<PAGE>
As filed with the Securities and Exchange Commission on April 13, 1999
Registration No. 333-74749
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 Industry
jurisdiction of Identification No.) Classification Number)
incorporation of
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 &
Washington, D.C. 20005 Flom 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 pur-
suant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier ef-
fective Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) un-
der 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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
Proposed
Title of each Class Maximum
of Amount Proposed Aggregate Amount of
Securities to be to be Maximum Offering Registration
Registered Registered Offering Price Price(/1/) Fee
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Senior Cumulative
Exchangeable
Preferred Stock,
par value $0.01 per
share............. 50,000 Shares $1,000 $50,000,000 $13,900
% Subordinated
Exchange
Debentures........ 50,000 Debentures N/A N/A N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to paragraph (o) of Rule 457 of the Securities Act.
---------------
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 Registra-
tion 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 pur-
suant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information contained 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 APRIL 14, 1999
50,000 Shares
[LOGO OF RADIO ONE APPEARS HERE]
% Senior Cumulative Exchangeable Preferred Stock
--------
We may redeem the preferred stock on and after July 1, 2004. The preferred
stock is a new security with no established trading market.
Investing in our preferred stock involves risks. See "Risk Factors" on page
11.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public (1) Commissions Radio One
-------------- -------------- --------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
(1) Plus accrued dividends, if any from .
Delivery of the shares in book-entry form only will be made through The
Depository Trust Company on or about , 1999, against payment in immediately
available funds.
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
NationsBanc Montgomery Securities LLC
First Union Capital Markets
Prospectus dated , 1999.
<PAGE>
[Map of Eastern U.S. with ROI radio station logos, call signs and frequencies.]
<PAGE>
------------
TABLE OF CONTENTS
------------
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.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 11
Use of Proceeds.......................................................... 18
Capitalization........................................................... 19
Recent and Pending Transactions.......................................... 21
Unaudited Pro Forma Consolidated Financial Information................... 24
Selected Historical Consolidated Financial Data.......................... 31
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 33
Business................................................................. 42
Management............................................................... 70
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Certain Relationships and Related Transactions............................. 75
Principal Stockholders..................................................... 77
Description of Capital Stock............................................... 79
Description of the Exchange Debentures..................................... 98
Description of Indebtedness................................................ 128
Summary of Material United States Federal Income Tax Consequences.......... 131
Underwriting............................................................... 133
Notice to Canadian Residents............................................... 135
Legal Matters.............................................................. 136
Experts.................................................................... 136
Additional Information..................................................... 136
Index to Financial Statements.............................................. F-1
</TABLE>
i
<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."
RADIO ONE, INC.
Introduction
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 pending acquisitions, we will own and operate 25 radio stations. Twenty-
four of these stations (seventeen FM and seven AM) are in eight of the top 20
African-American radio markets: Washington, D.C., Baltimore, Atlanta,
Philadelphia, Detroit, St. Louis, Cleveland and Richmond. Our strategy is to
expand within our existing markets and into new markets that have a significant
African-American presence. We believe radio broadcasting primarily targeting
African-Americans has significant growth potential. We also believe that we
have a competitive advantage in the African-American market, and the radio
industry in general, due to our focus on formats primarily targeting African-
American audiences, our skill in programming and marketing these formats, and
our turnaround expertise.
We have succeeded in increasing ratings, net broadcast revenue and broadcast
cash flow of all of the FM stations we have owned or managed for at least one
year. Net broadcast revenue consists of revenue from broadcast operations less
commissions paid to agencies for selling air time on our stations. Broadcast
cash flow consists of operating income before depreciation, amortization, local
marketing agreement fees and corporate expenses. The radio stations that we
owned as of December 31, 1998, grouped by market, were ranked first or second
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 and broadcast cash flow have grown
significantly:
. Net broadcast revenue grew at a compound annual rate of 60.2% from an
actual $23.7 million in 1996 to $60.8 million in 1998, adjusted to
include 1998 results of stations acquired between January 1, 1998 and
March 31, 1999.
. Broadcast cash flow grew at a compound annual rate of 65.3% from an
actual $9.8 million in 1996 to $26.7 million in 1998, adjusted to
include 1998 results of stations acquired between January 1, 1998 and
March 31, 1999.
. Net broadcast revenue and broadcast cash flow of stations that we have
owned or, in the case of Radio One of Atlanta, managed since 1996, grew
at average annual rates of 28.0% and 42.7%, respectively, from 1996
through 1998.
. After-tax cash flow grew at a compound annual rate of 206.2% from an
actual $0.8 million in 1996 to $7.5 million in 1998, adjusted to include
1998 results of stations acquired between January 1, 1998 and March 31,
1999.
Radio One is led by our Chairperson and co-founder, Ms. Catherine L. Hughes,
and her son, Mr. Alfred C. Liggins, III, our Chief Executive Officer and
President, who together have over 40 years of operating experience in radio
broadcasting. Ms. Hughes, Mr. Liggins and our strong management team have
successfully implemented a strategy of acquiring and turning around
underperforming radio stations. We believe that we are well positioned to apply
our proven operating strategy to our recently or soon to be acquired stations
in Detroit, St. Louis, Cleveland and Richmond, and to other radio stations in
existing and new markets as attractive acquisition opportunities arise.
1
<PAGE>
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.
. 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 30 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 17 radio stations since January 1, 1998. 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 three to eight. The table below outlines our station operations
and summarizes more detailed information provided under "Business," except
African-American Market information, which is from BIA Fourth Edition, 1998,
or, in the case of Washington, D.C., BIA First Edition, 1999.
Radio One and Our Markets
<TABLE>
<CAPTION>
Radio One Including Pending Acquisitions Market Data
--------------------------------------------- ------------------------------------------------
Number of African-American 1998 Ranking by
Stations Market Entire Market 1998 Annual Size of 1996 MSA Population
--------- ------------------ ---------------- Radio African- ------------------------
Audience Revenue Audience Revenue Revenue American Total African-
Market FM AM Share Rank Rank Share Share ($ millions) Population (in millions) American %
- ------ ---- ---- ---------- ------- -------- ------- ------------ ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Washington, D.C......... 2 2 1 1 12.0 9.5% $257.0 3 4.2 27.2%
Detroit................. 2 2 2 2 4.7 3.6 211.5 5 4.5 22.5
Philadelphia............ 1 -- 2 2 3.3 2.2 249.1 6 4.9 19.9
Atlanta................. 2 -- 2 3 6.3 4.6 257.7 7 3.6 25.7
Baltimore............... 2 2 1 1 17.0 19.1 100.2 11 2.5 26.0
St. Louis............... 1 -- n/a n/a n/a n/a 109.0 16 2.6 17.2
Cleveland............... 1 1 n/a n/a n/a n/a 97.1 17 2.1 18.7
Richmond................ 6 1 n/a n/a n/a n/a 42.9 19 0.9 30.0
</TABLE>
2
<PAGE>
Business Strategy
We focus on making strategic acquisitions of underperforming radio stations,
improving the performance of these stations and operating them to maximize
profitability.
Acquisitions - Our acquisition strategy is to acquire and to turn around
underperforming radio stations principally in the top 30 African-American
markets. We consider acquisitions in existing markets where expanded coverage
is desirable and in new markets where we believe it is advantageous to
establish a presence. 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.
Turnarounds - We typically enter a market by acquiring a station or stations
that have little or negative broadcast cash flow. Additional stations we have
acquired in existing markets have often been, in our opinion, substantially
underperforming. By implementing our operating strategy, 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.
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.
Common Stock Offering
Concurrent with this offering, we and our selling stockholders intend to
sell $114.7 million of class A common stock. The common stock offering is being
made by a separate prospectus. We intend to use the net proceeds from the
common stock offering to repay amounts under our bank credit facility which
will increase debt capacity for pending acquisitions, to partially fund pending
acquisitions and to increase our working capital.
3
<PAGE>
The Offering
The New Preferred Stock:
Securities Offered.................. 50,000 shares of % senior cumulative
exchangeable preferred stock due June 30,
2011, par value $0.01 per share.
Liquidation Preference.............. $1,000 per share.
Dividends...........................
Dividends on the new preferred stock will
accumulate at an annual rate of % of
its liquidation preference and will be
payable semi-annually in arrears on June
30 and December 31 of each year,
commencing June 30, 1999. Dividends will
be payable in cash, except that on each
dividend payment date occurring on or
prior to June 30, 2004, we have the
option to pay dividends by the issuance
of additional shares of new preferred
stock (including fractional shares)
having an aggregate liquidation
preference equal to the amount of such
dividends. We do not anticipate paying
any dividends in cash for any period
ending on or prior to June 30, 2004.
Ranking............................. The new preferred stock will rank senior
to all other classes of our equity
securities outstanding as of the date of
this offering. We may not authorize any
new class of stock equal or senior in
rights to the new preferred stock without
the approval of holders of at least a
majority of the shares of new preferred
stock then outstanding.
Optional Redemption.................
The new preferred stock will not be
redeemable prior to June 30, 2004, except
that, on or prior to June 30, 2002, we
have the option to redeem the outstanding
new preferred stock, in whole but not in
part, at a redemption price of % of
its liquidation preference, plus
accumulated and unpaid dividends to the
date of redemption, with the net proceeds
of one or more public equity offerings.
On or after July 1, 2004, we have the
option to redeem the new preferred stock,
in whole or in part, at specified
redemption prices, plus accumulated and
unpaid dividends to the date of
redemption.
Mandatory Redemption................ We must redeem the new preferred stock at
its liquidation preference, plus
accumulated and unpaid dividends, on June
30, 2011, out of any legally available
funds.
In the event of a change of control, we
Change of Control................... must offer to purchase all outstanding
shares of new preferred stock, in whole
or in part, at a purchase price equal to
101%
4
<PAGE>
of its aggregate liquidation preference,
plus accumulated and unpaid dividends to
the date of purchase.
In the event we are not permitted by
applicable law or by the terms of our
indebtedness to make the offer referred
to above or to purchase any shares of new
preferred stock, we will designate an
independent financial advisor to
determine the appropriate dividend rate
that the new preferred stock should bear
so that, after the dividend rate on the
new preferred stock is reset, the new
preferred stock would have a market value
of 101% of its liquidation preference.
After determination of the reset rate,
the new preferred stock will accrue and
accumulate dividends at the reset rate
from the date of the change of control.
Voting Rights....................... Holders of the new preferred stock will
have limited voting rights, including:
. those required by law, and
. that holders of the outstanding shares
of new preferred stock, voting
together as a class, upon our failure:
. to pay dividends for six or more
dividend periods (whether or not
consecutive),
. to satisfy any mandatory
redemption or repurchase
obligation with respect to the new
preferred stock,
. to comply with the covenants
relating to the new preferred
stock, or
. to pay upon maturity or
acceleration indebtedness in
excess of $10 million,
will be entitled to elect the lesser
of
. two members to the board of
directors, and
. that number of directors
constituting 25% of the members of
the board of directors.
Restrictive Covenants............... The new preferred stock will limit:
. the incurrence of additional
indebtedness by us and our
subsidiaries,
. the payment of dividends and other
distributions by us and our
subsidiaries on capital stock,
. investments or other restricted
payments by us and our subsidiaries,
. asset sales and asset swaps,
5
<PAGE>
. transactions with affiliates,
. the sale or issuance of capital stock
of our subsidiaries, and
. mergers and consolidations.
The new preferred stock will also
prohibit restrictions on distributions
from our subsidiaries. All these
limitations and prohibitions are subject
to a number of important qualifications.
Senior Debt Restrictions............ Our debt instruments, including the 12%
notes indenture governing our 12% notes
due 2004 and our bank credit facility,
contain provisions which restrict, and in
the event of a default prohibit,
redemption or repurchase of the new
preferred stock, including upon a change
of control or through the issue of
exchange debentures, and the payment of
cash dividends on the new preferred
stock.
Exchange Feature.................... On any scheduled dividend payment date,
we have the option to exchange all but
not less than all the shares of new
preferred stock then outstanding for
exchange debentures in a principal amount
equal to the liquidation preference of
the shares of new preferred stock held by
such holder at the time of such exchange.
Book-Entry, Delivery and Form....... We will initially offer the new preferred
stock in book-entry form through the
Depository Trust Company.
Use of Proceeds..................... Radio One intends to use the net proceeds
of this offering and the common stock
offering to:
. repay amounts under our bank credit
facility which will increase debt
capacity for pending acquisitions;
. partially fund pending acquisitions;
. repay amounts borrowed to fund our
acquisition of WYCB-AM in Washington,
D.C.;
. redeem all of our existing preferred
stock; and
. increase our working capital.
The Exchange Debentures:
Securities Offered.................. % subordinated exchange debentures due
June 30, 2011 issuable in exchange for
the new preferred stock in an aggregate
principal amount equal to the sum of the
liquidation preference of the new
preferred stock, plus accumulated and
unpaid dividends to the date of exchange.
Maturity ........................... June 30, 2011.
6
<PAGE>
Interest............................ The exchange debentures will bear
interest at an annual rate of %,
payable semi-annually in arrears on
June 30 and December 31, beginning with
the first of such dates to occur after
the date of exchange. On or prior to June
30, 2004, we have the option to pay
interest by issuing additional exchange
debentures with a principal amount equal
to such interest. After June 30, 2004, we
must pay interest on the exchange
debentures in cash.
Ranking.............................
The exchange debentures will be general
unsecured obligations, subordinated in
right of payment to all of our existing
and future senior debt (including our 12%
notes due 2004). As of December 31, 1998,
after giving effect to this offering, we
would have had $137.6 million of
outstanding debt, all of which would have
been senior in right of payment to the
exchange debentures.
Optional Redemption.................
The exchange debentures will not be
redeemable prior to June 30, 2004, except
that, until June 30, 2002, we have the
option to redeem the exchange debentures,
in whole but not in part, at a redemption
price of % of their principal amount,
plus accrued and unpaid interest to the
date of redemption, with the net proceeds
of one or more public equity offerings.
On or after July 1, 2004, we have the
option to redeem the exchange debentures,
in whole or in part, at the redemption
prices described below, plus accrued and
unpaid interest to the date of
redemption.
Change of Control................... In the event of a change of control,
holders of the exchange debentures will
have the right to require us to purchase
their exchange debentures, in whole or in
part, at a price equal to 101% of their
aggregate principal amount, plus accrued
and unpaid interest to the date of
purchase.
Restrictive Covenants............... The exchange indenture governing the
exchange debentures will limit:
. the incurrence of additional
indebtedness by us and our
subsidiaries,
. the payment of dividends and other
distributions by us and our
subsidiaries on capital stock,
. investments or other payments by us
and our subsidiaries,
. asset sales and asset swaps,
. transactions with affiliates,
7
<PAGE>
. the sale or issuance of capital stock
of our subsidiaries, and
. mergers and consolidations.
The exchange indenture will also prohibit
restrictions on distributions from our
subsidiaries. All these limitations and
prohibitions are subject to a number of
important qualifications.
8
<PAGE>
Summary Historical and Pro Forma Consolidated Financial Data
The following table contains summary historical financial information
derived from the audited consolidated financial statements 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 consolidated financial statements of Radio One included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
----------------------------------------------------
Historical 1998 Pro Forma
----------------------------- ---------------------
Completed As
1996 1997 1998 Transactions Adjusted
--------- --------- --------- ------------ --------
(audited) (audited) (audited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue..... $23,702 $32,367 $ 46,109 $ 60,828 $ 73,043
Station operating ex-
penses................... 13,927 18,848 24,501 34,118 42,135
Corporate expenses........ 1,793 2,155 2,800 3,213 3,213
Depreciation and amortiza-
tion..................... 4,262 5,828 8,445 15,570 20,910
------- ------- -------- -------- --------
Operating income........ 3,720 5,536 10,363 7,927 6,785
Interest expense.......... 7,252 8,910 11,455 16,603 14,638
Other income (expense),
net...................... (77) 415 358 329 451
Income tax benefit (ex-
pense)................... -- -- 1,575 2,480 2,060
------- ------- -------- -------- --------
Income (loss) before ex-
traordinary item....... $(3,609) $(2,959) $ 841 $ (5,867) $ (5,342)
======= ======= ======== ======== ========
Loss applicable to
common stockholders
before extraordinary
item................... $(3,609) $(4,996) $ (2,875) $ (9,583) $(11,128)
======= ======= ======== ======== ========
Earnings per common share:
Basic and diluted....... $ (.38) $ (.53) $ (.31) $ (.76) $ (.65)
Weighted average common
shares outstanding:
Basic and diluted....... 9,392 9,392 9,392 12,670 17,026
Other Data:
Broadcast cash flow....... $ 9,775 $13,519 $ 21,608 $ 26,710 $ 30,908
Broadcast cash flow mar-
gin...................... 41.2% 41.8% 46.9% 43.9% 42.3%
EBITDA (before non-cash
compensation expense).... $ 7,982 $11,364 $ 18,808 $ 23,791 $ 27,989
After-tax cash flow....... 806 2,869 7,248 7,517 13,802
Cash interest expense..... 4,815 4,413 7,192 12,731 10,766
Accreted preferred stock
dividends ............... -- 2,037 3,716 3,716 5,786
Capital expenditures...... 252 2,035 2,236 3,921 4,534
Ratio of earnings to combined fixed charges and preferred stock divi-
dends*.............................................................. 0.4x
Ratio of total debt to EBITDA (before non-cash compensation expense)
.................................................................... 4.9x
Ratio of EBITDA (before non-cash compensation expense) to interest
expense ............................................................ 1.9x
Ratio of EBITDA (before non-cash compensation expense) to cash inter-
est expense ........................................................ 2.6x
Balance Sheet Data (at pe-
riod end):
Cash and cash equivalents..................... $ 4,455 $ 1,466 $ 2,000
Intangible assets, net........................ 127,639 176,786 257,119
Total assets.................................. 153,856 204,717 289,451
Total debt (including current portion and de-
ferred interest)............................. 131,739 148,176 137,594
Preferred stock............................... 26,684 26,684 50,000
Total stockholders' equity (deficit).......... (24,859) 8,376 80,376
</TABLE>
- --------
* Earnings were insufficient to cover combined fixed charges and preferred
stock dividends for the fiscal years ended December 31, 1996, 1997 and 1998
by approximately $3.6 million, $5.0 million, and $4.5 million, respectively,
and on a pro forma as adjusted basis for the year ended December 31, 1998, by
approximately $13.2 million. To date, we have not paid any dividends on our
existing preferred stock.
9
<PAGE>
. The pro forma amounts for the year ended December 31, 1998, in the
column "Completed Transactions" are adjusted to give effect to the
following acquisitions as if they had occurred as of the beginning of
the period:
-- Bell Broadcasting Company;
-- Allur-Detroit, Inc.;
-- Radio One of Atlanta, Inc.; and
-- Dogwood Communications, Inc. (by Radio One of Atlanta, Inc.).
. The pro forma amounts for the year ended December 31, 1998, in the
column "As Adjusted" are adjusted to give effect to the completed
transactions described above and the following pending acquisitions and
other transactions as if they had occurred as of the beginning of the
period:
-- the pending acquisitions:
. assets of WFUN-FM in St. Louis (pro forma balance sheet only);
. WENZ-FM and WERE-AM in Cleveland;
. WDYL-FM in Richmond;
. WKJS-FM and WSOJ-FM in Richmond; and
. WJRV-FM, WCDX-FM, WPLZ-FM and WGCV-AM in Richmond.
-- this offering;
-- the common stock offering;
-- the redemption of all of our existing preferred stock; and
-- the repayment of debt.
. The pro forma balance sheet data are adjusted to give effect to the
transactions described above as if they had occurred on December 31,
1998.
10
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in shares of new preferred stock
of Radio One.
Substantial Debt - Due to high principal and interest payments, our
substantial level of debt could limit our ability to grow and compete.
As of December 31, 1998, after giving effect to the transactions described
under "Unaudited Pro Forma Consolidated Financial Information" as if they had
occurred on that date, we would have had outstanding total debt of $137.6
million (including $59.0 million bearing interest at variable rates), all of
which would rank senior to the new preferred stock and exchange debentures,
and stockholders' equity of $80.4 million. For the year ended December 31,
1998, on the same basis, our earnings would have been insufficient to cover
our combined fixed charges and preferred stock dividends by $13.2 million. In
addition, the 12% notes indenture, our certificate of incorporation (which
governs the new preferred stock) and the exchange indenture (which will govern
the exchange debentures) limit but do not prohibit us from incurring
substantial additional debt in the future.
We have experienced and will experience a substantial increase in
indebtedness and in debt payment and dividend obligations, and we are and will
continue to be subject to significant financial restrictions and limitations.
We cannot assure you that we will be able to successfully implement our
operating strategy or to generate sufficient cash flow from operating
activities to meet debt payment and dividend obligations, including
obligations under the bank credit facility, 12% notes due 2004, the new
preferred stock and the exchange debentures.
Our substantial level of indebtedness could adversely affect us for various
other reasons, including limiting our ability to:
. obtain additional financing for working capital, capital expenditures,
acquisitions 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.
Refinancing Risk - If we are unable to refinance our existing debt before it
matures, we could default on that debt while the new preferred stock is
outstanding.
We will need to refinance our debt under the bank credit facility and the
12% notes due 2004 at their respective maturities. We may also need to finance
our mandatory redemption obligations under our new preferred stock. Our
ability to do so will depend on, among other things, our financial condition
at the time, the restrictions in the instruments governing our debt and
factors, including market conditions, beyond our control. The bank credit
facility matures in 2003 and the 12% notes due 2004 mature in 2004. We must
redeem the new preferred stock at a redemption price of 100% of its
liquidation preference plus unpaid dividends in 2011.
If we cannot refinance any of this debt, it may cause us to default under
the terms of our debt. In addition, if we do not generate sufficient cash flow
to meet our debt service requirements or obligations with respect to the new
preferred stock, we may need additional financing. We cannot assure you that
we could obtain financing or refinancing on terms that are acceptable to us,
if at all.
Subordination
- The shares of new preferred stock are junior securities, subordinate to
all of our debt and other liabilities.
The new preferred stock ranks junior to all of our present and future debt
and other liabilities, and senior to all classes of our common stock. In the
event of our bankruptcy, liquidation or reorganization,
11
<PAGE>
our assets will be available to pay obligations on the new preferred stock only
after all of our outstanding debt and other liabilities have been paid in full,
and there may not be sufficient assets remaining to pay amounts payable on the
new preferred stock. The new preferred stock also effectively ranks junior to
all liabilities, including indebtedness, of our subsidiaries. Our certificate
of incorporation permits us to issue additional new preferred stock as
dividends and to issue other additional preferred stock, subject to
limitations.
- The exchange debentures would be subordinated to all of our existing and
future senior debt.
The exchange debentures, if issued, will be general unsecured obligations,
subordinated in right of payment to all of our existing and future senior debt,
including our bank credit facility and 12% notes due 2004. The payment of the
principal of, premium (if any) and interest on the exchange debentures is
subordinate in right of payment to the prior payment in full of all existing
and future senior debt, including senior subordinated debt. We may not make any
payments of interest or principal on or for the purchase, redemption or other
acquisition of exchange debentures following the maturity of any senior debt
until such senior debt is paid in full in cash. We also may not make any
payments on the account of the exchange debentures or on account of the
purchase or redemption or other acquisition of exchange debentures if a default
in the payment of senior debt has occurred. In addition, if any default (other
than a payment default) with respect to any designated senior debt permitting
the holders to accelerate the maturity has occurred and we receive written
notice of that default, we may not make any payments on account of the exchange
debentures or on account of the purchase or redemption or other acquisition of
exchange debentures for a period of up to 180 days. Upon any payment or
distribution of our assets upon liquidation, dissolution, reorganization,
insolvency, or any similar proceeding, the holders of senior debt will be
entitled to receive prior payment in full in cash before the holders of the
exchange debentures are entitled to receive any payment.
The exchange debentures permit us to issue as interest additional exchange
debentures which rank equally with the originally issued exchange debentures.
In addition, our obligations under the bank credit facility will be secured by
a security interest in our assets. In the event of a default under the bank
credit facility, or a bankruptcy, liquidation or reorganization of Radio One,
the lenders will have a prior, secured claim on our assets.
Dividend Restrictions - Existing and future agreements and Delaware law may
prohibit payment of cash dividends on the new preferred stock.
We currently intend to retain earnings, if any, to support our operating
strategy and do not anticipate paying cash dividends on our new preferred stock
in the foreseeable future. Until June 30, 2004, we have the option to pay
dividends on new preferred stock by the issuance of additional shares of new
preferred stock having an aggregate liquidation preference equal to the amount
of such dividends. Under the bank credit facility and the 12% notes indenture,
we may pay cash dividends and make other distributions on or in respect of our
capital stock, including the new preferred stock, only if specified financial
tests are met.
Currently, the restrictions contained in the 12% notes indenture and the bank
credit facility limit our ability to pay cash dividends and issue exchange
debentures in exchange for new preferred stock. We cannot assure you that our
existing or future financing arrangements will permit us to pay cash dividends
on the new preferred stock beginning December 31, 2004. In the event that any
of our financing agreements limit our ability to pay cash dividends on the new
preferred stock when required, we will need to obtain waivers of the limitation
or to refinance amounts outstanding under such agreements to make such dividend
payments. We cannot assure you that we would be able to obtain waivers or to
refinance amounts outstanding under such agreements.
In addition to the limitations imposed on the payment of dividends by the
bank credit facility and the 12% notes indenture, under Delaware law we are
permitted to pay dividends on our capital stock, including the new preferred
stock, only out of our surplus or, in the event that we have no surplus, out of
our net profits for the fiscal year in which a dividend is declared and/or for
the preceding fiscal year. Surplus is defined as the
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<PAGE>
excess of a company's total assets over the sum of its total liabilities plus
the par value of its outstanding capital stock. In order to pay dividends in
cash, we must have surplus or net profits equal to the full amount of the cash
dividend at the time such dividend is declared.
In determining our ability to pay dividends, Delaware law permits our board
of directors to revalue our assets and liabilities from time to time to their
fair market values in order to create surplus. We cannot predict what the value
of our assets or the amount of our liabilities will be in the future and,
accordingly, we cannot assure you that we will be able to pay cash dividends on
the new preferred stock.
Restrictions Imposed by Our Debt and Certificate of Incorporation - The terms
of our debt and our certificate of incorporation restrict us from engaging in
many activities and require us to satisfy various financial tests.
Our bank credit facility, the agreements governing our other outstanding
debt and our certificate of incorporation 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 banks 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 or to pay dividends on, or to
redeem the new preferred stock.
History of Net Losses - If we have losses in the future, the market price of
the new preferred stock and our ability to raise capital could be adversely
affected.
We cannot be certain that we will achieve or sustain profitability. Failure
to achieve 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. After giving effect to the transactions
described under "Unaudited Pro Forma Consolidated Financial Information," as if
they had occurred on January 1, 1998, we had net losses of $5.3 million for the
year ended December 31, 1998.
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 Ms.
Catherine L. Hughes, Mr. 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.
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<PAGE>
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 30 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;
. 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 and the common stock offering, Ms.
Catherine L. Hughes and her son, Mr. Alfred C. Liggins, III, will collectively
hold approximately seventy-two percent (seventy-one percent if the underwriters
exercise their over-allotment option with respect to the common stock offering)
of the 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.
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<PAGE>
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 at the end of 1998, our radio
stations in Washington, D.C. and Baltimore collectively accounted for 62.9% and
70.0% of our net broadcast revenue and broadcast cash flow, respectively, for
the year ended December 31, 1998, adjusted to include 1998 results of stations
acquired between January 1, 1998 and March 31, 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
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. The filing of petitions or complaints
against Radio One or any FCC licensee from which 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 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 announced new procedures to review
proposed radio broadcasting transactions even if the proposed acquisition
otherwise complies with the FCC's ownership limitations. In particular, the FCC
may invite public comment on proposed radio transactions that the FCC believes,
based on its initial analysis, may present ownership concentration concerns in
a particular local radio market.
Limitation on Change of Control Repurchase - We may not be able to repurchase
the new preferred stock or exchange debentures as required upon a change of
control.
In the event of a change of control, we must offer to purchase all
outstanding shares of new preferred stock, in whole or in part, at a purchase
price equal to 101% of their aggregate liquidation preference, plus
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<PAGE>
accumulated and unpaid dividends to the date of purchase. Under the terms of
our existing debt, we are prohibited from making this offer.
