agreement among the
Selling Stockholders, the Company and the several Underwriters in accordance
with its terms.
Very truly yours,
RADIO ONE, INC.
-----------------------------------------
Name:
Title:
BANCBOSTON INVESTMENTS, INC.
----------------------------------------
Name:
Title:
ALTA SUBORDINATED DEBT PARTNERS III, L.P.
----------------------------------------
Name:
Title:
FULCRUM VENTURE CAPITAL CORPORATION
----------------------------------------
Name:
Title:
The foregoing Underwriting Agreement
33
<PAGE>
is hereby confirmed and accepted as of
the date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION,
DEUTSCHE BANK SECURITIES INC.,
BANC OF AMERICA SECURITIES LLC,
BEAR, STEARNS & CO. INC.,
PRUDENTIAL SECURITIES INCORPORATED, and
BANCBOSTON ROBERTSON STEPHENS INC.,
Acting on behalf of themselves and as the
Representatives of the several Underwriters.
By: CREDIT SUISSE FIRST BOSTON CORPORATION
________________________________________
Name:
Title:
34
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Selling Stockholder Number of Firm
- ------------------- Securities to be Sold
---------------------
<S> <C>
BancBoston Investments, Inc. 200,000
Alta Subordinated Debt Partners III, L.P. 476,640
Fulcrum Venture Capital Corporation 23,360
Total 700,000
=======
</TABLE>
A-1
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Firm Securities
Underwriter to be Purchased
- ----------- ---------------
<S> <C>
Credit Suisse First Boston Corporation........
Deutsche Bank Securities Inc. ................
Banc of America Securities LLC................
Bear, Stearns & Co. Inc. .....................
Prudential Securities Incorporated............
BancBoston Robertson Stephens Inc. ...........
-------------
Total.................................... ==============
</TABLE>
B-1
<PAGE>
Attachment I
I-1
<PAGE>
Attachment II
II-1
<PAGE>
Exhibit 5.1
November 10, 1999
Radio One, Inc.
5900 Princess Garden Parkway
8th Floor
Lanham, Maryland 20706
Re: Shares of Common Stock, $.001 par value
---------------------------------------
Dear Ladies and Gentlemen:
We are acting as counsel to Radio One, Inc., a Delaware corporation (the
"Company"), in connection with the preparation and filing with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), of a Registration Statement on Form S-1, File No. 333-89607
(the "Registration Statement") pertaining to the registration of a proposed
offering by the Company and certain stockholders of up to 4,700,000 shares of
the Company's Common Stock, $.001 par value per share, and 400,000 shares of the
Company's Common Stock, $.001 par value per share, pursuant to which the Company
has granted the underwriters an option to purchase, solely to cover over-
allotments, if any. Shares to be newly issued and sold by the Company in the
proposed offering shall hereinafter be referred to as the "New Shares", and the
New Shares, together with the existing shares of the Company's Common Stock,
$.001 par value per share, shall hereinafter be referred to as the "Common
Stock".
We have examined originals, or copies certified or otherwise identified to
our satisfaction, of such documents, corporate records and other instruments as
we have deemed necessary for the purposes of this opinion, including the
following: (i) Amended and Restated Certificate of Incorporation and the Amended
and Restated Bylaws of the Company, each as amended to the date hereof; and (ii)
certain resolutions adopted by the Board of Directors of the Company. In
addition, we have made such other and further investigations as we have deemed
necessary to enable us to express the opinions hereinafter set forth.
Based upon the foregoing and having regard to legal considerations that we
deem relevant, and subject to the comments and qualifications set forth below,
it is our opinion that the Common Stock has been duly authorized and when the
New Shares have been duly executed and delivered by authorized officers of the
Company and issued upon receipt of the consideration to be paid therefor (all in
conformity with the Board of Directors' resolutions examined by us), the Common
Stock will be duly and validly issued, fully paid and non-assessable.
<PAGE>
Radio One, Inc.
November 10, 1999
Page 2
For purposes of this opinion, we have with your permission made the
following assumptions, in each case without independent verification: (i) the
authenticity of all documents submitted to us as originals, (ii) the conformity
to the originals of all documents submitted to us as copies, (iii) the
authenticity of the originals of all documents submitted to us as copies, (iv)
the genuineness of the signatures of persons signing all documents in connection
with which this opinion is rendered, (v) the authority of such persons signing
all documents on behalf of the parties thereto and (vi) the due authorization,
execution and delivery of all documents by the parties thereto.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the section
entitled "Legal Matters" in the prospectus included in the Registration
Statement. In giving such consent, we do not thereby concede that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act or the Rules and Regulations promulgated thereunder.
We do not find it necessary for purposes of this opinion to cover, and
accordingly we do not purport to cover herein, the application of the securities
or "Blue Sky" laws of the various states to the offering and sale of the Common
Stock. This opinion shall be limited to the laws of the State of Delaware.
This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose.
Very truly yours,
/s/ Kirkland & Ellis
KIRKLAND & ELLIS
<PAGE>
Exhibit 23.1
Consent of the Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.
/s/ Arthur Andersen L.L.P.
November 10, 1999
<PAGE>
Exhibit 23.2
Consent of Independent Accountants
We consent to the inclusion in this registration statement on Form S-1 of our
report dated March 25, 1998 on our audit of the financial statements of ALLUR-
DETROIT, INC. We also consent to the reference to our firm under the caption
"Experts".
By: /s/ Mitchell & Titus, L.L.P.
Mitchell & Titus, L.L.P.
Washington, DC
November 10, 1999