In the event we are not permitted by applicable law or by the terms of our
debt to make the offer referred to above or to purchase any shares of new
preferred stock, we will designate an independent financial advisor to
determine the appropriate dividend rate that the new preferred stock should
bear so that, after the dividend rate on the new preferred stock is reset, the
new preferred stock would have a market value of 101% of its liquidation
preference.
In the event of a change of control, holders of the exchange debentures will
have the right to require us to purchase their exchange debentures, in whole or
in part, at a price equal to 101% of their aggregate principal amount, plus
accrued and unpaid interest to the date of purchase.
The bank credit facility and the 12% notes indenture prohibit us from
prepaying the new preferred stock or the exchange debentures, including
required prepayments following a change of control. Prior to commencing an
offer to purchase the exchange debentures, we would be required to:
. repay in full all indebtedness that would prohibit the repurchase of the
exchange debentures, including indebtedness under the bank credit
facility and the 12% notes indenture, or
. obtain any consents required to permit the repurchase.
If we are unable to repay all of such indebtedness or are unable to obtain
the necessary consents, then we will be unable to offer to repurchase the
exchange debentures, resulting in an event of default under our exchange
indenture. We cannot assure you that we will have enough funds available at the
time of any change of control offer to make any required repurchases, including
repurchases of new preferred stock or the exchange debentures, as described
above.
The events that constitute a change of control under our certificate of
incorporation or our exchange indenture, as the case may be, may also be events
of default under the bank credit facility and the 12% notes indenture or our
other indebtedness. These events may permit the lenders to declare the debt due
and payable and, if the debt is not paid, to require that we or our
subsidiaries sell assets that secure the debt in order to repay the lenders. In
that event, our ability to raise cash to repurchase the new preferred stock or
the exchange debentures, as the case may be, would be limited and would reduce
the practical benefit of the offer to purchase provisions to the holders of the
new preferred stock or the exchange debentures.
Subsidiaries Not Obligated - Our subsidiaries have no obligation with respect
to the new preferred stock or the exchange debentures.
Our subsidiaries are separate legal entities that have no obligation to pay
any amounts due with respect to the new preferred stock or the exchange
debentures or to make any funds available to us. As a result, if any of our
subsidiaries liquidate their assets, the claims of the creditors of such
subsidiary, including trade creditors and holders of indebtedness will come
before our right to any of the proceeds, and the consequent right of the
holders of the new preferred stock or the exchange debentures to participate in
the distribution or realize proceeds from those assets.
While we have no intention of transferring operating assets to our
subsidiaries, except in the ordinary course of business, there is no
restriction on our ability to transfer all of our assets to our restricted
subsidiaries, thereby becoming a holding company whose only assets consist of
the capital stock of its subsidiaries.
No Public Market for the New Preferred Stock - A trading market for the new
preferred stock may not develop, and investors may not be able to dispose of
their shares.
There is no established trading market for the new preferred stock. One or
more of the underwriters intends to make a secondary market for the new
preferred stock. However, they are not obligated to do so and
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<PAGE>
may discontinue making a secondary market for the new preferred stock at any
time without notice. In addition, we do not intend to apply to have the new
preferred stock or the exchange debentures listed on any securities exchange or
other quotation system. Accordingly, we cannot provide you any assurance
regarding the development or liquidity of any market for the new preferred
stock, or if issued, the exchange debentures.
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 ratio 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 revenues.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that have been made
pursuant to the provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are not historical facts, but rather are
based on our current expectations, estimates and projections about Radio One's
industry, our beliefs and assumptions. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions
are intended to identify forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks,
uncertainties and other factors, some of which are beyond our control, are
difficult to predict and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements. These risks
and uncertainties are described in "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.
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<PAGE>
USE OF PROCEEDS
The net proceeds from this offering to Radio One, after deducting
underwriting discounts and commissions and estimated offering expenses, are
estimated to be approximately $47.9 million. The net proceeds from this
offering, together with the net proceeds from the common stock offering, will
be used as set forth below. Pending these uses, the net proceeds from this
offering may be temporarily invested in short-term, interest-bearing,
investment-grade securities. The following table sets forth the estimated
sources and uses of funds for the transactions described above as of March 31,
1999:
<TABLE>
<CAPTION>
Amount
--------------
(in thousands)
<S> <C>
Sources:
Net proceeds from this offering......................... $ 47,900
Net proceeds from the common stock offering............. 74,600
--------
Total sources......................................... $122,500
========
Uses:
Repayment of amounts borrowed under the bank credit
facility............................................... $ 72,000
Redemption of all of our existing preferred stock....... 27,700
Increase working capital and partially fund pending
acquisitions........................................... 18,900
Repayment of WYCB acquisition loan...................... 3,900
--------
Total uses............................................ $122,500
========
</TABLE>
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<PAGE>
CAPITALIZATION
The table below sets forth our capitalization as of December 31, 1998, on an
actual basis, on a pro forma basis giving effect to the acquisitions identified
in the first bullet below, and on a pro forma as adjusted basis giving effect
to those acquisitions and the transactions identified in the second bullet
below. The actual amounts give effect to the following 1999 capital
transactions as if they had occurred as of December 31, 1998: the 34,060 for
one stock split of common stock, the exchange of certain shares of class A
common stock for shares of class B and class C common stock, the issuance of
common stock upon the exercise of the warrants, and the issuance of common
stock to an employee.
. The column "Pro forma for Completed and Pending Transactions" gives
effect to the acquisition of:
-- Radio One of Atlanta, Inc. ("ROA");
-- Dogwood Communications, Inc. ("Dogwood") by ROA;
-- the assets of WFUN-FM in St. Louis;
-- WENZ-FM and WERE-AM in Cleveland;
-- WDYL-FM in Richmond ("Richmond I");
-- WKJS-FM and WSOJ-FM in Richmond ("Richmond II"); and
-- WJRV-FM, WCDX-FM, WPLZ-FM and WGCV-AM in Richmond ("Richmond III").
. The column "Pro Forma as Adjusted" gives effect to:
-- the above transactions;
-- this offering;
-- the offering of $80.6 million of class A common stock;
-- the redemption of all of our existing preferred stock; and
-- the repayment of debt.
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<PAGE>
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 December 31, 1998
-----------------------------------
Pro Forma
for
Completed
and Pending Pro Forma
Actual Transactions as Adjusted
--------- ------------ -----------
(audited) (unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents.............. $ 4,455 $ (82,734) $ 2,000
======== ========= ========
Long-term debt (including current
portion):
Bank credit facility................. $ 49,350 $ 65,787 $ 59,046
12% senior subordinated notes due May
15, 2004............................ 78,458 78,458 78,458
WYCB acquisition debt................ 3,841 3,841 --
Other long-term debt................. 90 90 90
-------- --------- --------
Total debt......................... 131,739 148,176 137,594
-------- --------- --------
Senior cumulative redeemable preferred
stock:
Series A, $0.01 par value, 140,000
shares authorized,
84,843 shares, 84,843 shares, and no
shares issued and outstanding....... 10,816 10,816 --
Series B, $0.01 par value, 150,000
shares authorized,
124,467 shares, 124,467 shares, and
no shares issued and outstanding.... 15,868 15,868 --
New preferred stock, $0.01 par value,
90,000 shares authorized, no shares,
no shares and 50,000 shares issued
and outstanding..................... -- -- 50,000
-------- --------- --------
Stockholders' equity (deficit):
Class A common stock, $0.01 par
value, 30,000,000 shares authorized,
33,716 shares, 6,601,841 shares and
10,957,771 shares issued and
outstanding, respectively........... -- 66 110
Class B common stock, $0.01 par
value, 30,000,000 shares authorized,
1,560,969 shares, 2,873,084 shares
and 2,873,084 shares issued and
outstanding, respectively........... 16 29 29
Class C common stock, $0.01 par
value, 30,000,000 shares authorized,
3,120,915 shares, 3,195,064 shares
and 3,195,064 shares issued and
outstanding, respectively........... 31 32 32
Additional paid-in capital........... -- 33,155 105,111
Accumulated deficit.................. (24,906) (24,906) (24,906)
-------- --------- --------
Total stockholders' equity
(deficit)......................... (24,859) 8,376 80,376
-------- --------- --------
Total capitalization............. $133,564 $183,236 $267,970
======== ========= ========
</TABLE>
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<PAGE>
RECENT AND PENDING TRANSACTIONS
ACQUISITIONS
We have acquired or agreed to acquire 17 radio stations since January 1,
1998. 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 three to eight. See "Business" for a more detailed
description of the following transactions.
The table below sets forth information regarding each of the recently
completed or pending acquisitions as of March 31, 1999.
<TABLE>
<CAPTION>
No. of Approximate Date
Market Stations Call Letters Purchase Price Completed
------ -------- ------------ -------------- ---------
(in millions)
<S> <C> <C> <C> <C>
Completed Transactions
Washington, D.C.
(Broadcast Holdings,
Inc.)................... 1 WYCB-AM $ 3.8 3/98
Detroit/Kingsley (Bell
Broadcasting Company)... 3 WDTJ-FM 34.2 6/98
WCHB-AM
WJZZ-AM
Detroit (Allur-Detroit,
Inc.)................... 1 WWBR-FM 26.5 12/98
Atlanta (ROA and
Dogwood)................ 2 WHTA-FM (1) 3/99
WAMJ-FM
--- ------
Subtotal................. 7 64.5(/2/)
--- ------
Pending Transactions
St. Louis................ 1 WFUN-FM 13.6 --
Cleveland................ 2 WENZ-FM 20.0 --
WERE-AM
Richmond I............... 1 WDYL-FM 4.6 --
Richmond II.............. 2 WKJS-FM 12.0 --
WSOJ-FM
Richmond III............. 4 WJRV-FM 34.0 --
WCDX-FM
WPLZ-FM
WGCV-AM
--- ------
Subtotal................. 10 84.2
--- ------
Total.................... 17 $148.7(/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
Washington, D.C.--WYCB-AM Acquisition
On March, 16, 1998, Radio One acquired, through an Unrestricted Subsidiary,
Broadcast Holdings, Inc. ("BHI"), the owner of WYCB-AM, for approximately $3.8
million. Following this acquisition, we integrated the operations of WYCB-AM
into our existing radio station operations in Washington, D.C.
Detroit--Bell Broadcasting Acquisition
On June 30, 1998, Radio One acquired Bell Broadcasting Company ("Bell
Broadcasting") for approximately $34.2 million in cash. Bell Broadcasting owns
three radio stations, WDTJ-FM (formerly
21
<PAGE>
WCHB-FM) and WCHB-AM, located in the Detroit, Michigan market, and WJZZ-AM,
located in Kingsley, Michigan.
Detroit--Allur-Detroit Acquisition
On December 28, 1998, Radio One acquired Allur-Detroit, Inc. ("Allur-
Detroit"), owner of WWBR-FM, for approximately $26.5 million in cash. Allur-
Detroit's stockholders included Syndicated Communications Venture Partners II,
L.P. ("Syncom Venture Partners"), which is an affiliate of one of Radio One's
stockholders, Syncom Capital Corporation ("Syncom").
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."
Pending Transactions
St. Louis--WFUN-FM Acquisition
On November 23, 1998, Radio One entered into an asset purchase agreement to
acquire the assets of WFUN-FM, licensed to Bethalto, Illinois, for
approximately $13.6 million in cash. We expect to move WFUN-FM to a broadcast
tower site closer to downtown St. Louis, reformat the station and upgrade its
signal from 6 kW to 25 kW. We expect this acquisition to close during the
second quarter of 1999.
Cleveland--WENZ-FM and WERE-AM Acquisition
On March 29, 1999, Radio One entered into an asset purchase agreement to
acquire WENZ-FM and WERE-AM, both of which are licensed to Cleveland, Ohio, for
approximately $20.0 million in cash. We expect this acquisition to close by the
end of the third quarter of 1999.
Richmond--WDYL-FM Acquisition, WKJS-FM and WSOJ-FM Acquisition and WJRV-FM,
WCDX-FM, WPLZ-FM and WGCV-AM Acquisition
On February 10, 1999, Radio One entered into an asset purchase agreement to
acquire WDYL-FM, licensed to Chester, Virginia, for approximately $4.6 million
in cash. We expect this acquisition to close by the end of the third quarter of
1999.
On February 26, 1999, Radio One entered into an asset purchase agreement to
acquire WKJS-FM, licensed to Crewe, Virginia, and WSOJ-FM, licensed to
Petersburg, Virginia, for approximately $12.0 million in cash, subject to
purchase price adjustments. We expect this acquisition to close by the end of
the third quarter of 1999.
Pursuant to a letter of intent dated February 23, 1999, on April , 1999,
Radio One entered into an asset purchase agreement 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 expect to operate these
stations under an LMA beginning in June 1999 and to complete the acquisition no
later than the second half of 2000.
22
<PAGE>
FINANCINGS
Common Stock Offering and Redemption
Concurrent with this offering, we and our selling stocholders intend to sell
$114.7 million of class A common stock. The common stock offering is being made
by a separate prospectus. We intend to use the net proceeds to us from the
common stock offering to repay amounts under our bank credit facility which
will increase debt capacity for pending acquisitions, to partially fund pending
acquisitions and to increase our working capital. See "Use of Proceeds" and
"Description of Capital Stock."
Credit Agreement
On February 26, 1999, we entered into an amended and restated credit
agreement under which we may borrow up to $100 million on a revolving basis
from a group of banking institutions, subject to financial ratio restrictions.
See "Description of Indebtedness."
23
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements (the
"Pro Forma Consolidated Financial Statements") are based on the historical
Consolidated Financial Statements of Radio One included elsewhere in this
prospectus, adjusted to give effect to the following:
The pro forma amounts for the year ended December 31, 1998, in the column
"Completed Transactions" are adjusted to give effect to the following completed
acquisitions as if they had occurred as of January 1, 1998:
. Bell Broadcasting;
. Allur-Detroit;
. ROA; and
. Dogwood by ROA.
The pro forma amounts for the year ended December 31, 1998, in the column
"Completed and Pending Transactions" are adjusted to give effect to the
completed transactions described above and to the following pending
acquisitions as if they had occurred as of January 1, 1998:
. the assets of WFUN-FM in St. Louis (pro forma balance sheet only);
. WENZ-FM and WERE-AM in Cleveland;
. WDYL-FM in Richmond;
. WKJS-FM and WSOJ-FM in Richmond; and
. WJRV-FM, WCDX-FM, WPLZ-FM and WGCV-AM in Richmond.
The pro forma amounts in the column "As Adjusted" are further adjusted to
give effect to the pending and completed transactions described above and to
the following transactions as if they had occurred as of January 1, 1998:
. this offering;
. the redemption of all of our existing preferred stock;
. the common stock offering; and
. the repayment of debt.
The pro forma balance sheet data are adjusted to give effect to the
transactions described above as if they had occurred on December 31, 1998.
The Unaudited Pro Forma Consolidated Statements of Operations and Other Data
gives effect to these transactions as if they had occurred as of January 1,
1998, and the Unaudited Pro Forma Consolidated Balance Sheet gives effect to
these transactions as if they had occurred as of December 31, 1998. 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 acquisitions of the assets of WFUN-FM in St. Louis, and the
operations of the stations in Cleveland and 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
24
<PAGE>
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.
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 Transactions and Pending Offerings 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 $14,719 $60,828 $12,215 $ 73,043 $ -- $ 73,043
Station operating
expenses............... 24,501 9,617 34,118 8,017 42,135 -- 42,135
Corporate expenses...... 2,800 413 3,213 -- 3,213 -- 3,213
Depreciation and
amortization........... 8,445 7,125 15,570 5,340 20,910 -- 20,910
------- ------- ------- ------- -------- ------ --------
Operating income....... 10,363 (2,436) 7,927 (1,142) 6,785 6,785
Interest expense........ 11,455 5,148 16,603 5,613 22,216 (7,578)(d) 14,638
Other income (expense),
net.................... 358 (29) 329 122 451 451
Income tax benefit
(expense).............. 1,575 905 2,480 2,450 4,930 (2,870)(e) 2,060
------- ------- ------- ------- -------- ------ --------
Net income (loss)...... $ 841 $(6,708) $(5,867) $(4,183) $(10,050) $4,708 $ (5,342)
======= ======= ======= ======= ======== ====== ========
Net loss applicable to
common stockholders... $(2,875) $(9,583) $(13,766) $(11,128)
======= ======= ======== ========
Earnings per common
share:
Basic and diluted...... $ (.31) $ (.76) $ (1.09) (.65)
Weighted average common
shares outstanding:
Basic and diluted...... 9,392 12,670 12,670 17,026
Other Data:
Broadcast cash flow(f).. $21,608 $26,710 $ 30,908 $ 30,908
Broadcast cash flow
margin(g).............. 46.9% 43.9% 42.3% 42.3%
EBITDA (before non-cash
compensation
expense)(f)............ $18,808 $23,791 $ 27,989 $ 27,989
After-tax cash flow(f).. 7,248 7,517 6,224 13,802
Cash interest
expense(h)............. 7,192 12,731 18,344 10,766
Accreted preferred stock
dividends.............. 3,716 3,716 3,716 5,786(i)
Capital expenditures.... 2,236 3,921 4,534 4,534
Ratio of earnings to combined fixed charges and preferred stock dividends(j)................................. 0.4x
Ratio of total debt to EBITDA (before non-cash compensation expense)......................................... 4.9x
Ratio of EBITDA (before non-cash compensation expense) to interest expense................................... 1.9x
Ratio of EBITDA (before non-cash compensation expense) to cash interest expense.............................. 2.6x
</TABLE>
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 March 31, 1999 as if they had occurred
on January 1, 1998:
<TABLE>
<CAPTION>
Bell
Broadcasting Allur-Detroit ROA Pro Forma
Historical(/1/) Historical(/2/) Historical(/3/) Adjustments Total
--------------- --------------- --------------- ----------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue... $2,025 $ 2,854 $10,140 $ (300)(/4/) $14,719
Station operating
expenses............... 1,423 3,239 5,529 (574)(/5/) 9,617
Corporate expenses...... 663 336 667 (1,253)(/6/) 413
Depreciation and
amortization........... 63 194 896 5,972 (/7/) 7,125
------ ------- ------- ------- -------
Operating income
(loss)............... (124) (915) 3,048 (4,445) (2,436)
Interest expense........ 52 383 2,007 2,706 (/8/) 5,148
Other income (expense),
net.................... (28) (50) 7 42 (/9/) (29)
Income tax benefit
(expense).............. (14) -- (499) 1,418 (/10/) 905
------ ------- ------- ------- -------
Net income (loss)..... $ (218) $(1,348) $ 549 $(5,691) $(6,708)
====== ======= ======= ======= =======
</TABLE>
25
<PAGE>
- --------
(/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/To)reflect the elimination of the management fee paid by ROA to Radio One
for administrative services provided by Radio One.
(/5/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.
(/6/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, and 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.
(/7/To)record the additional depreciation and amortization expense that would
have been recognized if the Bell Broadcasting, Allur-Detroit, 20% of
Dogwood, and ROA acquisitions had occurred.
(/8/To)record interest expense on acquisition financing, calculated as follows:
<TABLE>
<S> <C>
Interest on Bell Broadcasting financing of $33,241 at 7.95% for
six months....................................................... $1,343
Amortization of Bell Broadcasting deferred financing costs of $651
over 5.5 years for six months.................................... 59
Less: Interest expense previously recorded by Bell Broadcasting... 52
Interest on Allur-Detroit purchase price of $26,500 at 7.95%...... 2,107
Amortization of Allur-Detroit deferred financing costs of $358
over 5 years..................................................... 72
Less: Interest expense previously recorded by Allur-Detroit....... 383
Interest on Dogwood purchase price of $3,500 at 7.95%............. 278
Interest on ROA's debt paid at the acquisition of $16,212 at
7.95%............................................................ 1,289
Less: Interest expense previously recorded by ROA................. 2,007
------
Pro forma adjustment............................................ $2,706
======
</TABLE>
(/9/To)eliminate tax penalties incurred by Bell Broadcasting that are not
expected to be incurred by Radio One on a going-forward basis.
(/10/To)record additional tax benefit related to additional loss as a result of
the acquisitions.
(c) The table below gives effect to the acquisitions pending as of March 31,
1999
<TABLE>
<CAPTION>
Cleveland Richmond I Richmond II Richmond III Pro Forma
Historical(/1/) Historical(/1/) Historical(/2/) Historical(/2/) Adjustments(/3/) Total
--------------- --------------- --------------- --------------- ---------------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue... $3,295 $400 $1,062 $7,458 $ -- $12,215
Station operating
expenses............... 1,979 368 1,002 4,668 -- 8,017
Corporate expenses...... -- 14 15 413 (442)(/4/) --
Depreciation and
amortization........... 811 4 416 648 3,461 (/5/) 5,340
------ ---- ------ ------ ------- -------
Operating income
(loss)............... 505 14 (371) 1,729 (3,019) (1,142)
Interest expense........ 600 -- 500 -- 4,513 (/6/) 5,613
Other income (expense),
net.................... 101 -- 21 -- -- 122
Income tax benefit
(expense).............. (2) (6) -- -- 2,458 (/7/) 2,450
------ ---- ------ ------ ------- -------
Net income (loss)..... $ 4 $ 8 $ (850) $1,729 $(5,074) $(4,183)
====== ==== ====== ====== ======= =======
</TABLE>
- --------
(/1/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.
(/2/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.
(/3/Historical)financial statements and pro forma adjustments related to the
St. Louis acquisition have not been included in this pro forma income
statement, because Radio One has determined that this acquisition is a
purchase of assets. Income statement activity would not be relevant,
because Radio One plans to take the current station off the air, reformat
the station, and move it to a new location.
26
<PAGE>
(/4/To)eliminate corporate management fees which would not be incurred by Radio
One.
(/5/To)record additional amortization of $3,461 for intangibles related to the
excess purchase price of $66,733 over 15 years, less the amortization
previously recorded by the acquired companies.
(/6/To)record interest expense, calculated as follows:
<TABLE>
<S> <C>
Total acquisition cost for Cleveland and Richmond I, II and III.. $70,600
=======
Interest expense on total acquisition cost at 7.95% for one
year.......................................................... $ 5,613
Less: Interest expense previously recorded by acquired
companies....................................................... 1,100
-------
Pro forma adjustment........................................... $ 4,513
=======
</TABLE>
(/7/)To record additional tax benefit related to additional loss as a result of
the acquisitions.
(d) To record the decrease in interest expense related to the use of proceeds
of this offering and the common stock offering, calculated as follows:
<TABLE>
<S> <C>
Proceeds of the common stock offering............................ $80,600
Proceeds of this offering........................................ 50,000
-------
Total.......................................................... 130,600
Less: Retirement of preferred stock.............................. 26,684
Less: Underwriting discounts and commissions, and offering cost
expenses........................................................ 8,600
-------
Subtotal....................................................... $95,316
=======
Pro forma adjustment............................................. $ 7,578
=======
</TABLE>
(e) To record the tax effect of the reduction in interest expense.
(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.
(i) The accreted preferred stock dividend is calculated based on an assumed
rate of 11%.
(j) For purposes of this calculation, earnings consist of income (loss) before
income taxes, extraordinary items and fixed charges without including any
activities relating to the acquisition of WYCB-AM, an Unrestricted
Subsidiary. Combined fixed charges consist of interest expense, including
the amortization of discounts on debt and the amortization of deferred
financing costs. Earnings were insufficient to cover combined fixed charges
for the fiscal year ended December 31, 1998, by approximately $4.5 million
and on a pro forma as adjusted basis for the year ended December 31, 1998,
by approximately $13.2 million. To date, we have not paid any dividends on
our existing preferred stock.
27
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
<TABLE>
<CAPTION>
As of December 31, 1998
-----------------------------------------------------------------------------------------------------
Pro Forma for
Completed Pro Forma for Pending Completed
Transactions Completed Transactions and Pending Offerings 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........ $ 4,455 $(2,989) $ 1,466 $(84,200) $(82,734) $ 84,734 (d) $ 2,000
Trade accounts
receivable, net.... 12,026 2,479 14,505 703 15,208 -- 15,208
Prepaid expenses
and other.......... 334 202 536 31 567 -- 567
Deferred taxes...... 826 164 990 -- 990 -- 990
-------- ------- -------- -------- -------- -------- --------
Total current
assets........... 17,641 (144) 17,497 (83,466) (65,969) 84,734 18,765
Property and
equipment, net...... 6,717 1,758 8,475 3,133 11,608 -- 11,608
Intangible assets,
net................. 127,639 49,147 176,786 80,333 257,119 -- 257,119
Deferred taxes....... -- 60 60 -- 60 -- 60
Other assets......... 1,859 40 1,899 -- 1,899 -- 1,899
-------- ------- -------- -------- -------- -------- --------
Total assets...... $153,856 $50,861 $204,717 $ -- $204,717 $ 84,734 $289,451
======== ======= ======== ======== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
and accrued
expenses........... $ 4,898 $ 1,189 $ 6,087 $ -- $ 6,087 $ -- $ 6,087
Income taxes
payable............ 143 -- 143 -- 143 -- 143
-------- ------- -------- -------- -------- -------- --------
Total current
liabilities...... 5,041 1,189 6,230 -- 6,230 -- 6,230
Bank credit
facility............ 49,350 16,437 65,787 -- 65,787 (6,741)(e) 59,046
12% notes due 2004... 78,458 -- 78,458 -- 78,458 -- 78,458
WYCB acquisition
debt................ 3,841 -- 3,841 -- 3,841 (3,841)(e) --
Other long-term
debt................ 90 -- 90 -- 90 -- 90
Deferred tax
liability........... 15,251 -- 15,251 -- 15,251 -- 15,251
-------- ------- -------- -------- -------- -------- --------
Total
liabilities...... 152,031 17,626 169,657 -- 169,657 (10,582) 159,075
-------- ------- -------- -------- -------- -------- --------
Existing preferred
stock:
Series A............ 10,816 -- 10,816 -- 10,816 (10,816)(f) --
Series B............ 15,868 -- 15,868 -- 15,868 (15,868)(f) --
New preferred
stock.............. -- -- -- -- -- 50,000 (f) 50,000
-------- ------- -------- -------- -------- -------- --------
26,684 -- 26,684 -- 26,684 23,316 50,000
-------- ------- -------- -------- -------- -------- --------
Stockholders' equity
(deficit):
Class A common
stock.............. -- 66 66 -- 66 44 (g) 110
Class B common
stock.............. 16 13 29 -- 29 29
Class C common
stock.............. 31 1 32 -- 32 32
Additional paid in
capital............ -- 33,155 33,155 -- 33,155 71,956 (g) 105,111
Accumulated
deficit............ (24,906) -- (24,906) -- (24,906) -- (24,906)
-------- ------- -------- -------- -------- -------- --------
Total
stockholders'
equity
(deficit)........ (24,859) 33,235 8,376 -- 8,376 72,000 80,376
-------- ------- -------- -------- -------- -------- --------
Total liabilities
and stockholders'
equity
(deficit)........ $153,856 $50,861 $204,717 $ -- $204,717 $ 84,734 $289,451
======== ======= ======== ======== ======== ======== ========
</TABLE>
28
<PAGE>
Footnotes for the Unaudited Pro Forma Consolidated Balance Sheet as of December
31, 1998
(a) See the Consolidated Financial Statements included elsewhere in this
prospectus.
(b) The table below gives effect to the acquisition of ROA, the retirement of
ROA's outstanding debt, the purchase of the remaining 20% of Dogwood and
the issuance of common stock related to the exercise of warrants and the
grant of common stock to an employee.
<TABLE>
<CAPTION>
As of December 31, 1998
---------------------------------------
ROA Pro Forma
Historical(/1/) Adjustments Total
--------------- ----------- -------
(in thousands)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....... $ 1,711 $(4,700)(/2/) $(2,989)
Trade accounts receivable, net.. 2,479 -- 2,479
Prepaid expenses and other...... 202 -- 202
Deferred taxes.................. 164 -- 164
------- ------- -------
Total current assets.......... 4,556 (4,700) (144)
Property and equipment, net....... 1,758 -- 1,758
Intangible assets, net............ 10,867 38,280 (/3/) 49,147
Deferred taxes.................... 60 -- 60
Other assets...................... 40 -- 40
------- ------- -------
Total assets.................. $17,281 $33,580 $50,861
======= ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Account payable and accrued
expenses....................... $ 1,189 $ -- $ 1,189
Current portion of long-term
debt........................... 327 (327)(/4/) --
------- ------- -------
Total current liabilities..... 1,516 (327) 1,189
Long-term debt and deferred
interest......................... 15,525 912 (/4/) 16,437
------- ------- -------
Total liabilities............. 17,041 585 17,626
------- ------- -------
Stockholders' Equity (Deficit):
Common stock.................... 10 70 (/5/) 80
Additional paid in capital...... 1,390 31,765 (/5/) 33,155
Accumulated earnings (deficit).. (1,160) 1,160 (/5/) --
------- ------- -------
Total stockholders' equity ... 240 32,995 33,235
------- ------- -------
Total liabilities and
stockholders' equity ........ $17,281 $33,580 $50,861
======= ======= =======
</TABLE>
- --------
(1) See the Consolidated Financial Statements included elsewhere in this
prospectus.
(2) To reflect the $3,500 payment for the remaining 20% interest in Dogwood and
a $1,200 fee paid by ROA to a stockholder for arranging the acquisition.
(3) To reflect the acquisition of the remaining 20% interest in Dogwood for
$3,500 and the step up of the assets from the acquisition of ROA. Radio One
applied step up accounting to the portion of ROA owned by non-Radio One
stockholders and non-controlling stockholders of ROA. The portion of ROA
owned by the controlling stockholder of ROA and stockholder of Radio One
was accounted for based on historical cost. The valuation of ROA for
purposes of the step-up adjustment was based on Radio One's estimate of
ROA's value as of the date the parties agreed in principle to the
acquisition.
(4) To record the refinancing of ROA's outstanding debt of $15,852 plus
unamortized discount of $360 and deferred financing costs of $225 related
to the bank credit facility.
(5) To eliminate the stockholders' equity accounts of ROA, reflect the Radio
One common stock issued as part of the acquisition, record the increase to
additional paid in capital for the step up of the assets related to the ROA
acquisition, reduce net equity for the write-off of the unamortized
discount and deferred financing costs on ROA's debt and to record a $1,200
fee paid by ROA to a stockholder for arranging the acquisition. This
adjustment also includes the issuance of common stock upon the exercise of
warrants and the grant of common stock to an employee.
29
<PAGE>
(c) The table below gives effect to the pending transactions as of March 31,
1999 as if they had occurred on December 31, 1998.
<TABLE>
<CAPTION>
As of December 31, 1998
---------------------------------------------------------------------------------------------------------
Cleveland Richmond I Richmond II Richmond III St. Louis Acquisitions
Historical(/1/) Historical(/1/) Historical(/3/) Historical(/3/) Historical(/1/) Adjustments Total
--------------- --------------- --------------- --------------- --------------- ------------ --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents...... $ -- $ -- $ 34 $ 142 $ -- $(84,376)(/4/) $(84,200)
Trade accounts
receivable,
net.............. 315 62 326 1,400 -- (1,400)(/5/) 703
Prepaid expenses
and other........ -- -- -- 31 -- -- 31
------ ----- ------ ------ ------ -------- --------
Total current
assets......... 315 62 360 1,573 -- (85,776) (83,466)
Property and
equipment, net.... 825 27 1,079 1,202 -- -- 3,133
Intangible assets,
net............... 4,788 -- 3,343 3,692 -- 68,510 (/6/) 80,333
Other assets....... -- -- -- -- -- -- --
Deferred taxes..... -- -- -- -- -- --
------ ----- ------ ------ ------ -------- --------
Total assets.... $5,928 $ 89 $4,782 $6,467 $ -- $(17,266) $ --
====== ===== ====== ====== ====== ======== ========
LIABILITIES AND
STATION EQUITY
Current
Liabilities:
Accounts payable
and accrued
expenses......... $ -- $ -- $ 168 $ 566 $ -- $ (734)(/7/) $ --
Current portion
of long-term
debt............. -- -- 13 -- -- (13)(/7/) --
------ ----- ------ ------ ------ -------- --------
Total current
liabilities.... -- -- 181 566 -- (747)(/7/) --
Long-term debt and
deferred
interest.......... -- -- 5,049 -- -- (5,049)(/7/) --
------ ----- ------ ------ ------ -------- --------
Total
liabilities.... -- -- 5,230 566 -- (5,796) --
Station equity
(deficit)......... 5,928 89 (448) 5,901 -- (11,470)(/8/) --
------ ----- ------ ------ ------ -------- --------
Total
liabilities and
station equity
(deficit)...... $5,928 $ 89 $4,782 $6,467 $ -- $(17,266) $ --
====== ===== ====== ====== ====== ======== ========
</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) Historical financial statements related to the St. Louis acquisition have
not been included in this pro forma balance sheet because Radio One has
determined that this acquisition is a purchase of the license only.
(3) See Financial Statements included elsewhere in this prospectus.
(4) To reflect the cash paid by Radio One of $84,200 for the St. Louis,
Cleveland and Richmond I, II and III acquisitions and to reflect cash not
assumed from acquired companies.
(5) To eliminate the trade accounts receivable not purchased in the Richmond
III acquisition.
(6) 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.................................... $84,200 $3,867 $80,333
Less: Intangibles recorded on historical books................. 11,823
-------
Pro forma adjustment......................................... $68,510
=======
</TABLE>
(7) To eliminate accounts payable, accrued expenses and debt that will not be
assumed by Radio One.
(8) To eliminate the station equity from the entities acquired.
(d) To reflect the net proceeds of this offering and to reflect the common
stock offering at an assumed public offering price of $18.50 per share less
underwriting discounts and commissions, offering expenses of $8,600,
redemption of the existing preferred stock and retirement of debt.
(e) To reflect the retirement of debt with the proceeds from the common stock
offering.
(f) To reflect proceeds of $50,000 from this offering, and the redemption of
the existing preferred stock.
(g) To reflect the net proceeds of the common stock offering assuming the sale
of 4,355,930 shares of common stock at an estimated offering price of
$18.50 per share, less underwriting discounts, commissions and offering
costs of $8,600 for this offering and the common stock offering.
30
<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 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.
31
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended(/1/)
--------------------------------------------
Dec. December 31,
25, -----------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue............ $15,541 $21,455 $23,702 $32,367 $ 46,109
Station operating expenses....... 8,506 11,736 13,927 18,848 24,501
Corporate expenses............... 1,128 1,995 1,793 2,155 2,800
Depreciation and amortization.... 2,027 3,912 4,262 5,828 8,445
------- ------- ------- ------- --------
Operating income............... 3,880 3,812 3,720 5,536 10,363
Interest expense(/2/)............ 2,665 5,289 7,252 8,910 11,455
Other income (expense), net...... 38 89 (77) 415 358
Income tax benefit
(expense)(/3/).................. (30) -- -- -- 1,575
------- ------- ------- ------- --------
Income (loss) before
extraordinary item............ 1,223 (1,388) (3,609) (2,959) 841
Extraordinary loss............... -- 468 -- 1,985 --
------- ------- ------- ------- --------
Net income (loss).............. $ 1,223 $(1,856) $(3,609) $(4,944) $ 841
======= ======= ======= ======= ========
Net income (loss) applicable to
common stockholders............. $ 1,223 $(1,856) $(3,609) $(6,981) $ (2,875)
======= ======= ======= ======= ========
Earnings per common share:(/4/)
Basic and diluted.............. $ .16 $ (.22) $ (.38) $ (.74) $ (.31)
Weighted average common shares
outstanding:(/4/)
Basic and diluted.............. 7,435 8,413 9,392 9,392 9,392
Other Data:
Broadcast cash flow.............. $ 7,035 $ 9,719 $ 9,775 $13,519 $ 21,608
Broadcast cash flow margin(/5/).. 45.3% 45.3% 41.2% 41.8% 46.9%
EBITDA (before non-cash
compensation)................... $ 5,907 $ 7,724 $ 7,982 $11,364 $ 18,808
After-tax cash flow.............. 2,763 2,524 806 2,869 7,248
Cash interest expense(/6/)....... 2,356 5,103 4,815 4,413 7,192
Accreted preferred stock
dividends....................... -- -- -- 2,037 3,716
Capital expenditures............. 639 224 252 2,035 2,236
Ratio of earnings to combined
fixed charges and preferred
stock dividends(/7/)............ 1.45x -- -- -- --
Balance Sheet Data (at period
end):
Cash and cash equivalents........................................ $ 4,455
Intangible assets, net........................................... 127,639
Total assets..................................................... 153,856
Total debt (including current portion and deferred interest)..... 131,739
Preferred stock.................................................. 26,684
Total stockholders' deficit...................................... 24,859
</TABLE>
- --------
(/1/Year-to-year)comparisons are significantly affected by Radio One's
acquisition of various radio stations during the periods covered. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Prior to the fiscal year ended December 31, 1996, Radio One's
accounting reporting period was based on a fifty-two/fifty-three week
period ending on the last Sunday of the calendar year. During 1996, we
changed our fiscal year end to December 31.
(/2/Interest)expense includes non-cash interest, such as the accretion of
principal, the amortization of discounts on debt and the amortization of
deferred financing costs.
(/3/From)January 1, 1996 to May 19, 1997, Radio One elected to be treated as an
S corporation for U.S. federal and state income tax purposes and,
therefore, generally was not subject to income tax at the corporate level
during that period.
(/4/Assumes)a 34,060 for one stock split, the exercise of warrants and issuance
of common stock to an employee were effective for all periods presented.
(/5/Broadcast)cash flow margin is defined as broadcast cash flow divided by net
broadcast revenue.
(/6/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.
(/7/Earnings)were insufficient to cover combined fixed charges for the fiscal
years ended December 31, 1995, 1996, 1997, and 1998 by approximately $1.4
million, $3.6 million, $5.0 million and $4.5 million, respectively. To
date, we have not paid any dividend on our existing preferred stock.
32
<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.
33
<PAGE>
Radio One calculates same station growth over a particular period by
comparing performance of stations owned or operated under an LMA during the
current period with the performance of the same stations for the corresponding
period in the prior year. However, no station will be included in such a
comparison unless it has been owned or operated under an LMA for at least one
month of every quarter included in each of the current and corresponding prior-
year periods.
From January 1, 1996, to December 31, 1998, Radio One acquired six radio
stations. On May 19, 1997, Radio One acquired WPHI-FM (formerly WDRE-FM), in
Philadelphia, for approximately $20.0 million, after having operated the
station under an LMA since February 8, 1997. On March 16, 1998, Radio One,
through an Unrestricted Subsidiary, acquired BHI, owner and operator of WYCB-
AM, in Washington, D.C., for approximately $3.8 million. On June 30, 1998,
Radio One acquired Bell Broadcasting, owner and operator of WDTJ-FM (formerly
WCHB-FM) and WCHB-AM in Detroit, and WJZZ-AM in Kingsley, Michigan, for
approximately $34.2 million. On December 28, 1998, Radio One acquired Allur-
Detroit, owner and operator of WWBR-FM, in Detroit, for approximately $26.5
million.
The consolidated financial statements of Radio One 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 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, and Allur-Detroit in December 1998, Radio One's
historical financial data prior to such times are not directly comparable to
Radio One's historical financial data for subsequent periods. Additionally, due
to recent acquisition activity, our 1998 pro forma results differ materially
from our actual 1998 results. For the year ended December 31, 1998, pro forma
for completed transactions, net broadcast revenue and broadcast cash flow were
approximately $60.8 million and $27.0 million, respectively, compared to actual
net broadcast revenue and broadcast cash flow of $46.1 million and $21.6
million, respectively.
34
<PAGE>
Results of Operations
The following table summarizes Radio One's historical consolidated results
of operations.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1997 1998
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Statement of Operations:
Net broadcast revenue........................... $23,702 $32,367 $46,109
Station operating expenses...................... 13,927 18,848 24,501
Corporate expenses.............................. 1,793 2,155 2,800
Depreciation and amortization................... 4,262 5,828 8,445
------- ------- -------
Operating income.............................. 3,720 5,536 10,363
Interest expense................................ 7,252 8,910 11,455
Other income (expense), net..................... (77) 415 358
------- ------- -------
Loss before benefit for income taxes and
extraordinary item............................. (3,609) (2,959) (734)
------- ------- -------
Income tax benefit.............................. -- -- 1,575
------- ------- -------
Income (loss) before extraordinary item....... (3,609) (2,959) 841
Extraordinary loss.............................. -- 1,985 --
------- ------- -------
Net income (loss)............................. $(3,609) $(4,944) $ 841
======= ======= =======
Broadcast cash flow............................. $ 9,775 $13,519 $21,608
Broadcast cash flow margin...................... 41.2% 41.8% 46.9%
EBITDA.......................................... $ 7,982 $11,364 $18,808
After-tax cash flow............................. 806 2,869 7,248
</TABLE>
Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended December 31,
1997
Net Broadcast Revenue. Net broadcast revenue increased to approximately
$46.1 million for the fiscal year ended December 31, 1998, from approximately
$32.4 million for the fiscal year ended December 31, 1997, or 42.3%.
Approximately $3.8 million of the increase was attributable to stations
acquired during 1998. On a same station basis, net revenue for the period
increased approximately 30.6% to approximately $42.3 million in 1998 from
approximately $32.4 million in 1997. This increase was the result of continuing
broadcast revenue growth in Radio One's Washington, D.C., Baltimore, and
Philadelphia markets as we benefitted from ratings increases at certain of our
radio stations, improved power ratios at these stations and radio market
growth.
Station Operating Expenses. Station operating expenses excluding
depreciation and amortization increased to approximately $24.5 million for the
fiscal year ended December 31, 1998, from approximately $18.8 million for the
fiscal year ended December 31, 1997, or 30.3%. Approximately $2.5 million of
the increase was attributable to stations acquired during 1998. On a same
station basis, station operating expenses for the period increased
approximately 17.0% to approximately $22.0 million in 1998 from approximately
$18.8 million in 1997. This increase was primarily related to increases in
sales commissions and license fees due to significant revenue growth, as well
as additional programming costs related to ratings gains at some of our larger
radio stations.
Corporate Expenses. Corporate expenses increased to approximately $2.8
million for the fiscal year ended December 31, 1998, from approximately $2.2
million for the fiscal year ended December 31, 1997, or 27.3%. This increase
was due primarily to growth in the corporate staff consistent with our overall
expansion, annual costs associated with the 12% notes due 2004 and costs
associated with our public reporting requirements.
35
<PAGE>
Depreciation and Amortization. Depreciation and amortization increased to
approximately $8.4 million for the fiscal year ended December 31, 1998, from
approximately $5.8 million for the fiscal year ended December 31, 1997, or
44.8%. This increase was due primarily to our asset growth as well as our
acquisitions in 1998.
Operating Income. Operating income increased to approximately $10.4 million
for the fiscal year ended December 31, 1998, from approximately $5.5 million
for the fiscal year ended December 31, 1997, or 89.1%. This increase was
attributable to the increases in broadcast revenues partially offset by higher
operating expenses and higher depreciation and amortization expenses as
described above.
Interest Expense. Interest expense increased to approximately $11.5 million
for the fiscal year ended December 31, 1998, from approximately $8.9 million
for the fiscal year ended December 31, 1997, or 29.2%. This increase was
primarily due to the 12% notes offering, the retirement of our approximately
$45.6 million bank credit facility and borrowings under our bank credit
facility associated with the Bell Broadcasting acquisition.
Other Income. Other income decreased to $358,000 for the fiscal year ended
December 31, 1998, from $415,000 for the fiscal year ended December 31, 1997,
or 13.7%. This decrease was primarily attributable to lower interest income due
to lower cash balances as we used a portion of our cash balances to help fund
the Bell Broadcasting acquisition.
Loss before Benefit from Income Taxes. Loss before benefit from income taxes
decreased to $734,000 for the fiscal year ended December 31, 1998, from
approximately $3.0 million for the fiscal year ended December 31, 1997, or
75.5%. This decrease was due to higher operating income partially offset by
higher interest expense and lower other income. The income tax benefit of
approximately $1.6 million for the year ended December 31, 1998, was the result
of reversing our valuation allowance recorded in prior years related to our net
operating loss carryforward and other deferred tax assets, offset by an income
tax provision of $483,000 as we had net income for tax reporting purposes as a
result of non-deductible amortization expense for income tax purposes. Certain
intangible assets acquired as a result of the Bell Broadcasting acquisition
maintained their old income tax basis because the Bell Broadcasting acquisition
was a stock purchase.
Net Income (Loss). Net income increased to $841,000 for the fiscal year
ended December 31, 1998, from a net loss of approximately $4.9 million for the
fiscal year ended December 31, 1997. The increase was due to higher operating
income and an income tax benefit, partially offset by higher interest expense
as described above and an approximate $2.0 million extraordinary loss related
to the refinancing of debt.
Broadcast Cash Flow. Broadcast cash flow increased to approximately $21.6
million for the fiscal year ended December 31, 1998, from approximately $13.5
million for the fiscal year ended December 31, 1997, or 60.0%. Approximately
$1.3 million of the increase was attributable to stations acquired during 1998.
On a same station basis, broadcast cash flow for the period increased
approximately 50.4% to approximately $20.3 million in 1998 from approximately
$13.5 million in 1997. This increase was attributable to the increase in net
broadcast revenue partially offset by higher station operating expenses as
described above.
Our broadcast cash flow margin increased to approximately 46.9% for the
fiscal year ended December 31, 1998, from 41.8% for the fiscal year ended
December 31, 1997. On a same station basis, broadcast cash flow margin for the
period increased to approximately 48.0% in 1998 from approximately 41.8% in
1997. This increase was the result of strong revenue gains in our more mature
markets partially offset by slower expense growth in those markets. The lower
actual broadcast cash flow margin versus that reported on a same station basis
for 1998 was the result of our recent entrance into the Detroit market where we
acquired underperforming stations with profit margins lower than those of many
of the radio stations we own in markets in which we have operated for a longer
period of time.
EBITDA. EBITDA increased to approximately $18.8 million for the fiscal year
ended December 31, 1998, from approximately $11.4 million for the fiscal year
ended December 31, 1997, or 64.9%. This increase
36
<PAGE>
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.
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.
37
<PAGE>
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
existing preferred stock.
Broadcast Cash Flow. Broadcast cash flow increased to approximately $13.5
million for the fiscal year ended December 31, 1997, from approximately $9.8
million for the fiscal year ended December 31, 1996, or 37.8%. Approximately
$0.2 million of the increase was attributable to stations acquired during 1997.
On a same station basis, broadcast cash flow for the period increased
approximately 35.7% to approximately $13.3 million in 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 and our preferred stock.
Additionally, such terms place restrictions on Radio One with respect to the
sale of assets, liens, investments, dividends, debt repayments, capital
expenditures, transactions with affiliates, consolidation and mergers, and the
issuance of equity interests among other things.
We have used a significant portion of our capital resources to consummate
acquisitions. These acquisitions were or will be funded from (1) the bank
credit facility, (2) the proceeds of this offering and the common stock
offering, and (3) internally generated cash flow. A portion of the net proceeds
from these offerings will be used to repay our outstanding indebtedness under
the bank credit facility. See "Use of Proceeds."
Radio One's balance of cash and cash equivalents was approximately $4.5
million as of December 31, 1998, and approximately $8.5 million as of December
31, 1997. This decrease in cash resulted primarily from
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our use of approximately $9.5 million of our then available cash to fund
partially the Bell Broadcasting acquisition, offset by an increase in cash from
operations. The balance of the purchase price and expenses related to the Bell
Broadcasting acquisition was funded with approximately $25.4 million drawn on a
$32.5 million bank credit facility that we entered into concurrent with the
closing of the acquisition of Bell Broadcasting. We subsequently increased the
bank credit facility to $57.5 million from which we drew down an additional
$24.0 million to fund partially the acquisition of Allur-Detroit. On December
31, 1998, approximately $8.1 million was available to be drawn down from the
bank credit facility. On February 26, we entered into an amended and restated
credit agreement under which we may borrow up to $100 million on a revolving
basis from a group of banking institutions, subject to financial ratio
restrictions. Immediately following the acquisition of ROA, approximately $72.0
million was outstanding under our bank credit facility and approximately $18.3
million was available to be borrowed.
Concurrent with this offering, we anticipate issuing $80.6 million in class
A common stock, assuming the over-allotment option is not exercised. The
proceeds of the common stock offering will be used in part to increase
availability under our bank credit facility. This availability is expected to
be used in part to fund pending acquisitions. In the event the common stock
offering is not consummated, we believe we have adequate liquidity and access
to other financing sources to fund these acquisitions.
Net cash flow from operating activities increased to approximately $9.3
million for the fiscal year ended December 31, 1998, from approximately $4.9
million for the fiscal year ended December 31, 1997, or 89.8%. This increase
was primarily due to net income (versus a net loss in 1997) and non-cash
expenses. Non-cash expenses of depreciation and amortization increased to
approximately $8.4 million for fiscal year ended December 31, 1998, from
approximately $5.8 million for the fiscal year ended December 31, 1997, or
44.8% due to our recent acquisitions, as well as leasehold improvements made to
our new headquarters and Washington, D.C. radio studios in the second half of
1997. Non-cash expenses of amortization of debt financing costs, unamortized
discount and deferred interest increased to approximately $4.1 million for the
fiscal year ended December 31, 1998, from approximately $3.3 million for the
fiscal year ended December 31, 1997, or 24.2%, due to the 12% notes offering.
We also incurred a non-cash expense of approximately $2.0 million related to
the loss on extinguishment of debt during the fiscal year ended December 31,
1997.
Net cash flow used in investing activities increased to approximately $61.2
million for the fiscal year ended December 31, 1998, compared to approximately
$23.2 million for the fiscal year ended December 31, 1997, or 163.8%. During
the fiscal year ended December 31, 1998, we acquired Bell Broadcasting for
approximately $34.2 million plus the cost of additional assets and expenses
related to the transaction, and acquired Allur-Detroit for approximately $26.5
million. Additionally, we made purchases of capital equipment totaling
approximately $2.2 million. During the fiscal year ended December 31, 1997, we
acquired WPHI-FM for approximately $20.0 million and made purchases of capital
equipment totaling approximately $2.0 million.
Net cash flow from financing activities was approximately $47.8 million for
the fiscal year ended December 31, 1998. During the fiscal year ended December
31, 1998, Radio One entered into a $57.5 million bank credit facility, of
which, approximately $49.4 million was used to finance partially the
acquisitions of Bell Broadcasting and Allur-Detroit. In conjunction with this
facility, we incurred approximately $1.0 million in deferred debt financing
costs. Additionally, during the fiscal year ended December 31, 1998, a wholly-
owned Unrestricted Subsidiary of Radio One financed the acquisition of WYCB-AM
with a promissory note due to the seller for approximately $3.8 million. Net
cash flow from financing activities was approximately $25.1 million for the
fiscal year ended December 31, 1997. During the fiscal year ended December 31,
1997, we completed the 12% notes offering and raised net proceeds of
approximately $72.8 million. We used approximately $18.7 million of these
proceeds to acquire WPHI-FM (formerly WDRE-FM) and approximately $45.6 million
of the proceeds to retire the outstanding indebtedness under our then existing
bank credit facility. In conjunction with the 12% notes offering we incurred
approximately $2.1 million in deferred debt financing costs. As a result, cash
and cash equivalents decreased by approximately $4.0 million during the fiscal
year ended December 31, 1998, compared to an increase of approximate $6.8
million during the fiscal year ended December 31, 1997.
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We continuously review, and are currently reviewing, opportunities to
acquire additional radio stations, primarily in the top 30 African-American
markets. Although we engage in discussions regarding potential acquisitions
from time to time in the ordinary course of business, as of the date of this
prospectus, other than the pending transactions, we have no written or oral
understandings, letters of intent or contracts to acquire radio stations. We
anticipate that any future radio station acquisitions would be financed through
funds generated from operations, equity financings, permitted debt financings,
debt financings through Unrestricted Subsidiaries or a combination of these
sources. However, there can be no assurance that financing from any of these
sources, if available, will be available on favorable terms.
Management believes that, based on current levels of operations and
anticipated internal growth, cash flow from operations together with other
available sources of funds will be adequate for the foreseeable future to make
required payments of interest on Radio One's indebtedness, to fund anticipated
capital expenditures and working capital requirements and to enable us to
comply with the terms of our debt agreements. Our ability to meet our debt
service obligations and reduce our total debt, and our ability to refinance the
12% notes due 2004, at or prior to their scheduled maturity date in 2004, will
depend upon our future performance which, in turn, will be subject to general
economic conditions and to financial, business and other factors, including
factors beyond our control. For 1999, we anticipate maintenance capital
expenditures to be between $1.0 million and $2.0 million and total capital
expenditures to be between $4.0 million and $6.0 million. During 1997, Radio
One converted from a S corporation to a C corporation.
Impact of Inflation
We believe that inflation has not had a material impact on our results of
operations for each of our fiscal years in the three-year period ended December
31, 1998. However, there can be no assurance that future inflation would not
have an adverse impact on our operating results and financial condition.
Seasonality
Seasonal net broadcast revenue fluctuations are common in the radio
broadcasting industry and are due primarily to fluctuations in advertising
expenditures by local and national advertisers. Radio One's first fiscal
quarter generally produces the lowest net broadcast revenue for the year.
Year 2000 Compliance
Radio One has commenced a process to ensure Year 2000 compliance of all
hardware, software, and ancillary equipment that are date dependent. This
process involves four phases:
Phase I--Inventory and Data Collection. This phase involves an
identification of all systems that are date dependent. This phase
was completed during the first quarter of 1998.
Phase II--Compliance Identification. This phase involves Radio One
identifying and beginning to replace critical systems that cannot
be updated or certified as compliant. We commenced this phase in
the first quarter of 1999 and expect to complete the substantial
majority of this phase before the end of the second quarter of
1999. To date, we have verified that our accounting, payroll, and
local wide area network hardware and software systems are
substantially compliant. In addition, we have determined that
most of our personal computers and PC applications are compliant.
We are currently reviewing our security systems and other
miscellaneous systems.
Phase III--Test, Fix, and Verify. This phase involves testing all systems
that are date dependent and upgrading all non-compliant systems. We
expect to complete this phase during the third quarter of 1999.
Phase IV--Final Testing, New Item Compliance. This phase involves a review
of failed systems for compliance and re-testing as necessary. We
expect to complete this phase by the end of the third quarter of
1999.
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To date, we have no knowledge that any of our major systems are not Year
2000 ready or will not be Year 2000 ready by the end of the third quarter of
1999. We have not incurred significant expenditures and believe we will achieve
substantial Year 2000 readiness without the need to acquire significant new
hardware, software or systems. As part of our expansion over the past two
years, we have undertaken significant build-outs, upgrades and expansions to
our radio station studios, business offices and technology infrastructure.
These enhancement efforts are continuing in all of the markets in which we have
recently acquired radio stations and will expand into the new markets in which
we will be acquiring radio stations. We believe that most, if not all, of the
new equipment installed in conjunction with these recent build-outs is Year
2000 compliant. Based upon our experience to date, we estimate the remaining
costs to achieve Year 2000 readiness will be approximately $100,000,
independent of the costs associated with the previously-mentioned expansions
which are being undertaken in the normal course of our business development.
All costs directly related to preparing for Year 2000 readiness will be
expensed as incurred. We are not aware of any Year 2000 problems that would
have a material effect on our operations. We are also not aware of any non-
compliance by our suppliers that is likely to have material impact on our
business. Nevertheless, we cannot assure you that our critical systems, or the
critical systems of our suppliers, will be Year 2000 ready.
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.
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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 pending acquisitions, we will own and operate 25 radio stations. Twenty-
four of these stations (seventeen FM and seven AM) are in eight of the top 20
African-American radio markets: Washington, D.C., Baltimore, Atlanta,
Philadelphia, Detroit, St. Louis, Cleveland and Richmond. Our strategy is to
expand within our existing markets and into new markets that have a significant
African-American presence. We believe radio broadcasting primarily targeting
African-Americans has significant growth potential. We also believe that we
have a competitive advantage in the African-American market and the radio
industry in general, due to our primary focus on urban formats, our skill in
programming and marketing these formats, and our turnaround expertise.
We have succeeded in increasing ratings, net broadcast revenue and broadcast
cash flow of all of the FM stations we have owned or managed for at least one
year. The radio station clusters that we owned as of December 31, 1998, were
ranked first or second in all of their markets in combined audience and net
broadcast revenue share among radio stations targeting African-Americans. Our
net broadcast revenue and broadcast cash flow have grown significantly on both
a total and same station basis:
. Net broadcast revenue grew at a compound annual rate of 60.2% from an
actual $23.7 million in 1996 to $60.8 million in 1998, pro forma for
completed transactions.
. Broadcast cash flow grew at a compound annual rate of 65.3% from an
actual $9.8 million in 1996 to $26.7 million in 1998, pro forma for
completed transactions.
. Same station net broadcast revenue and broadcast cash flow grew at
average annual rates of 28.0% and 42.7%, respectively, from 1996 through
1998, pro forma for Radio One of Atlanta, Inc., which was managed by us
during this period.
. After-tax cash flow grew at a compound annual rate of 206.2% from an
actual $0.8 million in 1996 to $7.5 million in 1998, pro forma for
completed transactions.
Radio One is led by our Chairperson and co-founder, Ms. Catherine L. Hughes,
and her son, Mr. Alfred C. Liggins, III, our Chief Executive Officer and
President, who together have over 40 years of operating experience in radio
broadcasting. Ms. Hughes, Mr. Liggins and our strong management team have
successfully implemented a strategy of acquiring and turning around
underperforming radio stations. We believe that we are well positioned to apply
our proven operating strategy to our recently or soon to be acquired stations
in Detroit, St. Louis, Cleveland and Richmond, and to other radio stations in
existing and new markets as attractive acquisition opportunities arise.
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 19.3% increase, compared to a 13.7% increase in the
population as a whole. Furthermore, the African-American population is
expected to exceed 40 million by 2010, a more than 17.5% increase from
1995, compared to an expected increase of 11.8% for the population as a
whole. (Source: 1996 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,
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compared to 7.4% in 1990. (Source: "African-American Buying Power by
Place of Residence: 1990-1999," Dr. Jeffrey M. Humphreys). In addition,
the African-American consumer tends to have a different consumption
profile than non-African-Americans. For example, 31% of African-
Americans purchased a TV, VCR or stereo in the past year compared to 25%
of average U.S. households. African-Americans' higher than average rate
of consumption is a powerful reason for U.S. retailers to increase
targeted advertising spending toward this consumer group. (Source:
Pricewaterhouse Coopers, LLP 1998 Study)
. Growth in Advertising Targeting the African-American Market. We believe
that large corporate advertisers are becoming more focused on reaching
minority consumers in the United States. The African-American and
Hispanic communities are viewed as an emerging growth market within the
mature domestic market. A 1997 study estimated that major national
advertisers spent $881 million on advertising targeting African-American
consumers, up from $463 million in 1985. (Source: Target Market News
(Chicago, IL-1997)). For example, Ford Motor Company reportedly plans to
increase its spending targeting African-Americans and Hispanics by 20%
in the 1998-99 model year. (Source: Ad Week Midwest September 28, 1998).
We believe Ford is one example of many large corporations currently
expanding their commitment to ethnic advertising.
. 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 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 1996,
approximately 55.6% of the African-American population was located in
the top 30 African-American markets. Relative to radio broadcasters
targeting a broader audience, we believe we can cover the various
segments of our target market with fewer programming formats and
therefore fewer radio stations than the maximum of eight allowed by the
FCC. (Source: BIA, Fourth Edition 1998)
. 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 a week for all
Americans. (Source: The Chronicle of Higher Education February 19,
1999). 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 acquisition strategy is to acquire and turn around underperforming
radio stations principally in the top 30 African-American markets. We consider
acquisitions in existing markets where expanded coverage is desirable and in
new markets where we believe it is advantageous to establish a presence. In
analyzing potential acquisition candidates, we generally consider:
. the price and terms of the purchase;
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. 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
. 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
We typically enter a market by acquiring a station or stations that have
little or negative broadcast cash flow. Additional stations we have acquired in
existing markets have often been, in our opinion, substantially
underperforming. By implementing our operating strategies, we have succeeded in
increasing ratings, net broadcast revenue and broadcast cash flow of all the FM
stations we have owned or managed for at least one year. We have achieved these
improvements while operating against much larger competitors. Some of these
successful turnarounds are described below by market:
. Washington, D.C. In 1995, we acquired WKYS-FM for approximately $34.0
million. At the time, WKYS-FM was ranked number 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. In the Fall 1998 Arbitron Survey, the station was
ranked number one in the 18-34 age demographic (with a 10.2 share) and
number two in the 12-plus age demographic (with a 5.4 share), behind two
stations tied for number one (each with a 5.6 share).
In 1987, we acquired WMMJ-FM for approximately $7.5 million. At the
time, WMMJ-FM was being programmed in a general market Adult
Contemporary format, and had a 1.2 share of the 12-plus age
demographic. After extensive research we changed the station's format,
making WMMJ-FM the first FM radio station on the East Coast to
introduce an Urban Adult Contemporary programming format. In the Fall
1998 Arbitron Survey, the station was ranked number three in the 25-54
age demographic (with a 5.8 share) and number five in the 12-plus age
demographic (with a 5.0 share).
. Baltimore. In 1993, we acquired WERQ-FM and WOLB-AM (formerly WERQ-AM)
for approximately $9.0 million. At the time, these stations had mediocre
ratings. We converted WERQ-FM's programming to a more focused Young
Urban Contemporary format and began aggressively marketing the station.
WERQ-FM is now Baltimore's dominant station, ranked number one in the
12-plus, 18-34 and 25-54 age demographics in the Fall 1998 Arbitron
Survey, a position it first achieved in the Spring 1997 Arbitron Survey.
In 1992, we acquired WWIN-FM and its sister station, WWIN-AM, for
approximately $4.7 million. At the time, WWIN-FM was a distant second
in ratings to its in-format direct competitor, WXYV-FM. We repositioned
WWIN-FM towards the 25-54 age demographic, and in the Fall 1998
Arbitron Survey the station was ranked number two in that age
demographic (with a 7.5 share) behind two stations tied for number one
(each with a 7.7 share), including Radio One's WERQ-FM.
. Atlanta. In 1995, ROA, then an affiliate of Radio One, acquired WHTA-FM
(formerly WQUL- 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. In the Fall
1998 Arbitron Survey, the station was ranked number four in the 18-34
age demographic (with an 8.3 share).
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. Philadelphia. In May 1997, we acquired WPHI-FM (formerly WDRE-FM) for
approximately $20.0 million. At the time WDRE-FM 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, in the
Fall 1998 Arbitron Survey, the station was ranked number 14 in the 12-
plus age demographic (with a 3.3 share) and number five in the 18-34 age
demographic (with a 6.0 share).
Top 30 African-American Radio Markets in the United States
In the table below, boxes and bold text indicate markets where we currently
own or will own and operate radio stations upon consummation of the
acquisitions described under "Unaudited Pro Forma Consolidated Financial
Information." Population estimates are for 1996 and are based upon BIA
Investing in Radio Market Report ("BIA 1998 Fourth Edition").
Boxes enclose tabular information for Washington, D.C., Detroit,
Philadelphia, Atlanta, Baltimore, St. Louis, Cleveland and Richmond.
<TABLE>
<CAPTION>
African-Americans
as a Percentage of the
African-American Overall Population
Rank Market Population in the Market(/2/) in the Market(/2/)
---- ------ ----------------------------- ----------------------
(in thousands)
<S> <C> <C> <C>
1. New York 3,731 22.2%
2. Chicago 1,648 19.4
- ------------------------------------------------------------------------------------
3. Washington, D.C. 1,150 27.2
- ------------------------------------------------------------------------------------
4. Los Angeles 1,134 9.4
- ------------------------------------------------------------------------------------
5. Detroit 1,004 22.5
6. Philadelphia 947 19.9
7. Atlanta 921 25.7
- ------------------------------------------------------------------------------------
8. Houston/Galveston 782 18.3
Miami/Ft. Lauderdale/
9. Hollywood 718 20.2
10. Dallas/Ft. Worth 645 14.2
- ------------------------------------------------------------------------------------
11. Baltimore 644 26.0
- ------------------------------------------------------------------------------------
12. San Francisco 599 9.2
13. Memphis 482 41.5
14. New Orleans 460 36.3
Norfolk/Virginia
15. Beach/Newport News 444 29.6
- ------------------------------------------------------------------------------------
16. St. Louis 439 17.2
17. Cleveland 398 18.7
- ------------------------------------------------------------------------------------
18. Boston 281 7.3
- ------------------------------------------------------------------------------------
19. Richmond 281 30.0
- ------------------------------------------------------------------------------------
Charlotte/Gastonia/Rock
20. Hill 266 19.9
21. Birmingham 261 27.0
22. Raleigh/Durham 244 23.5
23. Milwaukee/Racine 237 14.4
Greensboro/Winston
24. Salem/High Point 226 19.7
25. Nassau/Suffolk 221 8.3
26. Cincinnati 220 11.4
27. Kansas City 215 12.8
Tampa/St.
28. Petersburg/Clearwater 202 9.0
29. Jacksonville 201 19.2
30. San Diego 197 7.2
</TABLE>
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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
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and market our stations as stand-alones, in combination with other stations
within a given market and across markets, where appropriate.
Radio Station Clustering, Programming Segmentation and Sales Bundling
Radio One strives to build clusters of radio stations in our markets, with
each radio station targeting different demographic segments of the African-
American population. This clustering and programming segmentation strategy
allows us to achieve greater penetration into each segment of our target
market. We are then able to offer advertisers multiple audiences and to bundle
the radio stations for advertising sales purposes when advantageous.
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.
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<PAGE>
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;
. 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."
48
<PAGE>
Station Operations
The following is a general description of each of our markets and our radio
stations in each market. As noted, some of the data provided in the tables
below includes information during periods the radio stations listed were not
owned or operated by Radio One. Audience share and audience share rank data for
the years indicated are based on Arbitron Survey four book averages ending with
the Fall Arbitron Survery. Fall 1998 data are from the Fall 1998 Arbitron
Survey. Except as noted, revenue share and rank data are based upon the Radio
Revenue Report of Hungerford for 1998, 1997, 1996 and 1995 (as applicable). As
used in these tables, "n/a" means not applicable and "t" means tied with one or
more other radio stations.
Washington, D.C.
The Washington, D.C. market is estimated to be the eighth largest radio
market in terms of MSA population. In 1998, this market had advertising revenue
estimated to be $252.8 million, making it the sixth largest radio market in
terms of advertising revenue. In 1996, Washington, D.C. had the third largest
African-American population in the United States with an MSA population of
approximately 4.2 million, approximately 27.2% of which was African-American.
We believe that we own the strongest franchise in terms of audience share and
number of radio stations of African-American targeted radio stations in the
Washington, D.C. market, with two of the four FM radio stations and two of the
three AM radio stations that target African-Americans. Washington, D.C.
experienced annual radio revenue growth of 5.4% between 1991 and 1996, and
radio revenue in Washington, D.C. is expected to continue growing at an annual
pace of 7.4% between 1997 and 2001. (Source: BIA 1998 Fourth Edition)
<TABLE>
<CAPTION>
1995 1996 1997 1998 Fall 1998
------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C>
WKYS-FM
Audience share (12-plus)........... 3.8 4.5 5.8 5.2 5.4
Audience share rank (12-plus)...... 9t 6t 2 3 3
Audience share (18-34)............. 5.8 7.5 10.4 10.0 10.2
Audience share rank (18-34)........ 6 2 1 1(t) 1
Revenue share...................... 3.8% 3.3% 4.5% 5.0% n/a
Revenue rank....................... 14 14 10 9 n/a
WMMJ-FM
Audience share (12-plus)........... 3.7 4.5 4.1 4.3 5.0
Audience share rank (12-plus)...... 11t 6t 9 7(t) 5
Audience share (25-54)............. 4.6 5.4 4.9 5.2 5.8
Audience share rank (25-54)........ 8 3t 7 4 3
Revenue share...................... 3.7% 3.4% 2.9% 3.2% n/a
Revenue rank....................... 15 13 17 18 n/a
WOL-AM
Audience share (12-plus)........... 1.7 1.0 1.1 0.8 0.7
Audience share rank (12-plus)...... 19 23t 20 24 25t
Audience share (35-64)............. 2.3 1.1 1.4 1.1 1.0
Audience share rank (35-64)........ 14t 23 19(t) 22 21t
Revenue share...................... 2.0% 1.8% 1.6% 0.8% n/a
Revenue rank....................... 18 18 19 20 n/a
WMMJ-FM AND WOL-AM (advertising time
sold in combination)
Audience share (12-plus)........... 5.4 5.5 5.2 5.1 5.7
Audience share (25-54)............. 6.4 6.2 5.9 5.9 6.5
Revenue share...................... 5.6% 5.3% 4.5% 4.0% n/a
Revenue rank....................... 7 8 12 11 n/a
WYCB-AM(1)
Audience share (12-plus)........... 1.6 1.3 1.2 1.0 0.9
Audience share rank (12-plus)...... 20 20 19 22 22t
Audience share (35-64)............. 1.7 1.5 1.4 1.1 1.0
Audience share rank (35-64)........ 19 18 19(t) 21 21t
Revenue share...................... n/a n/a n/a 0.5% n/a
Revenue rank....................... n/a n/a n/a n/a n/a
</TABLE>
- --------
(1) WYCB-AM does not report to Hungerford. Revenue share for WYCB-AM represents
the radio station's net broadcast revenue as a percentage of the market
radio revenue reported by the Hungerford Report (December 1998), as
adjusted for WYCB-AM's net broadcast revenue.
49
<PAGE>
WOL-AM. In 1980, we acquired our first radio station, WOL-AM, for
approximately $950,000. WOL-AM was a music station with declining revenue and
audience shares that Radio One converted to one of the country's first all-talk
radio stations targeting African-Americans. Radio One's Chairperson,
Ms. Catherine L. Hughes, who hosted WOL-AM's daily four-hour morning show from
1983 to 1995, created a valuable niche for the radio station as "The Voice of
Washington's Black Community." We believe that WOL-AM is a vital communications
platform for the African-American community and political and business leaders
in its market. WOL-AM's ratings have historically fluctuated between a 1.0 and
2.0 share in the 12-plus age demographic market.
WMMJ-FM. In 1987, we purchased WMMJ-FM for approximately $7.5 million. At
the time, WMMJ-FM was being programmed in a general market Adult Contemporary
format, and had a 1.2 share of the 12-plus age demographic. After extensive
research we changed the station's format, making WMMJ-FM the first FM radio
station on the East Coast to introduce an Urban Adult Contemporary ("Urban AC")
programming format. This format focuses on African-Americans in the 25-54 age
demographic and provides adult-oriented Urban Contemporary music from the 1960s
through the 1990s. The Urban AC format was almost immediately successful, and
in the Fall 1998 Arbitron Survey, the station was ranked number three in the
25-54 age demographic (with a 5.8 share) and number five in the 12-plus age
demographic (with a 5.0 share). We are in the process of improving our
facilities by substituting a non-directional antenna for a directional antenna.
WKYS-FM. In June 1995, we purchased WKYS-FM for approximately $34.0 million.
WKYS-FM is a Young Urban Contemporary radio station targeting African-Americans
in the 18-34 age demographic. From 1978 to 1989, WKYS-FM was Washington, D.C.'s
perennial Urban Contemporary leader and was frequently the market's number one
radio station overall. However, in 1987, WPGC-FM (now owned by Infinity
Broadcasting ("Infinity")) challenged WKYS-FM by changing its format from Adult
Contemporary to Contemporary Hit/Urban ("CHR"). By Fall 1994, WKYS-FM had a 3.3
share of the 12-plus age demographic, while WPGC-FM had a 9.0 share of the 12-
plus age demographic. By 1995, the former owner of WKYS-FM abandoned the 18-34
age demographic and began to target the 25-54 age demographic, making it a
direct competitor to Radio One's WMMJ-FM instead of Infinity's WPGC-FM. When
Radio One purchased WKYS-FM in June 1995, we repositioned WKYS-FM's programming
away from WMMJ-FM and back toward the 18-34 age demographic. Since June 1995,
we have been able to increase dramatically WKYS-FM's overall 12-plus age
demographic share. In Fall 1997 WKYS-FM became Washington, D.C.'s number one
rated radio station for the 12-plus and 18-34 age demographics, and during this
same period, WPGC-FM held the number two position in the 12-plus and 18-34 age
demographics. Recently, WKYS-FM's position has fluctuated between the number
one and number three rated station in the 12-plus age demographic while
maintaining its number one position in the 18-34 age demographic.
WYCB-AM. On March 16, 1998, we acquired, through an Unrestricted Subsidiary,
BHI, the owner of WYCB-AM, a Gospel station, for approximately $3.8 million.
Following the acquisition, we integrated the operations of WYCB-AM into our
existing radio station operations in the Washington, D.C. market.
50
<PAGE>
Baltimore, Maryland
The Baltimore market is estimated to be the 20th largest radio market in
terms of MSA population and advertising revenue. In 1998, this market had
advertising revenue estimated to be $105.8 million. In 1996, Baltimore had the
11th largest African-American population in the United States with an MSA
population of approximately 2.5 million, approximately 26.0% of which was
African-American. We believe we own the strongest franchise of African-American
targeted radio stations in the Baltimore market with the only two FM radio
stations and two of the four AM radio stations that target African-Americans.
Baltimore experienced annual radio revenue growth of 8.6% between 1991 and 1996
and radio revenue in Baltimore is expected to continue growing at an annual
pace of 6.2% between 1997 and 2001. (Source: BIA 1998 Fourth Edition)
<TABLE>
<CAPTION>
1995 1996 1997 1998 Fall 1998
------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C>
WERQ-FM
Audience share (12-plus).............. 5.2 6.4 9.3 9.4 9.6
Audience share rank (12-plus)......... 7 4 1 1 1
Audience share (18-34)................ 8.6 10.7 16 16.6 16.5
Audience share rank (18-34)........... 2 1 1 1 1
WOLB-AM
Audience share (12-plus).............. 0.9 0.6 0.9 0.9 0.8
Audience share rank (12-plus)......... 23t 28t 18 19 18(t)
Audience share (35-64)................ 1.1 0.9 1.2 1.1 0.8
Audience share rank (35-64)........... 19t 21(t) 15 16t 19(t)
WERQ-FM and WOLB-AM(/1/)
Audience share (12-plus).............. 6.1 7 10.2 10.3 10.4
Audience share (25-54)................ 4.9 5.7 9.1 8.7 8.4
Revenue share......................... 6.7% 6.6% 10.7% 13.1% n/a
Revenue rank.......................... 8 8 4 2 n/a
WWIN-FM
Audience share (12-plus).............. 4.0 3.7 3.6 5.0 5.5
Audience share rank (12-plus)......... 10 10 9 7 6
Audience share (25-54)................ 5.5 4.9 4.4 6.8 7.5
Audience share rank (25-54)........... 5 7t 8 4 3
WWIN-AM
Audience share (12-plus).............. 1.1 1.1 0.8 1.1 1.1
Audience share rank (12-plus)......... 18t 20t 19 17 16(t)
Audience share (35-64)................ 1.1 1.4 1.1 1.1 0.8
Audience share rank (35-64)........... 19t 18 16t 19 19(t)
WWIN-FM and WWIN-AM(/1/)
Audience share (12-plus).............. 5.1 4.8 4.4 6.1 6.6
Audience share (25-54)................ 6.6 6.0 5.8 7.7 8.2
Revenue share......................... 5.7% 5.8% 5.5% 6.0% n/a
Revenue rank.......................... 10 10 9 8 n/a
</TABLE>
- --------
(1)Advertising time sold in combination. Revenue data jointly reported.
WWIN-FM and WWIN-AM. In January 1992, we made our first acquisition outside
the Washington, D.C. market with the purchase of WWIN-FM and its sister station
WWIN-AM for approximately $4.7 million. At the time, WWIN-FM was a distant
second in ratings to its in-format direct competitor WXYV-FM, with less than
one-third of that radio station's market share. Today, WWIN-FM is a leading
urban radio station in the 25-54 age demographic in the Baltimore market,
ranked number two in the Fall 1998 Arbitron Survey with a 7.5 share, and WWIN-
AM continues to occupy an attractive niche on the AM frequency with its Gospel
programming format.
51
<PAGE>
WERQ-FM and WOLB-AM. In September 1993, Radio One completed another
acquisition in the Baltimore market with the purchase of WERQ-FM and WOLB-AM
(formerly WERQ-AM) for approximately $9.0 million. WERQ-FM was, at the time of
its acquisition, a CHR/Urban radio station, while WERQ-AM was a satellite-fed,
all-news radio station. We converted the format of WERQ-FM to a more focused
Young Urban Contemporary format targeted at the 18-34 age demographic, while
WOLB-AM began simulcasting with WOL-AM, Radio One's Black Talk radio station in
Washington, D.C. After we aggressively marketed the station, WERQ-FM became
Baltimore's dominant station ranked number one in the 12-plus, 18-34 and 25-54
age demographics in the Fall 1998 Arbitron Survey, a position it first achieved
in the Spring 1997 Arbitron Survey, while its former primary competitor, WXYV-
FM, changed format during 1997 and no longer targets the same listener base as
that of WERQ-FM.
Atlanta, Georgia
The Atlanta market is estimated to be the 13th largest radio market in terms
of MSA population. In 1998, this market had radio advertising revenue estimated
to be $242.2 million, making it the 10th largest radio market in terms of
advertising revenue. In 1996, Atlanta had the seventh largest African-American
population in the United States with an MSA population of approximately 3.6
million, approximately 25.7% of which was African-American. Due to a rapidly
growing local economy, the Atlanta market has one of the country's fastest
growth rates in terms of radio revenue. Atlanta experienced annual radio
revenue growth of 12.1% between 1991 and 1998, and radio revenue in Atlanta is
expected to continue growing at an average annual rate of 8.2% between 1997 and
2001. (Source: BIA 1998 Fourth Edition)
On March 30, 1999, Radio One acquired 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 an 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."
In the following table, revenue share and rank data are based on the Radio
Revenue Report by Miller Kaplan for 1998, 1997 and 1996, as applicable. Revenue
share for WAMJ-FM represents its net broadcast revenue as a percentage of the
market radio revenue reported by Miller Kaplan for December 1998, as adjusted
for WAMJ-FM's net broadcast revenue.
<TABLE>
<CAPTION>
1996 1997 1998 Fall 1998
---- ---- ---- ---------
<S> <C> <C> <C> <C>
WHTA-FM
Audience share (12-plus).......................... 4.9 5.1 4.7 4.5
Audience share rank (12-plus)..................... 9 8(t) 9 9
Audience share (18-34)............................ 8.0 8.8 8.6 8.3
Audience share rank (18-34)....................... 5 4 4 4
Revenue share..................................... 2.2% 2.9% 3.5% n/a
Revenue rank...................................... 12 12 12 n/a
WAMJ-FM
Audience share (12-plus).................................... 2.2 1.8
Audience share rank (12-plus)............................... 15 17
Audience share (25-54)...................................... 3.1 2.5
Audience share rank (25-54)................................. 13 14
Revenue share............................................... 1.1% n/a
Revenue rank................................................ n/a n/a
</TABLE>
52
<PAGE>
WHTA-FM. In 1995, ROA acquired WHTA-FM (formerly WQUL-FM) from Design Media,
Inc. for approximately $4.5 million. WHTA-FM was a 6 kW Class A facility
licensed to Griffin, Georgia, a community 40 miles southwest of the Atlanta
market. Prior to selling the station, Design Media received a construction
permit to upgrade the station to Class C3 and changed its community of license
to Fayetteville, Georgia. In conjunction with Radio One's management, Design
Media moved the station's transmitter site 20 miles closer to Atlanta. In July
1995, ROA launched a new Young Urban Contemporary music format that has
consistently garnered a 4.5 to 5.0 share of the 12-plus age demographic. WHTA-
FM remains consistently ranked in the top three stations in its primary target
group, the 12-17 age demographic, and in the top five stations among its
secondary target group, the 18-34 age demographic, ranking number four in the
Fall 1998 Arbitron Survey with an 8.3 share.
WAMJ-FM. In March 1997, ROA entered into an agreement with Dogwood to
provide financing for a new 6 kW Class A radio station that had been assigned
to Roswell, Georgia, a community approximately twenty miles north of downtown
Atlanta. ROA received an approximate 33% ownership stake, along with an option
to purchase 100% of the station. ROA also entered into an LMA allowing ROA to
operate the station in the Atlanta market. On December 16, 1997, ROA launched
an R&B oldies format on WAMJ-FM targeting the 25-54 age demographic. In
November 1998, Dogwood received an FCC construction permit to upgrade WAMJ's
signal to Class C3. WAMJ-FM began operating at 25 kW in December 1998, greatly
improving its penetration of the Atlanta market and giving the station total
coverage of the Atlanta metropolitan area.
In Atlanta, we compete directly against Infinity's Urban Contemporary
station, WVEE-FM, and against Midwestern Broadcasting's Urban Adult
Contemporary station, WALR-FM. However, we own more FM radio stations targeting
African-Americans in Atlanta than any other entity.
Philadelphia, Pennsylvania
The Philadelphia market is estimated to be the fifth largest radio market in
terms of MSA population. In 1998, this market had advertising revenue estimated
to be $242.3 million, making it the seventh largest radio market in terms of
advertising revenue. In 1996, Philadelphia had the sixth largest African-
American population in the United States with an MSA population of
approximately 4.9 million, approximately 19.9% of which was African-American.
Philadelphia experienced annual radio revenue growth of 9.4% between 1991 and
1996, and radio revenue in Philadelphia is expected to continue growing at an
annual pace of 6.5% between 1997 and 2001. (Source: BIA 1998 Fourth Edition)
In the following table, revenue share and rank data are based on the Radio
Revenue Report by Miller Kaplan for December 1998 and 1997, as applicable.
<TABLE>
<CAPTION>
1997 1998 Fall 1998
---- ---- ---------
<S> <C> <C> <C>
WPHI-FM
Audience share (12-plus)................................ 3.8 3.3 3.3
Audience share rank (12-plus)........................... 12 13t 14
Audience share (18-34).................................. 6.6 6.0 6.0
Audience share rank (18-34)............................. 3 5 5
Revenue share........................................... 1.2% 2.2% n/a
Revenue rank............................................ 18 16 n/a
</TABLE>
WPHI-FM. On February 8, 1997, we entered into an LMA with the owner of WPHI-
FM (formerly WDRE-FM), and changed the radio station's programming format from
Modern Rock to Young Urban Contemporary targeting the 18-34 age demographic. On
May 19, 1997, we acquired WPHI-FM for approximately $20.0 million, providing us
with an opportunity to apply our operating strategy in another top 30 African-
American market. Although WPHI-FM is a Class A facility operating at the
equivalent of 3 kW, we believe it adequately reaches at least 90% of African-
Americans in Philadelphia. In the Fall 1998 Arbitron Survey, WPHI-FM achieved a
3.3 share in the 12-plus age demographic and had solidly positioned itself as
the number two Young Urban Contemporary station in the market behind WUSL-FM.
53
<PAGE>
Detroit, Michigan
The Detroit market is estimated to be the seventh largest radio market in
terms of MSA population. In 1998, this market had advertising revenue estimated
to be $225.1 million, making it the 11th largest radio market in terms of
advertising revenue. Detroit is the fifth largest African-American market with
an MSA population of approximately 4.5 million in 1996, approximately 22.5% of
which was African-American. Detroit experienced annual radio revenue growth of
8.4% between 1991 and 1996, and radio revenue in Detroit is expected to
continue growing at an annual pace of 7.5% between 1997 and 2001. (Source: BIA
1998 Fourth Edition)
<TABLE>
<CAPTION>
1998 Fall 1998
---- ---------
<S> <C> <C>
WDTJ-FM
Audience share (12-plus)....................................... 3.4 3.3
Audience share rank (12-plus).................................. 12 13
Audience share (18-34)......................................... 5.8 5.4
Audience share rank (18-34).................................... 4 5
Revenue share.................................................. 2.2 n/a
Revenue rank................................................... n/a n/a
</TABLE>
WDTJ-FM and WCHB-AM. On June 30, 1998, we acquired Bell Broadcasting, which
owns two radio stations, WDTJ-FM (formerly WCHB-FM) and WCHB-AM, located in the
Detroit, Michigan market and one radio station, WJZZ-AM, located in Kingsley,
Michigan. Radio One paid approximately $34.2 million in cash and the cost of
certain improvements to the stations. WDTJ-FM is a Young Urban Contemporary
station similar to our WERQ-FM in Baltimore and WKYS-FM in Washington, D.C.
WCHB-AM's facilities are currently being upgraded from 25 kW to 50 kW. WJZZ-AM
is currently off the air. We may dispose of it in the future because it is not
integral to the Bell Broadcasting operation and is located a substantial
distance from Detroit.
WWBR-FM. On December 28, 1998, we acquired Allur-Detroit for approximately
$26.5 million in cash. Allur-Detroit owns WWBR-FM licensed to Mt. Clemens,
Michigan, which is part of the Detroit MSA. Allur-Detroit's stockholders
included Syncom Venture Partners, an affiliate of one of Radio One's
stockholders, Syncom. On January 16, 1999, we changed the format of WWBR-FM to
Adult Contemporary. WWBR-FM is the first station owned by Radio One that
primarily targets a non-African-American audience.
St. Louis, Missouri
The St. Louis market is estimated to be the 19th largest radio market in
terms of MSA population. In 1998, this market had advertising revenue estimated
to be $116.5 million, making it the 18th largest radio market in terms of
advertising revenue. St. Louis is the 16th largest African-American market with
an MSA population of approximately 2.6 million in 1996, approximately 17.2% of
which was African-American. St. Louis experienced annual radio revenue growth
of 8.8% between 1991 and 1996, and radio revenue in St. Louis is expected to
continue growing at an annual rate of 6.9% between 1997 and 2001. (Source: BIA
1998 Fourth Edition)
On November 23, 1998, we entered into an agreement to acquire the assets of
WFUN-FM, licensed to Bethalto, Illinois for approximately $13.6 million in
cash. The FCC approved our acquisition of the assets of WFUN-FM on January 26,
1999. The FCC's action became a final action on March 10, 1999.
We expect to move WFUN-FM to a broadcast tower site closer to downtown St.
Louis, reformat the station and upgrade its signal from 6 kW to 25 kW. An
application for approval of the upgrade is pending at the FCC but there can be
no assurance that FCC approval of the upgrade will be obtained.
54
<PAGE>
Cleveland, Ohio
The Cleveland market is estimated to be the 24th largest radio market in
terms of MSA population and the 23rd largest radio market in terms of
advertising revenue. In 1998, this market had advertising revenue estimated to
be $96.7 million. Cleveland is the 17th largest African-American market with an
MSA population of approximately 2.1 million, approximately 18.7% of which was
African-American. Cleveland experienced annual radio revenue growth of 7.9%
between 1991 and 1996, and radio revenue in Cleveland is expected to continue
growing at an annual pace of 6.9% between 1997 and 2001. (Source: BIA 1998
Fourth Edition)
On March 29, 1999, we entered into an asset purchase agreement with Clear
Channel Communications, Inc. to acquire WENZ-FM and WERE-AM for approximately
$20.0 million in cash.
WENZ-FM is licensed to Cleveland, Ohio, and is currently programming an
Alternative Rock format. WENZ-FM garnered 2.4 share in the Fall 1998 Arbitron
Survey of the market's 12-plus age demographic.
WERE-AM is licensed to Cleveland, Ohio, and is currently programming a News
Talk format. WERE-AM achieved a 0.4 share in the Fall 1998 Arbitron Survey of
the market's 12-plus age demographic.
Consummation of the acquisition of radio stations WENZ-FM and WERE-AM is
subject to the receipt of prior FCC approval. An application for FCC consent to
the acquisition of radio stations WENZ-FM and WERE-AM was filed on February 8,
1999. We anticipate that initial approval will be granted before July 1, 1999,
but there can be no assurance that FCC approval for the acquisition will be
obtained.
Richmond, Virginia
Richmond is estimated to be the 57th largest radio market in terms of MSA
population. In 1998, this market had radio advertising revenue estimated to be
$45.8 million, making it the 46th largest radio market in terms of advertising
revenue. Richmond is the 19th largest African-American market with an MSA
population of approximately 937,000 in 1996, approximately 30.0% of which was
African-American. Richmond experienced annual radio revenue growth of 5.7%
between 1991 and 1996, and radio revenue in Richmond is expected to continue
growing at an annual rate of 6.5% between 1997 and 2001. (Source: BIA 1998
Fourth Edition)
We believe that Richmond is a particularly attractive market due to its
proximity to our headquarters in the Washington, D.C area. Due to this
proximity, we believe that we can leverage our regional advertiser
relationships and our regionally located management and on-air talent. We have
entered into agreements or letters of intent to acquire six FM and one AM radio
stations in three separate transactions. Upon completion of these acquisitions,
we believe we will be well positioned as a strong provider of urban-oriented
programming to Richmond's African-American market. We will also be the second
provider of Country programming and will have additional signals available for
other format opportunities and underserved demographics in the Richmond market.
On February 10, 1999, we entered into an asset purchase agreement to acquire
WDYL-FM, licensed to Chester, Virginia for approximately $4.6 million in cash.
WDYL-FM, currently a Religious format station, is in the Richmond, Virginia
market.
On February 26, 1999, we entered into an asset purchase agreement to acquire
WKJS-FM, licensed to Crewe, Virginia, and WSOJ-FM, licensed to Petersburg,
Virginia, for approximately $12.0 million in cash, subject to purchase price
adjustments. Both stations, currently urban format stations, are in the
Richmond, Virginia market.
WKJS-FM is a 100 kW station and generally covers the entire Richmond market.
The station changed its format from Oldies to Urban Adult Contemporary in March
1998 and has since experienced a significant ratings increase. WKJS-FM's
ratings increased from a 3.1 share in the 12-plus age demographic in the Winter
1998 Arbitron Survey to an 8.2 share in the 12-plus age demographic in the Fall
55
<PAGE>
1998 Arbitron Survey. In the 25-54 age demographic, WKJS-FM earned a 10.6 share
in the Fall 1998 Arbitron Survey, ranking it number one, tied with one other
station.
WSOJ-FM, licensed to Petersburg, Virginia, primarily covers Petersburg,
located in the southern portion of the Richmond metropolitan area. A Young
Urban Contemporary station, WSOJ-FM earned a 3.2 share in the 12-plus age
demographic in the Fall 1998 Arbitron Survey. WKJS-FM and WSOJ-FM have been
operated and sold in combination for most of 1998.
Pursuant to a letter of intent dated February 23, 1999, on April , 1999,
we entered into an asset purchase agreement to purchase WCDX-FM, WPLZ-FM, WJRV-
FM and WGCV-AM, for $34.0 million. Pursuant to that agreement, we will operate
these stations under an LMA beginning in June 1999. The seller has the option
to defer the closing for up to 18 months, but we expect to complete the
acquisition no later than the second half of 2000.
WCDX-FM, a Young Urban Contemporary station licensed to Mechanicsville,
Virginia, covers the entire Richmond metropolitan area. WCDX-FM has averaged a
10.1 share of the 12-plus age demographic for the last 2 years and is currently
ranked number two overall in the 12-plus age demographic, tied with another
station with an 8.8 share, according to the Fall 1998 Arbitron Survey. WCDX-FM
is also ranked number one in the 18-34 age demographic and number four in the
25-54 age demographic.
WPLZ-FM currently programs an Urban Oldies format and earned a 4.8 share of
the 12-plus age demographic in the Fall 1998 Arbitron Survey. WPLZ-FM, licensed
to Petersburg, Virginia, primarily covers the southern Richmond metropolitan
area. The two stations have historically been sold in combination and have been
the market leaders in terms of urban radio revenue share. WJRV-FM, licensed to
Richmond, Virginia, recently changed formats from Smooth Jazz to Country, in
order to challenge WKHK-FM, the leading country radio station in Richmond.
WJRV-FM earned a 1.5 share of the 12-plus age demographic in the Fall 1998
Arbitron Survey after approximately 3 months in the Country format. WGCV-AM is
a Religious formatted station, licensed to Petersburg, Virginia, that does not
currently have any significant audience or revenue share.
Consummation of the acquisition of these radio stations in Richmond is
subject to the receipt of prior FCC approval. An application for FCC consent to
the acquisition of WDYL-FM was filed on February 18, 1999, and initial approval
of the acquisition was granted on April 7, 1999. An application for FCC consent
to the acquisitions of WKJS-FM and WSOJ-FM was filed on March 5, 1999.We
anticipate that initial approval of the acquisitions will be granted by June 1,
1999, but there can be no assurance that FCC approval of the acquisitions will
be obtained. An application for FCC consent to the acquisitions of WJRV-FM,
WCDX-FM, WPLZ-FM and WGCV-AM is expected to be filed in August, 1999. We
anticipate that initial approval of the acquisitions will be granted in
October, 1999, but there can be no assurance that FCC approval for the
acquisitions will be obtained.
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 67.4% of our net broadcast revenue for the fiscal year
ended December 31, 1998, was generated from the sale of local advertising and
30.3% from sales to national advertisers. 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.
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<PAGE>
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
Radio One will continue to evaluate potential radio acquisitions in African-
American markets. We are exploring opportunities in other forms of media to
apply our expertise in marketing to African-Americans. Such opportunities could
include outdoor advertising in urban environments, an urban-oriented Internet
strategy, an urban-oriented radio network, music production, publishing and
other related businesses.
We recently entered into an exclusive programming agreement with XM
Satellite Radio, Inc. to provide African-American talk and music programming to
be broadcast on XM Satellite's satellite digital audio radio service, which is
expected to be available in 2000.
We have also invested, together with most publicly-traded radio companies,
in a recent private placement for USA Digital Radio, Inc., a leading developer
of in-band on-channel digital audio broadcast technology. This technology could
enable radio broadcasters to convert from analog to digital broadcasting within
the existing frequency allocation of their AM and FM stations. In conjunction
with this investment, Alfred C. Liggins, III, the Chief Executive Officer and
President of Radio One, became a board member of USA Digital Radio, Inc.
Additionally, we have recently invested in PNE Media Holdings, LLC, a
privately-held outdoor advertising company with a presence in several of the
markets in which we own radio stations.
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<PAGE>
Properties
The following chart sets forth the principal real property and radio related
facilities owned or leased by Radio One (including properties to be acquired
pursuant to pending acquisitions).
<TABLE>
<CAPTION>
Owned or Leased Approximate Size
Property Address Type of Facility and Use (Expiration Date) Tenant/Owner (Square Feet)
- ---------------- ------------------------ ------------------ ----------------- ----------------------
<S> <C> <C> <C> <C>
5900 Princess Garden
Parkway, Corporate Office, Leased Radio One 21,546
1st, 7th and 8th Floors WKYS-FM, WOL-AM (expires 12/31/11)
Lanham, MD WMMJ-FM, WYCB-AM
Studio
4001 Nebraska Avenue,
N.W. WKYS-FM Leased Radio One Tower and
Washington, D.C. Transmitter (expires 11/30/01) transmitter space
62 Pierce Street, N.E. WOL-AM Transmitter Leased Radio One Tower and
Washington, D.C. (expires 3/31/01) transmitter space
4400 Massachusetts
Avenue, N.W. WMMJ-FM Transmitter Leased Radio One Leased Tower space (+)
Washington, D.C. (expires 4/30/04) 200
100 St. Paul Street WWIN-AM/FM, Leased Radio One 8,000
Baltimore, MD WERQ-FM, WOLB-AM (expires 10/31/03)
Studio
Greenmount Avenue and WWIN-AM Transmitter Leased Radio One 225
29th Street (expires 8/31/01)
Baltimore, MD
(Waverly Towers)
1315 W. Hamburg Street WOLB-AM Transmitter Leased Radio One Tower and
Baltimore, MD (expires 12/31/00) transmitter space
7 St. Paul Street Satellite Dish Space Leased Radio One 200
Baltimore, MD (expires 4/22/04)
100 Old York Road WPHI-FM, Studio Leased Radio One 5,661
Jenkintown, PA (expires 10/31/03)
Domino Lane and Fowler
Street WPHI-FM Transmitter Leased Radio One Tower and
Philadelphia, PA (expires 6/29/06) transmitter space
2501 Hawkins Point Road WWIN-FM Transmitter Owned Radio One 16,800
Baltimore City, MD
2709 Boarman Avenue WERQ-FM Transmitter Owned Radio One 24,920
(4334-4338 Park Heights
Ave.)
Baltimore, MD
Walker Mill Road WYCB-AM Transmitter Leased BHI Tower and
District Heights, MD (expires 11/99) transmitter space
2994 East Grand River WDTJ-FM, WCHB-AM Leased Bell Broadcasting 3,000
Detroit, MI 48202 Studio (expires 6/30/99)
24600 Greenfield Road WDTJ-FM Transmitter Leased Bell Broadcasting Tower and
Oak Park, MI (expires 3/31/04) transmitter space
32790 Henry Huff Road WCHB-AM Office Site Owned Bell Broadcasting 80 acres
Romulus, MI
York Road WJZZ-AM Transmitter Owned Bell Broadcasting Tower and
Kingsley, MI transmitter space
Huron Township, MI WCHB-AM Transmitter Owned Bell Broadcasting 80 acres
Tyrone Cook Road #1 WHTA-FM Transmitter Leased ROA Tower and
Tyrone, GA (expires 12/6/09) transmitter space
75 Piedmont Ave. WHTA-FM Leased ROA 11,600
Atlanta, GA WAMJ-FM (expires 1/31/05)
Studio
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Owned or Leased Approximate Size
Property Address Type of Facility and Use (Expiration Date) Tenant/Owner (Square Feet)
- ---------------- ------------------------ ------------------ ------------- -----------------------
<S> <C> <C> <C> <C>
1050 Crown Pointe WAMJ-FM Transmitter Leased Dogwood Tower and
Atlanta, GA (expires 8/31/01) transmitter space
850 Stephenson Highway WWBR-FM Leased Allur-Detroit 5,766
Troy, MI Studio (expires 2/1/02)
21340 Pitko Street WWBR-FM Transmitter Leased Allur-Detroit Tower and
Mt. Clemens, MI (expires 12/31/08) transmitter space
Edwardsville Township,
IL WFUN-FM Transmitter Owned Radio One 3 acres
Larimore Road WFUN-FM Transmitter Leased Radio One Tower and
St. Louis, MO transmitter space
North Royalton, OH WERE-AM Transmitter Owned Radio One Tower and
transmitter space
Newbury Township, OH WENZ-FM Transmitter Owned Radio One Tower and
transmitter space
1041 Huron Road WERE-AM/WENZ-FM Leased Radio One 10,518
Cleveland, Ohio Studio
4312 Old Hundred Rd. WDYL-FM Studio Leased Radio One 1,872
Chester, VA (expires 2000)
10300 Brightwood Avenue WDYL-FM Transmitter Leased Radio One Tower and
Chesterfield, VA (expires 2014) transmitter space
6001 Wilkinson Road WKJS-FM/WSOJ-FM Leased Radio One
Richmond, VA Studio (expires 2000)
East Side Rt. 608 WKJS-FM Transmitter Owned Radio One Tower and
Nottoway County, VA transmitter space
3321 Johnson Rd. WSOJ-FM Transmitter Leased Radio One Tower and
Petersburg, VA (expires 10/31/02) transmitter space
2809 Emerywood Parkway WCDX-FM, WPLZ-FM and Leased Radio One 13,500
Richmond, VA WJRV-FM Main Studio (expires 4/30/03)
3245 Basie Road WCDX-FM Main Transmitter Leased Radio One Tower and
Richmond, VA and WPLZ-FM, Studio (expires 12/31/19) transmitter space
Transmitter Link Location
8216 Meadowbridge Road WCDX-FM Auxillary Leased Radio One Tower and
Mechanicsville, VA Transmitter transmitter space
701 German School Road WJRV-FM Main Transmitter Leased Radio One Tower and
Richmond, VA transmitter space
Hare & Culpepper Streets WPLZ-FM and WGCV-AM Owned Radio One Tower and
Petersburg, VA Main Transmitter transmitter space
</TABLE>
The real property owned or leased by us is the subject of a security
interest held pursuant to the terms of our bank credit facility.
We own substantially all of our other equipment, consisting principally of
studio equipment and office equipment. The towers, antennae and other
transmission equipment used by our radio stations are generally in good
condition, although opportunities to upgrade facilities are periodically
reviewed.
We believe that the facilities for our radio stations and office space in
Washington, D.C., Baltimore, Atlanta, Philadelphia, Detroit, and Richmond are
generally suitable and of adequate size for their current
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<PAGE>
and intended purposes other than for routine modifications and expansions. We
believe we will be able to obtain suitable facilities for our radio stations in
St. Louis and Cleveland on reasonable terms.
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 announced new procedures to
review proposed radio broadcasting transactions even if the proposed
acquisition otherwise complies with the FCC's ownership limitations. In
particular, the FCC may invite public comment on proposed radio transactions
that the FCC believes, based on its initial analysis, may present ownership
concentration concerns in a particular local radio market.
Federal Regulation of Radio Broadcasting
The radio broadcasting industry is subject to extensive and changing
regulation by the FCC of programming, technical operations, employment and
other business practices. The FCC regulates radio broadcast stations pursuant
to the Communications Act. The Communications Act permits the operation of
radio broadcast stations only in accordance with a license issued by the FCC
upon a finding that the grant of a license would serve the public interest,
convenience and necessity. The Communications Act provides for the
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<PAGE>
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, and may in the future
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could, directly or indirectly, affect the operation, ownership
and profitability of Radio One's radio stations, result in the loss of audience
share and advertising revenue for our radio broadcast stations or affect our
ability to acquire additional radio broadcast stations or finance such
acquisitions. Such matters may include:
. changes to the license authorization and renewal process;
. proposals to impose spectrum use or other fees on FCC licensees;
. auction of new broadcast licenses;
. changes to the FCC's equal employment opportunity regulations and other
matters relating to involvement of minorities and women in the broadcasting
industry;
. proposals to change rules relating to political broadcasting including
proposals to grant free air time to candidates, and other changes regarding
program content;
. proposals to restrict or prohibit the advertising of beer, wine and other
alcoholic beverages;
. technical and frequency allocation matters, including creation of a new low
power radio broadcast service;
. the implementation of digital audio broadcasting on both a satellite and
terrestrial basis;
. changes in broadcast cross-interest, multiple ownership, foreign ownership,
cross-ownership and ownership attribution policies;
. proposals to allow telephone companies to deliver audio and video
programming to homes in their service areas; and
. proposals to alter provisions of the tax laws affecting broadcast
operations and acquisitions.
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<PAGE>
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 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 recently has proposed to divide Class C
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<PAGE>
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.
The following table sets forth information with respect to each of our radio
stations, including the radio stations we have agreed to purchase in St. Louis,
Cleveland and 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>
HAAT
ERP (FM) (FM)
POWER AI
(AM) (AM) EXPIRATION
STATION YEAR OF FCC IN IN OPERATING DATE OF
MARKET CALL LETTERS ACQUISITION CLASS KILOWATTS METERS FREQUENCY FCC LICENSE
- ------ ------------ ----------- ----- --------- ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Washington, D.C. WOL-AM 1980 C 1.0 52.1 1450 kHz 10/01/2003
WMMJ-FM 1987 A 2.9 146.0 102.3 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(/2/) 49.4 1200 kHz 10/01/2004
WJZZ-AM 1998 D 50.0 59.7 1210 kHz 10/01/2004
WWBR-FM 1998 B 50.0 152.0 102.7 MHz 10/01/2004
St. Louis WFUN-FM 1999 A 6.0 100.0 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(/3/) 100.0 101.1 MHz 10/01/2003
WKJS-FM 1999 C1 100.0 299.0 104.7 MHz 10/01/2003
WSOJ-FM 1999 A 4.7 113.0 100.3 MHz 10/01/2003
WCDX-FM 1999 B1 4.5 235.0 92.1 MHz 10/01/2003
WPLZ-FM 1999 A 6.0 100.0 99.3 MHz 10/01/2003
WJRV-FM 1999 A 2.3 162.0 105.7 MHz 10/01/2003
WGCV-AM 1999 C 1.0 122.0 1240 kHz 10/01/2003
</TABLE>
- --------
(1) WPHI-FM operates with facilities equivalent to 3 kW at 100 meters.
(2) On March 4, 1999, we began testing with a power of up to 50 kW day and 15
kW night.
(3)An application for a license to operate at 6 kW is pending.
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:
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<PAGE>
. the financial and legal qualifications of the prospective assignee or
transferee, including compliance with FCC restrictions on non-U.S. citizen
or entity ownership and control;
. compliance with FCC rules limiting the common ownership of certain
"attributable" interests in broadcast and newspaper properties;
. the history of compliance with FCC operating rules; and
. the "character" qualifications of the transferee or assignee and the
individuals or entities holding "attributable" interests in them.
Applications to the FCC for assignments and transfers are subject to petitions
to deny by interested parties.
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 of more than 50% of the
voting stock, the application must be placed on public notice for a period of
30 days during which petitions to deny the application may be filed by
interested parties, including members of the public. Informal objections may be
filed any time up until the FCC acts upon the application. If an assignment
application does not involve new parties, or if a transfer of control
application does not involve a "substantial change" in ownership or control, it
is a pro forma application, which is not subject to the public notice and 30-
day petition to deny procedure. The pro forma application is nevertheless
subject to informal objections that may be filed any time up until the FCC acts
on the application. If the FCC grants an assignment or transfer application,
interested parties have 30 days from public notice of the grant to seek
reconsideration of that grant. The FCC usually has an additional ten days to
set aside such grant on its own motion. When ruling on an assignment or
transfer application, the FCC is prohibited from considering whether the public
interest might be served by an assignment or transfer to any party other than
the assignee or transferee specified in the application.
Under the Communications Act, a broadcast license may not be granted to or
held by any corporation that has more than 20% of its capital stock owned or
voted by non-U.S. citizens or entities or their representatives, by foreign
governments or their representatives, or by non-U.S. corporations. Furthermore,
the Communications Act provides that no FCC broadcast license may be granted to
or held by any corporation directly or indirectly controlled by any other
corporation of which more than 25% of its capital stock is owned of record or
voted by non-U.S. citizens or entities or their representatives, or foreign
governments or their representatives or by non-U.S. corporations, if the FCC
finds the public interest will be served by the refusal or revocation of such
license. These restrictions apply in modified form to other forms of business
organizations, including partnerships and limited liability companies. Thus,
the licenses for Radio One's stations could be revoked if more than 25% of
Radio One's outstanding capital stock is issued to or for the benefit of non-
U.S. citizens.
The FCC generally applies its other broadcast ownership limits to
"attributable" interests held by an individual, corporation, partnership or
other association or entity, including limited liability companies. In the case
of a corporation holding broadcast licenses, the interests of officers,
directors and those who, directly or indirectly have the right to vote five
percent or more of the stock of a licensee corporation are generally deemed
attributable interests, as are positions as an officer or director of a
corporate parent of a broadcast licensee. The FCC treats all partnership
interests as attributable, except for those limited partnership interests that
under FCC policies are considered "insulated" from "material involvement" in
the management or operation of the media-related activities of the partnership.
The FCC currently treats limited liability companies like limited partnerships
for purposes of attribution. Stock interests held by insurance companies,
mutual funds, bank trust departments and certain other passive investors that
hold stock for investment purposes only become attributable with the ownership
of ten percent or more of the voting stock of the corporation holding broadcast
licenses.
To assess whether a voting stock interest in a direct or an indirect parent
corporation of a broadcast licensee is attributable, the FCC uses a
"multiplier" analysis in which non-controlling voting stock interests
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<PAGE>
are deemed proportionally reduced at each non-controlling link in a multi-
corporation ownership chain. A time brokerage agreement with another radio
station in the same market creates an attributable interest in the brokered
radio station as well for purposes of the FCC's local radio station ownership
rules, if the agreement affects more than 15% of the brokered radio station's
weekly broadcast hours.
Debt instruments, non-voting stock, options and warrants for voting stock
that have not yet been exercised, insulated limited partnership interests where
the limited partner is not "materially involved" in the media-related
activities of the partnership, and minority voting stock interests in
corporations where there is a single holder of more than 50% of the outstanding
voting stock whose vote is sufficient to affirmatively direct the affairs of
the corporation, generally do not subject their holders to attribution.
However, the FCC's rules also specify other exceptions to these general
principles for attribution. However, the FCC is currently evaluating whether
to:
. raise the benchmark for voting stock from five to ten percent;
. raise the benchmark for passive investors holding voting stock from ten
to twenty percent;
. continue the single 50% stockholder exception; and/or
. attribute non-voting stock or perhaps only when combined with other
rights such as voting shares or contractual relationships.
More recently, the FCC has solicited comment on proposed rules that would:
. treat an otherwise non-attributable ownership equity or debt interest in
a licensee as an attributable interest where the interest holder is a
program supplier or the owner of a broadcast station in the same market
and the equity and/or debt holding is greater than a specified
benchmark; and
. in certain circumstances, treat the licensee of a broadcast station that
sells advertising time of another station in the same market pursuant to
a joint sales agreement as having an attributable interest in the
station whose advertising is being sold.
The Communications Act and FCC rules generally restrict ownership, operation
or control of, or the common holding of attributable interests in:
.radio broadcast stations above certain limits servicing the same local
market;
.a radio broadcast station and a television broadcast station 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 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 or television broadcast station, other than a low-powered television
station, 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 or television broadcast station in
those same markets.
The FCC is currently reviewing the ban on common ownership of a radio
station and a daily newspaper in the same market. The FCC's rules provide for
the liberal grant of a waiver of the rule prohibiting common ownership of radio
and television stations in the same geographic market in the top 25 television
markets if certain conditions are satisfied, and the FCC will consider waivers
in other markets under more restrictive standards. The FCC is reviewing its ban
on the common ownership of a radio station and a television station or
newspaper including extending the policy of liberal waivers of common ownership
of radio and television stations to the top 50 television markets.
Although current FCC nationwide radio broadcast ownership rules allow one
entity to own, control or hold attributable interests in an unlimited number of
FM radio stations and AM radio stations nationwide, the
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Communications Act and the FCC's rules limit the number of radio broadcast
stations in local markets in which a single entity may own an attributable
interest as follows:
. In a radio market with 45 or more commercial radio stations, a party may
own, operate or control up to eight commercial radio stations, not more
than five of which are in the same service (AM or FM).
. In a radio market with between 30 and 44 (inclusive) commercial radio
stations, a party may own, operate or control up to seven commercial
radio stations, not more than four of which are in the same service (AM
or FM).
. In a radio market with between 15 and 29 (inclusive) commercial radio
stations, a party may own, operate or control up to six commercial radio
stations, not more than four of which are in the same service (AM or
FM).
. In a radio market with 14 or fewer commercial radio stations, a party
may own, operate or control up to five commercial radio stations, not
more than three of which are in the same service (AM or FM), except that
a party may not own, operate, or control more than 50 percent of the
radio stations in such market.
The FCC is currently reviewing the effect of local market ownership
limitations on competition and diversity in the broadcast industry to determine
if a recommendation to repeal or modify the rules should be made to Congress.
The FCC staff has also notified the public of its intention to review
transactions that comply with numerical ownership limits but that might involve
undue concentration of market share.
Because of these multiple and cross-ownership rules, if a stockholder,
officer or director of Radio One holds an "attributable" interest in Radio One,
such stockholder, officer or director may violate the FCC's rules if such
person or entity also holds or acquires an attributable interest in other
television, 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 long as
one person or entity holds more than 50% of the voting power of the common
stock of Radio One where the vote of such person or entity is sufficient to
affirmatively direct the affairs of Radio One, another stockholder, unless
serving as an officer and/or director, generally would not hold an attributable
interest in Radio One. However, as described above, the FCC is currently
evaluating whether to continue the exception for a single majority stockholder
of more than 50% of a licensee's voting stock. As of March 31, 1999, no single
stockholder held more than 50% of the total voting power of our common stock.
Under its "cross-interest" policy, the FCC considers "meaningful"
relationships among competing media outlets that serve "substantially the same
area," even if the ownership rules do not specifically prohibit the
relationship. Under this policy, the FCC may consider whether to prohibit one
party from holding an attributable interest and a substantial non-attributable
interest (including non-voting stock, limited partnership and limited liability
company interests) in a media outlet in the same market, or from entering into
a joint venture or having common key employees with competitors. The cross-
interest policy does not necessarily prohibit all of these interests, but
requires that the FCC consider whether, in a particular market, the
"meaningful" relationships between competitors could have a significant adverse
effect upon economic competition and program diversity. In a rule making
proceeding concerning the attribution rules, the FCC has sought comment on,
among other things, (1) whether the cross-interest policy should be applied
only in smaller markets, and (2) whether non-equity financial relationships,
such as debt, when combined with multiple business relationships, such as local
marketing agreements or joint sales arrangements, raise concerns under the
cross-interest policy.
Programming and Operations. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1980s, the FCC has relaxed or
eliminated many of the more formalized procedures it developed to promote the
broadcast of certain types of programming responsive to the needs of a radio
station's community of license. Nevertheless, a broadcast licensee continues to
be required to present programming in
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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.
The FCC has always required that licensees not discriminate in hiring
practices, develop and implement programs designed to promote equal employment
opportunities and submit reports to the FCC on these matters annually and in
connection with each license renewal application. The FCC's employment rules,
as they related to outreach efforts for recruitment of minorities, however,
were recently struck down as unconstitutional by the U.S. Court of Appeals for
the D.C. Circuit. The FCC has proposed revising the rules to adopt outreach
efforts that are constitutional.
The FCC rules also prohibit a broadcast licensee from simulcasting more than
25% of its programming on another radio station in the same broadcast service
(that is, AM/AM or FM/FM). The simulcasting restriction applies if the licensee
owns both radio broadcast stations or owns one and programs the other through a
local marketing agreement, provided that the contours of the radio stations
overlap in a certain manner.
From time to time, complaints may be filed against Radio One's radio
stations alleging violations of these or other rules. In addition, the FCC
recently has proposed to establish a system of random audits to ensure and
verify licensee compliance with FCC rules and regulations. Failure to observe
these or other rules and policies can result in the imposition of various
sanctions, including fines or conditions, the grant of "short" (less than the
maximum eight year) renewal terms or, for particularly egregious violations,
the denial of a license renewal application or the revocation of a license.
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. The FCC is considering whether it should treat as attributable
multiple business arrangements among local radio stations such as a joint sales
arrangement accompanied by debt financing. Also, as described above, FCC rules
prohibit a radio broadcast station from simulcasting more than 25% of its
programming on another radio broadcast station in the same broadcast service
(that is, AM/AM or FM/FM) where the two radio stations serve substantially the
same geographic area, whether the licensee owns both radio stations or owns one
radio station and programs the other through a time
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brokerage agreement. Thus far, the FCC has not considered what relevance, if
any, a time brokerage agreement may have upon its evaluation of a licensee's
performance at renewal time.
Joint Sales Agreements. Over the past few years, a number of radio stations
have entered into cooperative arrangements commonly known as joint sales
agreements or JSAs. While these agreements may take varying forms, under the
typical JSA, a station licensee obtains, for a fee, the right to sell
substantially all of the commercial advertising on a separately-owned and
licensed station in the same market. The typical JSA also customarily involves
the provision by the selling party of certain sales, accounting and services to
the station whose advertising is being sold. The typical JSA is distinct from a
local marketing agreement in that a JSA normally does not involve programming.
The FCC has determined that issues of joint advertising sales should be left
to enforcement by antitrust authorities, and therefore does not generally
regulate joint sales practices between stations. Currently, stations for which
another licensee sells time under a JSA are not deemed by the FCC to be an
attributable interest of that licensee. However, in connection with its ongoing
rulemaking proceedings concerning the attribution rules, the FCC is considering
whether JSAs should be considered attributable interests or within the scope of
the FCC's cross-interest policy, particularly when JSAs contain provisions for
the supply of programming services and/or other elements typically associated
with local marketing agreements.
RF Radiation. In 1985, the FCC adopted rules based on a 1982 American
National Standards Institute ("ANSI") standard regarding human exposure to
levels of radio frequency ("RF") radiation. These rules require applicants for
renewal of broadcast licenses or modification of existing licenses to inform
the FCC at the time of filing such applications whether an existing broadcast
facility would expose people to RF radiation in excess of certain limits. In
1992, ANSI adopted a new standard for RF exposure that, in some respects, was
more restrictive in the amount of environmental RF exposure permitted. The FCC
has since adopted more restrictive radiation limits which became effective
October 15, 1997, and which are based in part on the revised ANSI standard.
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
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limited service areas of 8.8 miles and 3.5 miles, respectively. The FCC also
has sought public comment on the advisability of establishing a very low power
secondary "microbroadcasting" service with a maximum power limit of one to ten
watts. These "microradio" stations would have a service radius of only one to
two miles. The service would target "niche markets" and be possibly supported
by advertising revenue. Existing licensees, like Radio One, would be prohibited
from owning or having a relationship with these new stations. Implementation of
a low power radio service or microbroadcasting would provide an additional
audio programming service that could compete with Radio One's radio stations
for listeners, but the effect upon Radio One cannot be predicted.
Subsidiaries and Related Entities
Radio One has title to most of the assets used in the operations of our
radio stations. The FCC licenses for the radio stations in all cases are or
will be held by direct or indirect wholly-owned subsidiaries of Radio One. In
the case of all of the Baltimore stations, three of the Washington, D.C.
stations, the Philadelphia station, the St. Louis station, the Cleveland
stations and the Richmond stations, the FCC licenses are or will be held by
Radio One Licenses, Inc., a Delaware corporation and a wholly-owned Restricted
Subsidiary of Radio One. Radio One Licenses, Inc. holds no other material
assets. WYCB Acquisition Corporation, a Delaware corporation and a wholly-owned
Unrestricted Subsidiary, holds title to all of the outstanding capital stock of
BHI, a District of Columbia corporation and an Unrestricted Subsidiary. The FCC
licenses for WYCB-AM are held by BHI which also holds the assets used in the
operation of that station. Bell Broadcasting, a Michigan corporation and a
wholly-owned Restricted Subsidiary, holds the assets used in the operation of
WCHB-AM, WDTJ-FM and WJZZ-AM. Bell Broadcasting holds title to all of the
outstanding capital stock of Radio One of Detroit, Inc., a Delaware corporation
and a Restricted Subsidiary. The FCC licenses for WCHB-AM, WDTJ-FM and WJZZ-AM
are held by Radio One of Detroit, Inc. Radio One of Detroit, Inc. holds no
other material assets.
Allur-Detroit, a Delaware corporation and a wholly-owned Restricted
Subsidiary, holds the assets used in the operation of station WWBR-FM. Allur-
Detroit holds title to all of the outstanding capital stock of Allur Licenses,
Inc., a Delaware corporation and a Restricted Subsidiary. The FCC licenses for
WWBR-FM are held by Allur Licenses, Inc. Allur Licenses, Inc. holds no other
material assets.
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 March 31, 1999, we employed approximately 450 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 March 31, 1999 Position
- ------------------------ -------------- -----------------------------------------------------------
<S> <C> <C>
Catherine L. Hughes..... 51 Chairperson of the Board of Directors and Secretary
Alfred C. Liggins, III.. 34 Chief Executive Officer, President, Treasurer, and Director
Scott R. Royster........ 34 Executive Vice President and Chief Financial Officer
Mary Catherine Sneed.... 47 Chief Operating Officer
Linda J. Eckard......... 41 General Counsel
Steve Hegwood........... 37 Vice President of Programming
Leslie J. Hartmann...... 37 Corporate Controller
Terry L. Jones.......... 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. 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
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joining Davis Wright Tremaine LLP, Ms. Eckard was a shareholder of Roberts &
Eckard, P.C., a firm that she co-founded in April 1992. Ms. Eckard is a
graduate of Gettysburg College, 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. ("Syncom I"), a
communications venture capital investment company, and its wholly owned
subsidiary, Syncom. He joined Syncom I in 1978 as a Vice President. Mr. Jones
serves in various capacities, including director, president, general partner
and vice president, for various other entities affiliated with Syncom I. He
also serves on the board of directors of the National Association of Investment
Companies, Delta Capital Corporation, Sun Delta Capital Access Center and the
Southern African Enterprise Development Fund. Mr. Jones earned his B.S. degree
from Trinity College, his M.S. from George Washington University and his M.B.A.
from Harvard Business School.
Mr. McNeill has been a director of Radio One since 1995. Since 1986, Mr.
McNeill has been a General Partner of Burr, Egan, Deleage & Co., a major
private equity firm which specializes in investments in the communications and
technology industries. He has served as a director in many private radio and
television broadcasting companies such as Tichenor Media Systems, OmniAmerica
Group, Panache Broadcasting and Shockley Communications. From 1979 to 1986, he
worked at the Bank of Boston where he started and managed that institution's
broadcast lending group. Mr. McNeill is a graduate of Holy Cross College and
earned an M.B.A. from the Amos Tuck School at Dartmouth College.
Mr. Marcus is expected to become 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. He is also an
officer and director of Better Communications, Inc., a general partner of the
owner of two television stations in Indiana. 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. 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, 1997 193,269 50,000 3,125
Treasurer and Director 1996 150,000 -- 19,486
Scott R. Royster...................... 1998 165,000 50,000 n/a
Executive Vice President and Chief
Financial Officer 1997 148,077 25,000 n/a
1996 55,577(/1/) -- n/a
Mary Catherine Sneed.................. 1998 200,000 50,000 n/a
Chief Operating Officer
Linda J. Eckard....................... 1998 150,000 25,000 n/a
General Counsel
</TABLE>
- --------
(1) Mr. Royster provided consulting services for Radio One in July 1996 and
joined Radio One as an employee in August 1996. Disclosed compensation
represents consulting fees received by Mr. Royster and the portion of his
$125,000 annual salary paid during 1996.
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 our 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 our 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. We 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 anticipate entering into a
three-year employment agreement with Mr. Royster pursuant to which Mr. Royster
will continue to serve as our Chief Financial Officer and Executive Vice
President. Under the expected terms of the employment agreement Mr. Royster
will receive an annual base salary of $200,000 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, and a one-time cash bonus of $60,000,
payable upon completion of an equity financing which results in gross proceeds
to us of at least $50 million. Mr. Royster has also received a one-time
restricted stock award of 51,194 shares of our class C
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common stock and an option to purchase shares of our class A common stock
at an exercise price of per share (subject to certain adjustments).
Twenty-five percent of the stock granted pursuant to the stock award vested on
the date of grant; the remaining stock will vest in equal increments every six
months beginning December 31, 1999 and ending December 31, 2001. The options
will vest in equal one-sixth increments during the term of the employment
agreement. 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 a 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 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, and a one-time cash
bonus of $ , payable upon completion of an equity financing which results
in gross proceeds to us of at least $50 million. Ms. Eckard will also receive
an option to purchase shares of our class A common stock at an exercise
price of 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
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.
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 our stockholders. 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 thirtieth 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
the principals of Syncom, Herbert P. Wilkins, Terry L. Jones and Duane
McKnight, have reached an agreement in principle to provide initial funding to
satisfy the requirements of the Mableton Option. Terry L. Jones is also a
member of Radio One's board of directors. Mr. Liggins has also proposed that
Radio One, most likely through ROA, enter into an LMA with respect to the
Mableton Station, or otherwise participate in the operations and financing of
the Mableton Station. Any such arrangement will be on terms at least as
favorable to Radio One as any such transaction with an unaffiliated third
party.
Office Lease
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.
Mr. Liggins' Loan
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 dated as of June 30, 1998. As of March 1, 1999, the aggregate
outstanding principal and interest amount on this loan was $386,386. The
purpose of the loan was to repay a loan that Mr. Liggins obtained from
NationsBank, Texas, N.A. in 1997 to purchase an additional interest in Radio
One.
Music One, Inc.
Ms. Hughes and Mr. Liggins own a music company called Music One, Inc. 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 WWBR-FM from American
Signalling Corporation for approximately $72,000 per year. American Signalling
Corporation is a wholly-owned subsidiary of Syncom Venture Partners. 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. holds
20% of the stock of XM Satellite Radio, Inc. Syncom Venture Partners owns
approximately 1.25% of the stock of Worldspace, Inc. Terry L. Jones, a director
of Radio One, is also a director of Worldspace, Inc.
Radio One of Atlanta, Inc.
On March 30, 1999, Radio One acquired all of the outstanding capital stock
of ROA. ROA's stockholders included Alta Subordinated Debt Partners III, L.P.
("Alta"), Syncom Venture Partners, and Alfred C. Liggins, III.
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Mr. Brian W. McNeill, a general partner of Alta, is also a member of Radio
One's board of directors. In addition to holding shares of Radio One's existing
preferred stock prior to this offering, Alta will hold approximately 13.0% of
the class A common stock after completion of the common stock offering. Terry
L. Jones, a general partner of the general partner of Syncom Venture Partners,
is also a member of Radio One's board of directors and is the President of
Syncom and Syncom I. In addition to holding shares of Radio One's existing
preferred stock prior to this offering, Syncom is one of the selling
stockholders in the common stock offering and will hold approximately 9.1% of
the class A common stock after completion of the common stock offering.
Radio One issued approximately 3.3 million shares of common stock in
exchange for the outstanding capital stock of ROA. Alta, Syncom Venture
Partners and Mr. Liggins received a majority of such shares in exchange for
their shares 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, which is
one of the selling stockholders, approximately $1.3 million was paid to Syncom
Venture Partners, and approximately $2.0 million was paid to Alta.
The board of directors authorized the formation of an ad-hoc committee to
oversee the valuation of ROA. The ad-hoc committee members are Catherine L.
Hughes of Radio One, Sanford Anstey of BancBoston Investments, Inc. and Dean
Pickerell of Medallion Capital, Inc. (formerly Capital Dimensions Venture Fund,
Inc.). The committee is comprised of members of the board of directors of, and
investors in, Radio One that do not have an interest in ROA.
The ad-hoc committee recommended approval of the acquisition of ROA based
upon its determination that the acquisition was fair to Radio One and its
stockholders.
Ms. Sneed's Loan
ROA has extended an unsecured loan to Mary Catherine Sneed, Chief Operating
Officer of Radio One, in the original amount of $262,539, which bears interest
at an annual rate of 5.56% and is evidenced by two demand promissory notes. As
of March 30, 1999, the aggregate outstanding principal and interest amount on
this loan was $263,394. 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.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock after giving effect to this offering, but without
giving effect to the exercise of the underwriters' over-allotment option with
respect to the common stock offering, 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 in the common stock offering; and (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.
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------------------- Percent Percent
Class A Class B Class C of of
------------------ ------------------ ------------------ Total Total
Name of Number Percent Number Percent Number Percent Economic Voting
Beneficial Owner of Shares of Class of Shares of Class of Shares of Class Interest Power
- ------------------------ --------- -------- --------- -------- --------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Catherine L. -- --% 851,536 29.6% 1,704,740 53.4% 15.0% 22.3%
Hughes(/1/)............
c/o Radio One
5900 Princess Garden
Parkway, 8th Floor,
Lanham, Maryland 20706
Alfred C. Liggins, 33,040 0.3 2,010,308 70.0 1,419,646 44.4 20.3 49.9
III(/1/)(/4/)..........
c/o Radio One
5900 Princess Garden
Parkway, 8th Floor,
Lanham, Maryland 20706
Scott R. Royster........ -- -- -- -- 49,191 1.5 0.3 --
c/o Radio One
5900 Princess Garden
Parkway, 8th Floor,
Lanham, Maryland 20706
Mary Catherine Sneed.... 229,422 2.1 -- -- -- -- 1.3 0.6
c/o Radio One
5900 Princess Garden
Parkway, 8th Floor,
Lanham, Maryland 20706
Terry L. Jones(/2/)..... 1,157,879 10.5 -- -- -- -- 6.8 2.9
c/o Syncom Capital
Corporation
8401 Colesville Road,
Suite 300,
Silver Spring, MD 20910
Brian W. McNeill(/3/)... 1,419,795 13.0 -- -- -- -- 8.3 3.6
c/o Burr, Egan, Deleage
& Co.
One Post Office Square
Boston, MA 02109
Alta Subordinated Debt 1,419,795 13.0 -- -- -- -- 8.3 3.6
Partners III,
L.P.(/4/)..............
c/o Burr, Egan, Deleage
& Co.
One Post Office Square
Boston, MA 02109
Alliance Enterprise 587,971 5.4 -- -- -- -- 3.5 1.5
Corporation(/4/).......
12655 N. Central
Expressway, Suite 710
Dallas, TX 75243
BancBoston Investments, 390,320 3.6 -- -- -- -- 2.3 0.9
Inc.(/4/)..............
100 Federal Street,
32nd Floor
Boston, MA 02110
Medallion Capital, 479,181 4.4 -- -- -- -- 2.8 1.2
Inc.(/4/)..............
7831 Glenroy Road,
Suite 480
Minneapolis, MN 55439
Fulcrum Venture Capital 220,541 2.0 -- -- -- -- 1.3 0.6
Corporation(/4/).......
300 Corporate Point,
Suite 380
Culver City, CA 90230
Syncom Capital
Corporation and 1,157,879 10.5 -- -- -- -- 6.8 2.9
Syndicated
Communications Venture
Partners(/4/)..........
8401 Colesville Road,
Suite 300
Silver Spring, MD 20910
All Directors and Named
Executives as a group 2,840,136 25.9 2,861,844 99.6 3,173,577 99.3 52.0 79.3
(7 persons)............
</TABLE>
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- --------
(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. Pursuant to that agreement, Mr.
Liggins has transferred to Ms. Hughes voting control over shares of common
stock representing approximately 0.8% of the total voting power of all
common stock until such time as Mr. Liggins is permitted under applicable
laws and regulations to hold in excess of 50% of such voting power.
(2) Represents 1,157,879 shares of class A common stock held by Syncom. Mr.
Jones is the President of Syncom and may be deemed to share beneficial
ownership of shares of class A common stock and existing preferred stock
held by Syncom by virtue of his affiliation with Syncom. Mr. Jones
disclaims beneficial ownership in such shares.
(3) Represents 1,419,795 shares of class A common stock held by Alta. Mr.
McNeill is a general partner of Alta and may be deemed to share beneficial
ownership of shares of class A common stock and existing preferred stock
held by Alta by virtue of his affiliation with Alta. Mr. McNeill disclaims
any beneficial ownership of such shares.
(4) Such person is a holder of shares of our existing preferred stock, as
follows:
<TABLE>
<CAPTION>
Number of Shares of Number of Shares of
Name of Stockholder Series A Preferred Stock Held Series B Preferred Stock Held
- ------------------------ ----------------------------- -----------------------------
<S> <C> <C>
Alfred C. Liggins, III.. 2,359.67 --
Alta Subordinated Debt
Partners III, L.P...... -- 72,139.57
Alliance Enterprise
Corporation............ 9,126.55 --
BancBoston Investments,
Inc.................... -- 49,249.44
Medallion Capital,
Inc.................... 37,258.14 --
Fulcrum Venture Capital
Corporation............ 9,650.09 --
Syncom Capital
Corporation............ 13,595.69 --
</TABLE>
We intend to use part of the proceeds of this offering to redeem all of our
existing preferred stock.
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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 this offering, the proposed sale of
50,000 shares of new preferred stock by Radio One in this offering and, except
as otherwise provided below, the proposed sale of 6,200,000 shares of class A
common stock by Radio One in the common stock offering. Our capital stock
consists of (1) 90,000,000 authorized shares of common stock, $0.01 par value
per share, which consists of (a) 30,000,000 shares of class A common stock, of
which 10,957,771 shares are outstanding (11,577,771 shares assuming the
underwriters overallotment option is exercised) in the common stock offering,
(b) 30,000,000 shares of class B common stock, of which 2,873,084 shares are
outstanding, and (c) 30,000,000 shares of class C common stock, of which
3,195,064 shares are outstanding, and (2) 380,000 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, 150,000 shares of
series B preferred stock, none of which is outstanding and 90,000 shares of new
preferred stock, of which 50,000 shares are outstanding. In the event this
offering is not consummated, there would be no shares of new preferred stock
outstanding, and there would be 140,000 shares of series A preferred stock
authorized, of which 84,843 shares would be outstanding and (b) 150,000 shares
of series B preferred stock authorized, of which 124,467 would be outstanding.
There is no established trading market for our common stock or new preferred
stock. The following is a 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.
Application has been made for the listing of the class A common stock on The
Nasdaq National Market, subject to official notice of issuance.
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."
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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;
. 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.
New Preferred Stock
You can find the definitions of certain terms used in this description under
the sub-heading "--Certain Definitions." In this description, the words "we,"
"our," "us" and "Radio One" refer only to Radio One, Inc. and not to any of our
subsidiaries.
We will issue the new preferred stock under our certificate of
incorporation.
The following description is a summary of the material provisions of the
certificate of incorporation relating to the new preferred stock. It does not
restate the certificate of incorporation in its entirety. We urge you to read
the certificate of incorporation because it, and not this description, defines
your rights as holders of the new preferred stock. We have filed a copy of the
certificate of incorporation as an exhibit to the registration statement which
includes this prospectus.
Brief Description of the New Preferred Stock
The shares of new preferred stock:
. are senior as to dividend and liquidation rights to any existing classes
of stock of Radio One; and
. under specified circumstances are exchangeable at our option into our
exchange debentures.
We will issue 50,000 shares of our % senior cumulative preferred stock due
June 30, 2011. The liquidation preference of the new preferred stock is $1,000
per share. The new preferred stock is mandatorily redeemable by Radio One on
June 30, 2011.
Dividends on the new preferred stock will accrue at the rate of % per
annum and will be payable semi-annually in arrears on June 30 and December 31,
commencing on June 30, 1999. We will make each dividend payment to the holders
of record of the new preferred stock as of the immediately preceding June 15
and December 15.
Dividends on the new preferred stock will be payable in cash, except that
prior to July 1, 2004, we may pay dividends by issuing additional shares of new
preferred stock. Dividends will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Ranking
The new preferred stock will rank senior to all other classes of equity
securities of Radio One outstanding upon completion of this offering. We may
not authorize any new class of stock equal or senior in rights to the
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new preferred stock without the approval of at least a majority of the shares
of new preferred stock then outstanding.
The new preferred stock will, with respect to dividend rights and rights on
liquidation, winding-up and dissolution, rank
(1) senior to all classes of common stock and to each other class of
capital stock or series of preferred stock outstanding on the Issue Date
and each other class or series established hereafter by the board of
directors the terms of which do not expressly provide that it ranks senior
to, or on a parity with, the new preferred stock as to dividend rights and
rights on liquidation, winding-up and dissolution of Radio One
(collectively referred to, together with all classes of common stock of
Radio One, as "Junior Stock");
(2) subject to specified conditions, on a parity with each class of
capital stock or series of preferred stock established hereafter by the
board of directors, the terms of which expressly provide that such class or
series will rank on a parity with the new preferred stock as to dividend
rights and rights on liquidation, winding-up and dissolution of Radio One
(collectively referred to as "Parity Stock"); and
(3) subject to specified conditions, junior to each class of capital
stock or series of preferred stock established hereafter by the board of
directors, the terms of which expressly provide that such class or series
will rank senior to the new preferred stock as to dividend rights and
rights upon liquidation, winding-up and dissolution of Radio One
(collectively referred to as "Senior Stock").
The respective definitions of Junior Stock, Parity Stock and Senior Stock
shall also include any warrants, rights, calls or options, exercisable for or
convertible into any of the Junior Stock, Parity Stock and Senior Stock, as the
case may be.
While any shares of new preferred stock are outstanding, Radio One may not
authorize, create or increase the authorized amount of any class or series of
stock that ranks senior to or on parity with the new preferred stock with
respect to the payment of dividends or amounts upon liquidation, dissolution or
winding up without the consent of the holders of a majority of the outstanding
shares of new preferred stock, voting separately as one class. However, without
the consent of any holder of new preferred stock, Radio One may create
additional classes of stock, increase the authorized number of shares of
preferred stock or issue series of a stock that ranks junior to the new
preferred stock with respect, in each case, to the payment of dividends and
amounts upon liquidation, dissolution and winding up. See "--Voting Rights."
Radio One operates a portion of its business and holds certain of its assets
through its subsidiaries. Radio One will be dependent in part on the cash flow
of such subsidiaries to meet its obligations, including payments on the new
preferred stock. The subsidiaries are separate legal entities that have no
obligation to pay any amounts due pursuant to the new preferred stock or to
make any funds available therefor, whether by dividend, loans or other
payments. Because such subsidiaries will not guarantee payments on the new
preferred stock, any claim or right of Radio One or its creditors, including
the holders of the new preferred stock, to the earnings of the subsidiaries or
to receive assets of such subsidiaries upon their liquidation or
reorganization, and the consequent right of holders of the new preferred stock
to participate in the distribution or realize proceeds from those assets, will
be effectively subordinated to the claims of creditors of the subsidiaries and
the claims of preferred stockholders of the subsidiaries. To the extent Radio
One is a creditor of any of the subsidiaries, its claims would be effectively
subordinated to any security interest in the assets of any of the subsidiaries.
As of December 31, 1998, after giving effect to this offering and the
application of the proceeds therefrom, the subsidiaries of Radio One would have
had aggregate liabilities to third parties of approximately $3.5 million.
Although the certificate of incorporation limits the incurrence of Indebtedness
and issuance of preferred stock by Radio One's Restricted Subsidiaries, this
limitation is subject to a number of significant qualifications. See "--
Covenants--Limitation on Incurrence of Indebtedness and Issuance of Preferred
Stock."
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Dividends
We will pay dividends on the new preferred stock at a rate of % per year.
Prior to July 1, 2004, we may pay dividends in additional shares of new
preferred stock instead of cash.
The holders of shares of new preferred stock will be entitled to receive,
when, as and if dividends are declared by the board of directors out of funds
of Radio One legally available therefor, cumulative preferential dividends from
the Issue Date. These dividends accumulate at the rate per share of % per
annum, and are payable semi-annually in arrears on each of June 30 and December
31 or, if any such date is not a Business Day, on the next succeeding Business
Day, to the holders of record as of the next preceding June 15 and December 15.
Dividends will be payable in cash, except that on each dividend payment date
occurring on or prior to the fifth anniversary of the Issue Date, dividends may
be paid, at Radio One's option, by the issuance of additional shares of new
preferred stock (including fractional shares) having an aggregate liquidation
preference equal to the amount of such dividends. All dividends paid in
additional shares of new preferred stock shall be deemed issued on the
applicable dividend payment date, and will thereupon be duly authorized,
validly issued, fully paid and nonassessable and free and clear of all liens
and charges. The issuance of such additional shares of new preferred stock will
constitute "payment" of the related dividend for all purposes of the
certificate of incorporation. The first dividend payment on the new preferred
stock will be payable on June 30, 1999. Dividends payable on the new preferred
stock will be computed on a basis of the 360-day year consisting of twelve 30-
day months and will be deemed to accumulate on a daily basis. For a discussion
of material Federal income tax considerations relevant to the payment of
dividends on the new preferred stock, see "Summary of Material United States
Federal Income Tax Consequences."
Dividends on the new preferred stock will accumulate whether or not Radio
One has earnings or profits, whether or not there are funds legally available
for the payment of such dividends and whether or not dividends are declared.
Dividends will accumulate to the extent they are not paid on the Dividend
Payment Date for the period to which they relate. The certificate of
incorporation will provide that Radio One will take all actions required or
permitted under the Delaware General Corporation Law (the "DGCL") to permit the
payment of dividends on the new preferred stock, including through the
revaluation of its assets in accordance with the DGCL. Nevertheless, provisions
of the DGCL, which generally require that dividends on capital stock be
declared only out of "surplus" (as defined in the DGCL), may limit the ability
of Radio One to lawfully declare and pay dividends on the new preferred stock.
In addition, provisions under the bank credit facility and the indenture
governing the 12% notes due 2004 may limit the ability of Radio One to pay
dividends on the new preferred stock.
No dividend whatsoever shall be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding share of the new preferred
stock with respect to any dividend period unless all dividends for all
preceding dividend periods have been declared and paid or declared and a
sufficient sum set apart (or, on or prior to June 30, 2004, shares of new
preferred stock for which have been issued and are held for holders by the
Transfer Agent) for the payment of such dividend, upon all outstanding shares
of new preferred stock.
Except as provided in the next sentence, no dividend will be declared or
paid on any Parity Stock unless full cumulative dividends have been paid on the
new preferred stock for all prior dividend periods. If accumulated dividends on
the new preferred stock for all prior dividend periods have not been paid in
full then any dividend declared on the new preferred stock for any dividend
period and on any Parity Stock will be declared ratably in proportion to
accumulated and unpaid dividends on the new preferred stock and such Parity
Stock.
Radio One will not:
(1) declare, pay or set apart funds for the payment of any dividend
or other distribution with respect to any Junior Stock, or
(2) redeem, purchase or otherwise acquire for consideration any
Junior Stock through a sinking fund or otherwise,
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unless
(A) all accumulated and unpaid dividends with respect to the new
preferred stock and any Parity Stock at the time such dividends are payable
have been paid or funds have been set apart (or, on or prior to June 30,
2004, shares of new preferred stock for which have been issued and are held
for holders by the Transfer Agent) for payment of such dividends, and
(B) sufficient funds have been paid or set apart (or, on or prior to
June 30, 2004, shares of new preferred stock for which have been issued and
are held for holders by the Transfer Agent) for the payment of the dividend
for the current dividend period with respect to the new preferred stock and
any Parity Stock.
Optional Redemption
We may redeem the new preferred stock under specified circumstances prior to
June 30, 2002 and at our option following June 30, 2004.
Prior to June 30, 2002, we may redeem all of the new preferred stock at a
redemption price of % of the liquidation price thereof, plus accrued and
unpaid dividends to the redemption date, with the net proceeds of one or more
Public Equity Offerings; provided, that the redemption must occur within 180
days following the closing of the latest of any such Public Equity Offerings.
Except as described in the preceding paragraph, the new preferred stock will
not be redeemable at our option prior to June 30, 2004.
After June 30, 2004, we may redeem all, on a pro rata basis, or part of, the
new preferred stock upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of liquidation preference) set
forth below plus accrued and unpaid dividends thereon, if any, to the
applicable redemption date, if redeemed during the twelve-month period
beginning on July 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004........................................ %
2005........................................
2006........................................
2007 and thereafter......................... 100.000
</TABLE>
Change of Control
In the event of a change of control of Radio One, holders of the new
preferred stock will have the right to require us to repurchase their new
preferred stock.
The certificate of incorporation will provide that upon the occurrence of a
Change of Control, Radio One shall be required to commence an Offer to Purchase
all or a portion of the new preferred stock at a purchase price in cash equal
to 101% of the liquidation preference thereof plus accumulated and unpaid
dividends (including an amount in cash equal to a prorated dividend for any
partial dividend period), if any, to the date of purchase, in accordance with
the procedures set forth in the certificate of incorporation.
A Change of Control will be deemed to have occurred upon the occurrence of
any of the following events (each a "Change of Control"):
(1) The sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of Radio One's assets to any
Person or group, other than any or all of the Principal Shareholders or
their Related Parties;
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(2) The adoption of a plan relating to the liquidation or dissolution
of Radio One;
(3) Any Person or group, other than one or more of the Existing
Investors and the Principal Shareholders and their Related Parties,
acquires, directly or indirectly, 35% or more of the voting power of the
voting stock of Radio One by way of merger or consolidation or otherwise;
provided that such acquisition will not constitute a "Change of Control"
(A) in the case of a Person or group consisting of the Existing
Investors, if and for so long as the Principal Shareholders and their
Related Parties, individually or collectively, own at least 30% (or,
following the date when the 12% notes due 2004 to be outstanding, 25%)
of the voting power of the voting stock of Radio One and have the right
or ability by voting power, contract or otherwise to elect or designate
for election a majority of the board of directors of Radio One, or
(B) in the case of any Person or group not including any Existing
Investor, unless or until such Person or group owns, directly or
indirectly, more of the voting power of the voting stock of Radio One
than the Principal Shareholders and their Related Parties; or
(4) The Continuing Directors cease for any reason (other than as a
result of the appointment of directors by the holders of the new preferred
stock pursuant to the provisions described under "--Voting Rights") to
constitute a majority of the directors of Radio One then in office.
For purposes of the above definition, any transfer of an Equity Interest of
an entity that was formed for the purpose of acquiring voting stock of Radio
One shall be deemed to be a transfer of such portion of such voting stock as
corresponds to the portion of the equity of such entity that has been so
transferred. The term "group" is used in the certificate of incorporation with
the meaning contained in Section 13(d)(3) of the Exchange Act.
If Radio One is prohibited by applicable law or by the terms of Indebtedness
of Radio One from making the Offer to Purchase described above or from
purchasing new preferred stock pursuant to the offer then, within 60 days of
the occurrence of the Change of Control, Radio One shall designate an
Independent Financial Advisor. The Independent Financial Advisor would
determine, within 20 days of designation, in the opinion of such firm, the
appropriate dividend rate (the "reset rate") that the new preferred stock
should bear so that, after the dividend rate on the shares of new preferred
stock is reset to such reset rate, the new preferred stock would have a market
value of 101% of the liquidation preference. However, no such reset shall be
required to be made if such Independent Financial Advisor determines that the
new preferred stock, after giving effect to the Change of Control, has a market
value of 101% of the liquidation preference thereof or greater. Upon the
determination of the reset rate, the new preferred stock shall accrue and
accumulate dividends at the reset rate as of the date of occurrence of the
Change of Control. However, the reset rate shall in no event be less than the
initial dividend rate on the new preferred stock or greater than 15% per annum.
The reasonable fees and expenses, including reasonable fees and expenses of
legal counsel, if any, and customary indemnification, of the above-referenced
Independent Financial Advisor will be borne by Radio One.
Radio One will comply with any applicable requirements of Section 14(e) of
the Exchange Act and any other securities laws or regulations in connection
with the purchase of new preferred stock pursuant to a change in control. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions of the covenant described hereunder, Radio One will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations.
The Change of Control purchase feature is a result of negotiations between
Radio One and the representatives. Radio One has no present intention to engage
in a transaction involving a Change of Control, although it is possible that
Radio One would decide to do so in the future. Radio One could enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect Radio One's capital structure or credit ratings. Restrictions on the
ability of Radio One and its Restricted Subsidiaries to incur additional
indebtedness are contained in the covenant described under "-- Covenants--
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Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock."
These restrictions can only be waived with the consent of the holders of a
majority of the outstanding shares of the new preferred stock. Except for
these limitations, however, the certificate of incorporation will not contain
any protection for holders of the new preferred stock in the event of a highly
leveraged transaction.
Existing and future indebtedness of Radio One may contain prohibitions on
the occurrence of events that would constitute a Change of Control or require
repayment upon a Change of Control. Moreover, Radio One's ability to pay cash
to the holders of new preferred stock following the occurrence of a Change of
Control may be limited by Radio One's then existing financial resources. There
can be no assurance that sufficient funds will be available when necessary to
make any repurchases. If a Change of Control occurs at a time when Radio One
is prohibited from purchasing new preferred stock, Radio One could seek the
consent of its lenders to make such purchase, or could attempt to refinance
the borrowings that contain such prohibitions. If Radio One does not obtain
such consent or repay such borrowings, Radio One would be required to utilize
the reset provisions described herein.
Covenants
The terms of the new preferred stock will limit:
. the incurrence of additional indebtedness and the issuance of preferred
stock by Radio One and our restricted subsidiaries;
. the payment of dividends and other distributions by Radio One and our
restricted subsidiaries on their capital stock;
. investments or other restricted payments by Radio One and our restricted
subsidiaries;
. restrictions on distributions from our restricted subsidiaries;
. asset sales and asset swaps;
. transactions with affiliates;
. the sale or issuance of capital stock of our restricted subsidiaries; and
. mergers and consolidations.
All these limitations and prohibitions are subject to a number of important
qualifications described below.
The certificate of incorporation contains covenants including, among
others, the following:
Limitation on Incurrence of Indebtedness and Issuance of Preferred
Stock. Radio One will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (including Acquired Debt) or issue any
preferred stock, except that Radio One may:
(1) issue preferred stock that is not Disqualified Stock at any time;
provided, that such issuance complies with the other terms of the
certificate of incorporation, and
(2) Incur Indebtedness or issue Disqualified Stock if the Debt to
EBITDA Ratio of Radio One and its Restricted Subsidiaries at the time of
Incurrence of such Indebtedness or issuance of such Disqualified Stock
after giving pro forma effect thereto, does not exceed 7.0 to 1.0.
The foregoing limitations will not apply to the Incurrence of any of the
following:
(a) Indebtedness consisting of Senior Bank Debt; provided, that the
aggregate principal amount outstanding at any time under this clause (a)
does not exceed $250 million;
(b) Existing Indebtedness;
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(c) Indebtedness represented by the 12% notes due 2004 and the
subsidiary guarantees of the 12% notes due 2004;
(d) Refinancing Indebtedness, provided, that
(1) the principal amount of such Refinancing Indebtedness shall
not exceed the principal amount of Indebtedness or amount of
Disqualified Stock so extended, refinanced, renewed, replaced,
substituted, defeased or refunded (plus the amount of expenses incurred
and premiums paid in connection therewith), and
(2) with respect to Refinancing Indebtedness of any Indebtedness
other than Senior Debt, the Refinancing Indebtedness shall have a
Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of the Indebtedness being extended, refinanced,
renewed, replaced, substituted, defeased or refunded;
(e) intercompany Indebtedness between Radio One and any of its
Restricted Subsidiaries;
(f) Hedging Obligations, including interest rate swap obligations,
that are incurred in the ordinary course of business for the purpose of
fixing or hedging interest rate risk or minimizing Radio One's or any
Restricted Subsidiary's debt service obligations with respect to any
Indebtedness which Indebtedness is permitted by the terms of the
certificate of incorporation to be outstanding;
(g) guarantees by Radio One of any Indebtedness of Radio One or any
Restricted Subsidiary permitted under this covenant;
(h) Indebtedness of Radio One or any Restricted Subsidiary consisting
of indemnification, adjustment of purchase price or similar obligations, in
each case incurred in connection with the disposition of any assets of
Radio One or any Restricted Subsidiary; and
(i) Indebtedness of Radio One or any of its Restricted Subsidiaries
(in addition to Indebtedness permitted by clauses (a) - (h) of this
section) in an aggregate principal amount at any time outstanding that does
not exceed $15 million.
Limitation on Restricted Payments. (a) Under the certificate of
incorporation, any of the following dividends, distributions, purchases,
redemptions, other acquisitions, retirements or investments by us or our
Restricted Subsidiaries are referred to as a "Restricted Payment":
(1) the declaration or payment of any dividends or other
distributions, including any payment in connection with any merger or
consolidation involving such Person, in respect of,
. in the case of Radio One, any Junior Stock or,
. in the case of any Restricted Subsidiary, any of its Equity
Interests,
in each case, held by Persons other than Radio One or any Restricted
Subsidiary or similar payment to the direct or indirect holders other than
Radio One or a Restricted Subsidiary of such Junior Stock or Equity
Interests, as applicable. This limitation does not restrict distributions
payable solely in Junior Stock or Equity Interests, as applicable, other
than Disqualified Stock, and dividends or distributions payable solely to
Radio One or a Restricted Subsidiary, and other than pro rata dividends or
other distributions made by a Subsidiary that is not a Wholly Owned
Restricted Subsidiary to minority stockholders or owners of an equivalent
interest in the case of a Subsidiary that is an entity other than a
corporation,
(2) the purchase, redemption or other acquisition or retirement for
value of any Junior Stock of Radio One held by any Person or any Equity
Interests of a Restricted Subsidiary held by any Affiliate of Radio One,
other than a Restricted Subsidiary, including the exercise of any option to
exchange any Junior Stock or Equity Interests, as applicable, other than
its Equity Interests of Radio One that is not Disqualified Stock, or
(3) any Investment in any Person, other than a Permitted Investment.
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Radio One will not, and will not permit any Restricted Subsidiary, directly
or indirectly, to make any Restricted Payments if at the time Radio One or such
Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing or would result
therefrom;
(2) any accrued and payable dividends, including dividends for the
then current dividend period, with respect to the new preferred stock or
any Parity Stock have not been paid in full and funds for such payment have
not been set apart or, if on or prior to June 30, 2004, shares of new
preferred stock have not been issued in payment of such dividends and are
not held by the Transfer Agent;
(3) at the time of such Restricted Payment and after giving pro forma
effect thereto as if such Restricted Payment had been made at the beginning
of the applicable four-quarter period, Radio One would not be permitted to
incur at least $1.00 of additional Indebtedness under the Debt to EBITDA
Ratio test described above under "--Limitation on Incurrence of
Indebtedness and Issuance of Preferred Stock"; or
(4) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of:
(A) an amount equal to Radio One's EBITDA cumulated from the
first day of the fiscal quarter of Radio One beginning after the Issue
Date to the end of Radio One's most recently ended full fiscal quarter,
taken as a single accounting period, minus 1.4 times the sum of
(1) Radio One's Consolidated Interest Expense from the first
day of the fiscal quarter of Radio One beginning after the Issue
Date to the end of Radio One's most recently ended full fiscal
quarter, taken as a single accounting period, plus
(2) all dividends or other distributions, other than the
redemption of the existing preferred stock of Radio One with a
portion of the proceeds of the offerings and other than any
dividends or distributions on the new preferred stock, paid or made
by Radio One or any Restricted Subsidiary on
(a) any Disqualified Stock of Radio One or any of its
Subsidiaries during such period, or
(b) any Senior Stock or Parity Stock of Radio One;
(B) the aggregate Net Cash Proceeds received by Radio One from
the issuance or sale of its Junior Stock (other than Disqualified
Stock) subsequent to the Issue Date, other than an issuance or sale to
a Subsidiary of Radio One and other than an issuance or sale to an
employee stock ownership plan or to a trust established by Radio One or
any of its Subsidiaries for the benefit of their employees;
(C) the amount by which Indebtedness of Radio One is reduced on
Radio One's balance sheet upon the conversion or exchange (other than
by a Subsidiary of Radio One) subsequent to the Issue Date of any
Indebtedness of Radio One convertible or exchangeable for Junior Stock
(other than Disqualified Stock) of Radio One, less the amount of any
cash, or the fair value of any property distributed by Radio One upon
such conversion or exchange other than Junior Stock not constituting
Disqualified Stock; and
(D) an amount equal to the sum of
(1) the net reduction in Investments in Unrestricted
Subsidiaries resulting from dividends, repayments of loans or
advances or other transfers of assets, in each case to Radio One or
any Restricted Subsidiary from Unrestricted Subsidiaries, and
(2) the portion (proportionate to Radio One's equity interest
in such Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, that the foregoing sum
shall not exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made
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(and treated as a Restricted Payment) by Radio One or any Restricted
Subsidiary in such Unrestricted Subsidiary.
(b) Notwithstanding the foregoing, paragraph (a) will not prohibit:
(1) any Restricted Payment made out of the proceeds of the
substantially concurrent sale of, and any acquisition of any Junior Stock
of Radio One made by exchange for, Junior Stock of Radio One, other than
Disqualified Stock and other than Junior Stock issued or sold to a
Subsidiary of Radio One or an employee stock ownership plan or to a trust
established by Radio One or any of its Subsidiaries for the benefit of
their employees; provided, that
(A) such Restricted Payment shall be excluded in the calculation
of the amount of Restricted Payments, and
(B) the Net Cash Proceeds from such sale shall be excluded from
the calculation of amounts under clause (4)(B) of paragraph (a) above;
(2) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, that
(A) at the time of payment of such dividend, all accumulated
dividends on the new preferred stock have been paid in full and no
Default shall have occurred and be continuing, or result therefrom, and
(B) such dividend shall be included in the calculation of the
amount of Restricted Payments from and after such time;
(3) loans to members of management of Radio One or any Restricted
Subsidiary the proceeds of which are used for a concurrent purchase of
Junior Stock of Radio One or a capital contribution to Radio One; provided
that the proceeds from such purchase of Junior Stock or capital
contribution shall be excluded from the calculation of amounts under clause
(4)(B) of paragraph (a) above; provided, further, that such loans shall be
included in the calculation of the amount of Restricted Payments from and
after such time;
(4) any principal payment on, or purchase, redemption, defeasance or
other acquisition or retirement for value of, any Junior Stock out of
Excess Proceeds available for general corporate purposes after consummation
of all required purchases of new preferred stock pursuant to an Offer to
Purchase, provided, that the amount of such payments shall be excluded in
the calculation of the amount of Restricted Payments from and after such
time;
(5) repurchases of Junior Stock of Radio One from any employee of
Radio One, other than a Principal Shareholder, whose employment with Radio
One has ceased; provided, that the aggregate amount of such repurchases
shall not exceed $1 million in any year; provided further, that the amount
of such payments shall be included in the calculation of the amount of
Restricted Payments from and after such time;
(6) Minority Investments of up to $10 million in the aggregate at any
one given time outstanding; provided, that the amount of such Minority
Investments shall be included in the calculation of the amount of
Restricted Payments from and after such time; and
(7) any other payment or payments of up to $15 million in the
aggregate that would otherwise constitute a Restricted Payment(s);
provided, that the amount of such payments shall be included in the
calculation of the amount of Restricted Payments from and after such time.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. Radio One will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions to Radio One or any
other Restricted Subsidiary on its Equity Interests or with respect to any
other interest or participation in, or measured by, its profits,
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(2) pay any Indebtedness owed to Radio One or any other Restricted
Subsidiary,
(3) make loans or advances to Radio One or any other Restricted
Subsidiary, or
(4) transfer any of its properties or assets to Radio One or any
other Restricted Subsidiary,
except for such encumbrances or restrictions existing under or by reason of:
(A) any Existing Indebtedness or the new preferred stock;
(B) applicable law;
(C) any instrument governing Indebtedness or Equity Interests of
a Person acquired by Radio One or any of its Restricted Subsidiaries as
in effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of
such acquisition), provided that
(1) such restriction is not applicable to any other Person or
the properties or assets of any other Person, and
(2) the consolidated net income (loss) of such acquired Person
for any period prior to the acquisition shall not be taken into
account in determining whether such acquisition was permitted by the
terms of the certificate of incorporation;
(D) by reason of customary nonassignment provisions in leases
entered into in the ordinary course of business and consistent with
past practices;
(E) Purchase Money Indebtedness for property acquired in the
ordinary course of business that only impose restrictions on the
property so acquired;
(F) Refinancing Indebtedness permitted under the certificate of
incorporation, provided that the restrictions contained in the
agreements governing such Refinancing Indebtedness are no more
restrictive in the aggregate than those contained in the agreements
governing the Indebtedness being refinanced immediately prior to such
refinancing;
(G) the Credit Agreement;
(H) agreements relating to the financing of the acquisition of
real or tangible personal property acquired after the date of the
original issuance of the new preferred stock, provided, that the
encumbrance or restriction relates only to the property which is
acquired and, in the case of any encumbrance or restriction that
constitutes a Lien, such Lien constitutes a Purchase Money Lien;
(I) any restriction or encumbrance contained in contracts for
sale of assets in respect of the assets being sold pursuant to such
contract; or
(J) any encumbrances or restrictions contained in the terms of
any Indebtedness or any agreement pursuant to which that Indebtedness
was Incurred if the board of directors determines in good faith that
any such encumbrances or restrictions are no more restrictive in the
aggregate than those contained in the 12% notes indenture.
Limitation on Certain Asset Sales. Radio One will not, and will not permit
any of its Restricted Subsidiaries to:
(1) sell, lease, transfer, convey or otherwise dispose of any assets,
including by way of a sale-and-leaseback, other than in the ordinary course
of business, or
(2) issue or sell Equity Interests of any of its Restricted
Subsidiaries,
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in each case, whether in a single transaction or a series of related
transactions, to any Person, other than
(A) an issuance, sale, lease, conveyance or disposal by a
Restricted Subsidiary to Radio One or one of its Restricted
Subsidiaries,
(B) an Asset Swap permitted by the covenant described under "--
Limitation on Asset Swaps", or
(C) the sale of the Equity Interests of any Unrestricted
Subsidiary
(each of (A), (B) and (C), an "Asset Sale"), unless:
(1) Radio One or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value of the assets or Equity Interests sold or otherwise
disposed of;
(2) at least 75% of such consideration is in the form of cash and
Cash Equivalents; and
(3) if such Asset Sale includes Equity Interests of any Restricted
Subsidiary, 100% of the Equity Interests of such Restricted Subsidiary
owned by Radio One or any other Restricted Subsidiary are sold or otherwise
disposed of in such Asset Sale.
Following any Asset Sale, Radio One may elect to apply all or a portion of
the Net Proceeds from such Asset Sale, within 360 days of such Asset Sale,
(1) to permanently reduce or satisfy any Indebtedness, other than
Indebtedness owed to Radio One, any Restricted Subsidiary or any Affiliate
of Radio One, and, in the event that such Indebtedness is extended under a
revolving credit or similar facility, to permanently reduce the aggregate
commitments thereunder as then in effect, or
(2) to acquire Broadcast Assets.
Pending the final application of any Net Proceeds, Radio One may
temporarily reduce Indebtedness, other than Disqualified Stock and other than
Indebtedness owed to Radio One, any Restricted Subsidiary or any Affiliate of
Radio One, or invest such Net Proceeds in Permitted Investments or to reduce
loans outstanding under any revolving credit facility of Radio One or any
Restricted Subsidiary. Any Net Proceeds from an Asset Sale not applied to the
reduction of Indebtedness or to the acquisition of Broadcast Assets as
provided in the first sentence of this paragraph, upon expiration of such 360-
day period will be deemed to constitute "Excess Proceeds."
Whenever aggregate Excess Proceeds realized since the Issue Date minus the
aggregate purchase price of New Preferred Stock which has been the subject of
any previous Offer to Purchase ("Net Excess Proceeds") exceeds $5.0 million,
Radio One will commence an Offer to Purchase within 30 days. Such Offer to
Purchase shall be for shares of new preferred stock then outstanding having an
aggregate purchase price equal to such Net Excess Proceeds in accordance with
the procedures set forth in the amended certificate of incorporation.
Radio One and the Restricted Subsidiaries will not be required to apply any
Net Proceeds in accordance with this covenant except to the extent that the
aggregate Net Proceeds from all Asset Sales which are not applied in
accordance with this covenant exceed $5.0 million.
For the purpose of this covenant, the following are deemed to be cash:
(1) the assumption of Indebtedness, other than Indebtedness owed to
Radio One, any Restricted Subsidiary or any Affiliate of Radio One, of
Radio One or any Restricted Subsidiary and the release of Radio One or such
Restricted Subsidiary from all liability on such Indebtedness in connection
with such Asset Sale, other than customary indemnification provisions
relating thereto which do not involve the repayment of funded indebtedness,
and
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(2) securities received by Radio One or any Restricted Subsidiary
from the transferee that are promptly converted by Radio One or such
Restricted Subsidiary into cash.
Limitation on Asset Swaps. Radio One will not, and will not permit any
Restricted Subsidiary to, engage in any Asset Swaps, unless:
(1) at the time of entering into the agreement to swap assets and
immediately after giving effect to the proposed Asset Swap, no Default
shall have occurred and be continuing;
(2) at the time of entering into the agreement to swap assets and
after giving pro forma effect to the proposed Asset Swap as if such Asset
Swap had occurred at the beginning of the applicable four-quarter period,
Radio One would be permitted to incur at least $1.00 of additional
Indebtedness under the Debt to EBITDA Ratio test described above under "--
Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock";
(3) after giving pro forma effect to the proposed Asset Swap as if
such Asset Swap had occurred at the beginning of the four most recent full
fiscal quarters ending immediately prior to the date of the proposed Asset
Swap, the ratio of
(A) EBITDA of Radio One and its Restricted Subsidiaries on a
consolidated basis for such four-quarter period to
(B) the Consolidated Cash Interest Expense of Radio One and its
Restricted Subsidiaries for such four-quarter period
exceeds 1.2 to 1.0; and
(4) the respective Fair Market Values of the assets being purchased
and sold by Radio One or any of its Restricted Subsidiaries are
substantially the same at the time of entering into the agreement to swap
assets.
Transactions with Affiliates. Radio One will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate of Radio
One or any Restricted Subsidiary (each of the foregoing, an "Affiliate
Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to Radio One or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by Radio One or such
Restricted Subsidiary with a non-Affiliated Person;
(2) such Affiliate Transaction is approved by a majority of the
disinterested members of Radio One's board of directors; and
(3) Radio One delivers to the Transfer Agent:
(a) with respect to any Affiliate Transaction involving aggregate
payments in excess of $1.0 million, an Officers' Certificate certifying
that such Affiliate Transaction complies with clauses (1) and (2)
above; and
(b) with respect to any Affiliate Transaction (or series of
related transactions) with an aggregate value in excess of $10.0
million, an opinion from an independent investment banking firm,
independent investment adviser, accounting firm or other qualified
appraiser, including, in the case of a transaction involving real
estate, a real estate appraisal firm, in each case, of national
standing or with a national reputation, to the effect that the
transaction is fair to Radio One or the Restricted Subsidiary, as the
case may be, from a financial point of view;
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provided that none of the following shall constitute an Affiliate
Transaction:
(A) employment arrangements (including customary benefits thereunder)
entered into by Radio One or any of its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practice of Radio
One or such Restricted Subsidiary;
(B) transactions solely between or among Radio One and its Restricted
Subsidiaries or solely between or among Restricted Subsidiaries;
(C) transactions permitted by the provisions of the certificate of
incorporation described above under "--Limitation on Restricted Payments;"
(D) any agreement as in effect on the Issue Date or any amendment
thereto or any transaction contemplated thereby and any amendment or
replacement agreement thereto so long as any such amendment or replacement
agreement is not more disadvantageous to the holders of the new preferred
stock in any material respect than the original agreement as in effect on
the Issue Date;
(E) the existence of, or the performance by Radio One or any of its
Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement, including any registration rights agreement or
purchase agreement related thereto, to which it is a party on the Issue
Date;
(F) services provided to any Unrestricted Subsidiary of Radio One for
fees approved by the board of directors; and
(G) the issuance, sale or other disposition of any Junior Stock
(other than Disqualified Stock) of Radio One, including any equity-related
agreements relating thereto such as registration rights and voting
agreements so long as such agreements do not result in such Junior Stock
being Disqualified Stock.
Limitation on Restricted Subsidiary Equity Interests. Radio One will not
permit any Restricted Subsidiary to issue any Equity Interests, except for
(1) Equity Interests issued to and held by Radio One or a Restricted
Subsidiary, and
(2) Equity Interests issued by a Person prior to the time
(A) such Person becomes a Restricted Subsidiary,
(B) such Person merges with or into a Restricted Subsidiary, or
(C) a Restricted Subsidiary merges with or into such Person;
provided that such Equity Interests were not issued or incurred by such Person
in anticipation of the type of transaction contemplated by subclause (A), (B)
or (C).
Limitation on Merger, Consolidation and Sale of Assets. Radio One may not
consolidate or merge with or into (whether or not Radio One is the Surviving
Person), or sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its properties or assets in one or more related
transactions, to another Person, unless:
(1) the Surviving Person is a corporation organized or existing under
the laws of the United States, any state thereof or the District of
Columbia;
(2) the Surviving Person (if other than Radio One) shall expressly
assume all the obligations of Radio One under the new preferred stock and
the certificate of incorporation;
(3) at the time of and immediately after such Disposition, no Default
shall have occurred and be continuing;
(4) the Surviving Person will, at the time of such Disposition and
after giving pro forma effect thereto, be permitted to incur at least $1.00
of additional Indebtedness pursuant to the Debt to EBITDA
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Ratio test described under "--Limitation on Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(5) Radio One delivers to the Transfer Agent an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer complies with the certificate of incorporation.
The phrase "all or substantially all" of the assets of Radio One will likely
be interpreted under applicable state law and will be dependent upon particular
facts and circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of "all or substantially all" of the
assets of Radio One has occurred.
SEC Reports. Even if Radio One is not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, Radio One will file
with the SEC and provide the Transfer Agent and holders of the new preferred
stock the annual reports and information, documents and other reports specified
in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S.
corporation subject to those sections, at the times specified for the filing of
such information, documents and reports under such Sections.
Mandatory Redemption
We are required to redeem the new preferred stock on June 30, 2011.
On June 30, 2011, Radio One will be required to redeem, subject to the legal
availability of funds therefor, all outstanding shares of new preferred stock.
The redemption price must be paid in cash in an amount equal to the liquidation
preference of the new preferred stock, plus accumulated and unpaid dividends,
including a prorated dividend for any partial dividend period, if any, to the
date of redemption, subject to the rights of holders of record on the relevant
record date to receive dividends on the relevant dividend payment date. Radio
One will not be required to make sinking fund payments with respect to the new
preferred stock. The certificate of incorporation will provide that Radio One
will take all actions required or permitted under the DGCL to permit such
redemption.
Exchange
We have the option to exchange the new preferred stock for exchange
debentures.
Radio One may, at its option, subject to specified conditions, on any
scheduled dividend payment date, exchange the new preferred stock, in whole,
but not in part, for the exchange debentures. We may only exercise our option
to exchange the new preferred stock for exchange debentures if
(1) on the date of such exchange there are no accumulated and unpaid
dividends on the new preferred stock, including the dividend payable on
such date, or other contractual impediments to such exchange;
(2) there shall be funds legally available sufficient therefor;
(3) immediately after giving effect to such exchange, no Default (as
defined in the exchange indenture) shall have occurred and be continuing;
and
(4) Radio One shall have delivered to the Trustee under the exchange
indenture an opinion of counsel with respect to the due authorization and
issuance of the exchange debentures.
The ability of Radio One to exchange the new preferred stock for exchange
debentures is subject to conditions and restrictions contained in the
indentures relating to the 12% notes due 2004 and the exchange debentures,
respectively, and to limitations imposed under the DGCL and by applicable laws
protecting the rights of creditors.
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Upon any exchange pursuant to the preceding paragraph, holders of
outstanding shares of new preferred stock will be entitled to receive, subject
to the third succeeding sentence, $1.00 principal amount of exchange debentures
for each $1.00 liquidation preference of new preferred stock held by them. The
exchange debentures will be issued in registered form, without coupons.
Exchange debentures will be issued in principal amounts of $1,000 and integral
multiples thereof to the extent possible so that each holder of new preferred
stock will receive certificates representing the entire amount of exchange
debentures to which such holder's shares of new preferred stock entitle such
holder. However, Radio One may pay cash in lieu of issuing an exchange
debenture in a principal amount less than $1,000. Radio One will send a written
notice of exchange by mail to each holder of record of shares of new preferred
stock not fewer than 30 days nor more than 60 days before the date fixed for
such exchange. On and after the Exchange Date, dividends will cease to accrue
on the outstanding shares of new preferred stock. Thereafter, all rights of the
holders of new preferred stock will terminate except the right to receive the
exchange debentures, and to the extent applicable, the accumulated and unpaid
dividends to the exchange date. The person entitled to receive the exchange
debentures issuable upon such exchange will be treated for all purposes as the
registered holder of such exchange debentures. See "Description of the Exchange
Debentures."
Liquidation Preference
The shares of new preferred stock have a preference over shares of common
stock in connection with any liquidation, dissolution or winding up of Radio
One.
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
Radio One, each holder of new preferred stock will be entitled to be paid, out
of the assets of Radio One available for distribution to stockholders, an
amount equal to the liquidation preference per share of new preferred stock
held by such holder, plus accumulated and unpaid dividends thereon to the date
fixed for liquidation, dissolution or winding-up before any distribution is
made on any Junior Stock. If, upon any voluntary or involuntary liquidation,
dissolution or winding-up of Radio One, the amounts payable with respect to the
new preferred stock and all other Parity Stock are not paid in full, the
holders of the new preferred stock and the Parity Stock will share equally and
ratably in any distribution of assets of Radio One in proportion to the full
liquidation preference and accumulated and unpaid dividends to which each is
entitled. After payment of the full amount of the liquidation preference and
accumulated and unpaid dividends to which they are entitled, the holders of
shares of new preferred stock will not be entitled to any further participation
in any distribution of assets of Radio One. However, neither the sale,
conveyance, exchange or transfer of all or substantially all the property or
assets of Radio One nor the consolidation or merger of Radio One with one or
more entities shall be deemed to be a liquidation, dissolution or winding-up of
Radio One.
The certificate of incorporation will not contain any provision requiring
funds to be set aside to protect the liquidation preference of the new
preferred stock, although such liquidation preference will be substantially in
excess of the par value of such shares of new preferred stock.
Voting Rights
Generally, the new preferred stock will not have voting rights.
The holders of new preferred stock, except as otherwise required under
Delaware law or as provided in the certificate of incorporation, shall not be
entitled or permitted to vote on any matter required or permitted to be voted
upon by the stockholders of Radio One.
The certificate of incorporation will provide that if:
(1) dividends on the new preferred stock or on any outstanding shares
of Parity Stock are in arrears and unpaid for six or more dividend periods
(whether or not consecutive);
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(2) Radio One fails to redeem the new preferred stock on June 30,
2011, or fails to otherwise discharge any redemption or repurchase
obligation with respect to the new preferred stock;
(3) a breach or violation of any of the provisions described under
the captions "--Change of Control" or "--Covenants" occurs and the breach
or violation continues for a period of 30 days or more after Radio One
receives notice thereof specifying the default from the holders of at least
25% of the shares of new preferred stock then outstanding; or
(4) Radio One fails to pay at final maturity, giving effect to any
applicable grace period, the principal amount of any Indebtedness of Radio
One or any Subsidiary or the final maturity of any such Indebtedness is
accelerated because of a default and the total amount of such Indebtedness
unpaid or accelerated exceeds $10.0 million,
then the holders of the outstanding shares of new preferred stock, voting
together as a single class, will be entitled to elect to serve on the board of
directors the lesser of (A) two additional members to the board of directors or
(B) that number of directors constituting 25% of the members of the board of
directors, and the number of members of the board of directors will be
immediately and automatically increased by such number. These voting rights
will continue until such time as, in the case of a dividend default, all
dividends in arrears on the new preferred stock are paid in full, and, in all
other cases, any failure, breach or default giving rise to such voting rights
is remedied or waived by the holders of a majority of the shares of new
preferred stock then outstanding, at which time the term of any directors
elected pursuant to the provisions of this paragraph shall terminate. Each such
event described in clauses (1) through (4) above is referred to herein as a
"Voting Rights Triggering Event."
The certificate of incorporation will also provide that Radio One will not:
(1) authorize, create, issue or increase the authorized amount of any
class of Senior Stock or Parity Stock,
(2) amend, alter or repeal (by merger or otherwise) any provision of
the certificate of incorporation or the by-laws of Radio One so as to
affect adversely the relative rights, qualifications, limitations or
restrictions of the new preferred stock, or
(3) effect any reclassification of the new preferred stock,
in each case without the affirmative vote or consent of holders of a majority
of the shares of new preferred stock then outstanding. In addition, the
certificate of incorporation will provide that Radio One may not authorize the
issuance of any additional shares of new preferred stock (other than, on or
prior to June 30, 2004, shares of new preferred stock issued as dividends on
outstanding new preferred stock) without the affirmative vote or consent of the
holders of a majority of the then outstanding shares of new preferred stock,
voting or consenting, as the case may be, as one class. The certificate of
incorporation will also provide that, except as set forth above,
(a) the creation, authorization or issuance of any shares of Junior
Stock, or
(b) the increase or decrease in the amount of authorized capital
stock of any class, including any preferred stock, shall not require the
consent of the holders of new preferred stock and shall not be deemed to
affect adversely the rights, preferences, privileges or voting rights of
shares of new preferred stock.
In exercising any vote, each outstanding share of new preferred stock will
be entitled to one vote, excluding shares held by any Affiliate of Radio One,
which shares will have no voting rights.
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Amendment and Waiver
The terms of new preferred stock can be changed by agreement of Radio One
and holders of a majority of the shares of new preferred stock, subject to
specified exceptions.
No amendment, modification or waiver will be binding or effective with
respect to any provision of the certificate of incorporation without the prior
written consent of the holders of a majority of the shares of new preferred
stock outstanding at the time such action is taken. However, without the
consent of each holder of new preferred stock affected thereby, an amendment
may not:
(a) reduce the amount of new preferred stock whose holders must consent
to an amendment;
(b) reduce the rate at which or the manner in which dividends on the
new preferred stock accumulate or the times at which such dividends become
payable;
(c) reduce the Liquidation Preference of or extend the date of
mandatory redemption of the new preferred stock;
(d) reduce the amount payable upon the mandatory redemption of the new
preferred stock, or the manner of calculation thereof, or change the time
or price at which the new preferred stock may be redeemed or repurchased in
accordance with the certificate of incorporation; or
(e) make the new preferred stock payable in money other than that
stated in the certificate of incorporation.
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 the closing of the common stock offering, other than Mr.
Liggins, are parties to registration rights agreements with us. These
agreements, which relate to approximately 6.6 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 the class A common
stock have waived their "piggyback" registration rights with respect to the
common stock 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
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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.
Transfer Agent and Registrar
United States Trust Company of New York is our transfer and exchange agent
and registrar with respect to the new preferred stock and the exchange
debentures.
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DESCRIPTION OF THE EXCHANGE DEBENTURES
You can find the definitions of certain terms used in this description under
the sub-heading "--Certain Definitions." In this description, the words "we,"
"our," "us" and "Radio One" refer only to Radio One, Inc. and not to any of our
subsidiaries.
We will issue the exchange debentures under an indenture (the "exchange
indenture") between us and , as trustee (the "Trustee"). The terms of the
exchange debentures include those stated in the exchange indenture and those
made part of the exchange indenture by reference to the Trust Indenture Act of
1939 (the "Trust Indenture Act").
The following description is only a summary of the material provisions of
the exchange indenture. It does not restate the exchange indenture in its
entirety. We urge you to read the exchange indenture because it, and not this
description, defines your rights as holders of the exchange debentures. We have
filed a copy of the exchange indenture as an exhibit to the registration
statement which includes this prospectus.
Brief Description of the Exchange Debentures
The exchange debentures, if issued:
. will be unsecured subordinated obligations of Radio One;
. will be subordinated in right of payment to all existing and future
Senior Debt of Radio One; and
. will be senior in right of payment to any future Subordinated Debt of
Radio One.
The exchange debentures will be issued initially at our option in exchange
for outstanding shares of new preferred stock. We will issue the exchange
debentures in denominations of $1,000 and integral multiples of $1,000. The
exchange debentures will mature on June 30, 2011.
Interest on the exchange debentures will accrue at the rate of % per annum
and will be payable semiannually in arrears on June 30 and December 31,
commencing on the first such date following the issuance of the exchange
debentures. We will make each interest payment to the holders of record of the
exchange debentures as of the immediately preceding June 15 and December 15.
Interest on the exchange debentures will accrue from the date of original
issuance or, if interest has already been paid, from the date it was most
recently paid. Interest on the exchange debentures will be payable in cash,
except that prior to July 1, 2004, we may pay interest by issuing additional
exchange debentures. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. The exchange debentures will bear interest
on overdue principal and premium, if any, and, if permitted, overdue interest
at the rate of % per annum.
Optional Redemption
We may redeem the exchange debentures under specified circumstances prior to
June 30, 2002 and at our option following June 30, 2004.
Prior to June 30, 2002, we may redeem all of the exchange debentures at a
redemption price of % of the principal amount thereof, plus accrued and unpaid
interest to the redemption date, with the net proceeds of one or more Public
Equity Offerings; provided, that the redemption must occur within 180 days
following the closing of the latest of any such Public Equity Offerings.
Except pursuant to the preceding paragraph, the exchange debentures will not
be redeemable at our option prior to June 30, 2004.
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After June 30, 2004, we may redeem all or a part of the exchange debentures
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon, if any, to the applicable redemption date, if redeemed
during the twelve-month period beginning on of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004........................................................... %
2005...........................................................
2006...........................................................
2007 and thereafter............................................ 100.000
</TABLE>
If less than all of the exchange debentures are to be redeemed at any time,
the Trustee will select exchange debentures for redemption as follows:
. pro rata or by lot; or
. by a method that complies with applicable legal and securities exchange
requirements, if any; and
. in each case, which the Trustee in its sole discretion deems to be fair
and appropriate.
No exchange debentures of $1,000 or less shall be redeemed in part. Notices
of redemption shall be mailed by first-class mail at least 30 but not more than
60 days before the redemption date to each holder of exchange debentures to be
redeemed at its registered address.
If any exchange debenture is to be redeemed in part only, the notice of
redemption that relates to that exchange debenture shall state the portion of
the principal amount thereof to be redeemed. A new exchange debenture in
principal amount equal to the unredeemed portion of the original exchange
debenture will be issued in the name of the holder thereof upon cancellation of
the original exchange debenture. Exchange debentures called for redemption
become due on the date fixed for redemption. On and after the redemption date,
interest ceases to accrue on exchange debentures or portions of them called for
redemption.
Methods of Receiving Payments on the Exchange Debentures
If a holder of exchange debentures in aggregate principal amount of $1
million or more has given wire transfer instructions to Radio One, we will make
all principal, premium and interest payments on those exchange debentures in
accordance with those instructions. All other payments on the exchange
debentures will be made by check mailed to the holders at their addresses set
forth in the register of holders.
Payment Agent and Registrar for the Exchange Debentures
The Trustee will initially act as Paying Agent and Registrar. We may change
the Paying Agent or Registrar without prior notice to the holders of the
exchange debentures, and Radio One may act as Paying Agent and Registrar.
Transfer and Exchange
A holder may transfer or exchange exchange debentures in accordance with the
exchange indenture. The Registrar and the Trustee may require a holder, among
other things, to furnish appropriate endorsements and transfer documents and
Radio One may require a holder to pay any taxes and fees required by law or
permitted by the exchange indenture. We are not required to transfer or
exchange any exchange debenture selected for redemption. Also, we are not
required to transfer or exchange any exchange debenture for a period of 15 days
before a selection of exchange debentures to be redeemed.
The registered holder of an exchange debenture will be treated as the owner
of it for all purposes.
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Ranking
The exchange debentures will be general unsecured obligations of Radio One,
subordinated in right of payment to all or our existing and future senior debt
(including our 12% notes due 2004). Although the exchange debentures contain
terms which limit the ability of Radio One and its subsidiaries to take
specified actions, these terms permit us and our subsidiaries to incur
additional indebtedness and to grant liens on certain assets.
The indebtedness evidenced by the exchange debentures will be subordinated,
unsecured obligations of Radio One. The payment of the principal of, premium
(if any) and interest on the exchange debentures is subordinate in right of
payment, as set forth in the exchange indenture, to the prior payment in full
of all Senior Debt (including senior subordinated indebtedness) of Radio One,
whether outstanding on the Issue Date or thereafter incurred.
As of December 31, 1998, after giving effect to this offering and the common
stock offering, the outstanding Senior Debt of Radio One would have been
approximately $137.6 million. Although the exchange indenture contains
limitations on the amount of additional Indebtedness that Radio One may incur,
under specified circumstances the amount of such Indebtedness could be
substantial. In any case, such Indebtedness may be Senior Debt. See "--
Covenants--Limitation on Incurrence of Indebtedness and Issuance of Preferred
Stock."
Radio One operates a portion of its business and holds certain of its assets
through its subsidiaries. Radio One will be dependent in part on the cash flow
of these subsidiaries to meet its obligations, including the payment of
principal and interest on the exchange debentures. These subsidiaries are
separate legal entities that have no obligation to pay any amounts due pursuant
to the exchange debentures or to make any funds available therefor, whether by
dividend, loans or other payments. Because these subsidiaries will not
guarantee the payment of the principal or interest on the exchange debentures,
any claim or right of Radio One (or its creditors, including the holders of the
exchange debentures) to the earnings of the subsidiaries or to receive assets
of such subsidiaries upon their liquidation or reorganization (and the
consequent right of holders of the exchange debentures to participate in the
distribution or realize proceeds from those assets) will be effectively
subordinated to the claims of the creditors of the subsidiaries and the claims
of preferred stockholders (if any) of the subsidiaries. To the extent Radio One
itself is a creditor of any of the subsidiaries, its claims would be
effectively subordinated to any security interest in the assets of any of the
subsidiaries. As of December 31, 1998, after giving effect to this offering and
the application of the proceeds therefrom, the subsidiaries of Radio One would
have had aggregate liabilities to third parties of approximately $3.5 million.
Although the exchange indenture limits the incurrence of Indebtedness and
preferred stock of certain of Radio One's subsidiaries, this limitation is
subject to a number of significant qualifications. See "--Covenants--Limitation
on Incurrence of Indebtedness and Issuance of Preferred Stock." For a
discussion of adverse consequences of the absence of subsidiary guarantees, see
"Risk Factors--Subsidiaries Not Obligated."
Only Indebtedness of Radio One that is Senior Debt (including senior
subordinated indebtedness) will rank senior to the exchange debentures in
accordance with the provisions of the exchange indenture. The exchange
debentures will in all respects rank pari passu with all other subordinated
Indebtedness of Radio One, except to the extent such Indebtedness constitutes
Subordinated Debt.
Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, marshaling of assets or any bankruptcy, insolvency or
similar proceedings of Radio One, the holders of Senior Debt will first be
entitled to receive payments in full of such Senior Debt in cash or Cash
Equivalents before the holders of the exchange debentures will be entitled to
receive any payment in respect of the principal of (and premium, if any) or
interest on the exchange debentures. If notwithstanding the foregoing, the
Trustee or the holder of any exchange debenture receives any payment or
distribution of assets of Radio One of any kind or character before all the
Senior Debt is paid in full in cash or Cash Equivalents, then such payment or
distribution will be required to be paid over or delivered
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forthwith to the trustee in bankruptcy or other Person making payment or
distribution of assets of Radio One for application to the payment of all
Senior Debt remaining unpaid, to the extent necessary to pay the Senior Debt in
full in cash or Cash Equivalents.
In the event that any of the exchange debentures are declared due and
payable prior to their stated maturity, the holders of Senior Debt shall be
entitled to receive payment in full in cash or Cash Equivalents of all Senior
Debt before the holders of the exchange debentures shall be entitled to receive
any payment on account of the principal of (or premium, if any) or interest on
the exchange debentures or on account of the purchase or redemption or other
acquisition of the exchange debentures.
Radio One may not make any payments on account of the exchange debentures or
on account of the purchase, redemption or other acquisition of exchange
debentures following the maturity (on the due date, upon acceleration or
otherwise) of any Senior Debt until that Senior Debt is paid in full in cash or
Cash Equivalents. Radio One also may not make any payments on the account of
the exchange debentures or on account of the purchase or redemption or other
acquisition of exchange debentures if there shall have occurred and be
continuing a default in the payment of Senior Debt (a "Payment Default"). In
addition, if any default (other than a Payment Default) with respect to any
Designated Senior Debt permitting the holders thereof (or a percentage thereof
or a trustee on behalf thereof) to accelerate the maturity thereof (a
"Nonmonetary Default") has occurred and is continuing and Radio One and the
Trustee have received written notice thereof from the representatives of
holders of such Designated Senior Debt, then Radio One may not make any
payments (other than payments previously made pursuant to the provisions
described under "--Defeasance") on account of the exchange debentures or on
account of the purchase or redemption or other acquisition of exchange
debentures for a period (a "blockage period") commencing on the date Radio One
and the Trustee receive such written notice and ending on the earlier of (x)
179 days after such date and (y) the date, if any, on which the Designated
Senior Debt to which such default relates is discharged or such default is
waived or otherwise cured. In any event, not more than one blockage period may
be commenced during any period of 360 consecutive days and there shall be a
period of at least 181 consecutive days in each period of 360 consecutive days
when no blockage period is in effect. No Nonmonetary Default that existed or
was continuing on the date of the commencement of any blockage period with
respect to the Designated Senior Debt initiating such blockage period will be,
or can be, made the basis for the commencement of a subsequent blockage period,
unless such default has been cured or waived for a period of not less than 180
consecutive days. In the event that, notwithstanding the foregoing, Radio One
makes any payment to the Trustee or the holder of any exchange debentures
prohibited by these subordinated provisions, then such payment will be required
to be paid over and delivered forthwith to the holders of the Senior Debt
remaining unpaid, to the extent necessary to pay in full in cash or Cash
Equivalents all the Senior Debt.
Because of the subordination provisions, in the event of insolvency,
creditors of Radio One who are holders of Senior Debt of Radio One may recover
more, ratably, than the holders of exchange debentures, and creditors of Radio
One who are not holders of Senior Debt may recover less, ratably, than holders
of Senior Debt and may recover more, ratably, than holders of exchange
debentures.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in
trust by the Trustee for the payment of principal of and interest on the
exchange debentures pursuant to the provisions described under "--Defeasance."
Change of Control
In the event of a Change of Control of Radio One, holders of the exchange
debentures will have the right to require us to purchase their exchange
debentures.
The exchange indenture will provide that upon the occurrence of a Change of
Control (as defined under "Description of the New Preferred Stock--Change of
Control"), Radio One shall be required to commence an Offer to Purchase all or
a portion of the outstanding exchange debentures at a purchase price in cash
equal to
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101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase, in accordance with the procedures set forth in the
exchange indenture.
Radio One shall comply with any applicable requirements of Section 14(e) of
the Exchange Act and any other securities laws or regulations in connection
with the purchase of exchange debentures pursuant to a Change of Control. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions of the covenant described hereunder, Radio One will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations.
The Change of Control purchase feature is a result of negotiations between
Radio One and the representatives. Radio One has no present intention to engage
in a transaction involving a Change of Control, although it is possible that
Radio One would decide to do so in the future. Radio One could enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
exchange indenture, but that could increase the amount of indebtedness
outstanding at such time or otherwise affect Radio One's capital structure or
credit ratings. Restrictions on the ability of Radio One and its Restricted
Subsidiaries to incur additional Indebtedness are contained in the covenants
described under "--Covenants--Limitation on Incurrence of Indebtedness and
Issuance of Preferred Stock." These restrictions can only be waived with the
consent of the holders of a majority in principal amount of the exchange
debentures then outstanding. Except for these limitations, however, the
exchange indenture will not contain any protections for holders of the exchange
debentures in the event of a highly leveraged transaction.
Existing and future indebtedness of Radio One may contain prohibitions on
the occurrence of certain events that would constitute a Change of Control or
require repayment upon a Change of Control. Moreover, the exercise by the
holders of their right to require Radio One to repurchase the exchange
debentures could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on
Radio One. Finally, Radio One's ability to pay cash to the holders of exchange
debentures following the occurrence of a Change of Control may be limited by
Radio One's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases. If a Change of Control occurs at a time when Radio One is
prohibited from purchasing exchange debentures, Radio One could seek the
consent of its lenders to make such purchase, or could attempt to refinance the
borrowings that contain such prohibitions. If Radio One does not obtain such
consent or repay such borrowings, Radio One will remain prohibited from
purchasing exchange debentures. The provisions under the exchange indenture
relative to Radio One's obligation to make an offer to repurchase the exchange
debentures as a result of a Change of Control may be waived or modified with
the written consent of the holders of a majority in principal amount of the
outstanding exchange debentures.
Covenants
The terms of the exchange debentures will limit:
. the incurrence of additional indebtedness and issuance of preferred stock
by Radio One and our restricted subsidiaries;
. the payment of dividends and other distributions by Radio One and our
restricted subsidiaries on their capital stock;
. investments or other restricted payments by Radio One and our restricted
subsidiaries;
. restrictions on distributions from our restricted subsidiaries;
. asset sales and asset swaps;
. transactions with affiliates;
. the sale or issuance of capital stock of our restricted subsidiaries; and
. mergers and consolidations.
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All these limitations and prohibitions are subject to a number of important
qualifications described below.
The exchange indenture contains covenants including, among others, the
following:
Limitation on Incurrence of Indebtedness and Issuance of Preferred
Stock. Radio One will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (including Acquired Debt) or issue any
preferred stock, except that Radio One may:
(1) issue preferred stock that is not Disqualified Stock at any time,
and
(2) incur Indebtedness or issue Disqualified Stock if the Debt to
EBITDA Ratio of Radio One and its Restricted Subsidiaries at the time of
Incurrence of such Indebtedness or issuance of such Disqualified Stock
after giving pro forma effect thereto, does not exceed 7.0 to 1.0; provided
that any such Indebtedness (other than Senior Debt) Incurred by Radio One
shall, at the time of Incurrence, have a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of the
exchange debentures.
The foregoing limitations will not apply to the Incurrence of any of the
following:
(a) Indebtedness consisting of Senior Bank Debt; provided, that the
aggregate principal amount outstanding at any time under this clause (a)
does not exceed $250 million;
(b) Existing Indebtedness;
(c) Indebtedness represented by the 12% notes due 2004 (and the
subsidiary guarantees of the 12% notes due 2004) and the exchange
debentures (including any exchange debentures issued in lieu of cash
interest payments with respect to the exchange debentures);
(d) Refinancing Indebtedness, provided, that
(1) the principal amount of such Refinancing Indebtedness shall not
exceed the principal amount of Indebtedness or amount of Disqualified
Stock so extended, refinanced, renewed, replaced, substituted, defeased
or refunded (plus the amount of expenses incurred and premiums paid in
connection therewith),
(2) with respect to Refinancing Indebtedness of any Indebtedness
other than Senior Debt or Disqualified Stock, the Refinancing
Indebtedness shall have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness
being extended, refinanced, renewed, replaced, substituted, defeased or
refunded, and
(3) with respect to Refinancing Indebtedness of Indebtedness other
than Senior Debt or any Disqualified Stock incurred by Radio One, such
Refinancing Indebtedness shall rank no more senior, and shall be at
least as subordinated, in right of payment to the exchange debentures as
the Indebtedness being extended, refinanced, replaced, renewed,
substituted, defeased or refunded;
(e) intercompany Indebtedness between Radio One and any of its
Restricted Subsidiaries; provided, however, that in the case of
Indebtedness of Radio One, such obligations shall be subordinated in all
respects to Radio One's obligations pursuant to the exchange debentures;
(f) Hedging Obligations, including interest rate swap obligations, that
are incurred in the ordinary course of business for the purpose of fixing
or hedging interest rate risk or minimizing Radio One's or any Restricted
Subsidiary's debt service obligations with respect to any Indebtedness
which Indebtedness is permitted by the terms of the exchange indenture to
be outstanding;
(g) guarantees by Radio One of any Indebtedness of Radio One or any
Restricted Subsidiary permitted under this covenant;
(h) Indebtedness of Radio One or any Restricted Subsidiary consisting
of indemnification, adjustment of purchase price or similar obligations, in
each case incurred in connection with the disposition of any assets of
Radio One or any Restricted Subsidiary; and
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(i) Indebtedness of Radio One or any of its Restricted Subsidiaries (in
addition to Indebtedness permitted by clauses (a) - (h) of this section) in
an aggregate principal amount at any time outstanding that does not exceed
$15 million.
Limitation on Restricted Payments. (a) Under the exchange indenture, any of
the following dividends, distributions, purchases, repurchases, redemptions,
defeasances, other acquisitions, retirements or investments by us or our
Restricted Subsidiaries are referred to as a "Restricted Payment":
(1) the declaration or payment of any dividends or other distributions
in respect of such Person's Equity Interests, including any payment in
connection with any merger or consolidation involving such Person, or
similar payment to the direct or indirect holders of its Equity Interests
(other than distributions payable solely in its Equity Interests, other
than Disqualified Stock, and dividends or distributions payable solely to
Radio One or a Restricted Subsidiary, and other than pro rata dividends or
other distributions made by a Subsidiary that is not a Wholly Owned
Restricted Subsidiary to minority stockholders or owners of an equivalent
interest in the case of a Subsidiary that is an entity other than a
corporation,
(2) the purchase, redemption or other acquisition or retirement for
value of any Equity Interests of Radio One held by any Person or of any
Equity Interests of a Restricted Subsidiary held by any Affiliate of Radio
One, other than a Restricted Subsidiary, including the exercise of any
option to exchange any Equity Interests, other than its Equity Interests of
Radio One that is not Disqualified Stock,
(3) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any Subordinated Debt, other
than the purchase, repurchase or other acquisition of Subordinated Debt
purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year
of the date of acquisition, or
(4) any Investment in any Person other than a Permitted Investment.
Radio One shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, to make any Restricted Payments if at the time Radio
One or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing or would result
therefrom;
(2) at the time of such Restricted Payment and after giving pro forma
effect thereto as if such Restricted Payment had been made at the beginning
of the applicable four-quarter period, Radio One would not be permitted to
incur at least $1.00 of additional Indebtedness under the Debt to EBITDA
Ratio test described above under "--Limitation on Incurrence of
Indebtedness and Issuance of Preferred Stock"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of:
(A) an amount equal to Radio One's EBITDA cumulated from the
first day of the fiscal quarter of Radio One beginning after the
Issue Date to the end of Radio One's most recently ended full fiscal
quarter, taken as a single accounting period, minus 1.4 times the
sum of
(1) Radio One's Consolidated Interest Expense from the first
day of the fiscal quarter of Radio One beginning after the Issue
Date to the end of Radio One's most recently ended full fiscal
quarter, taken as a single accounting period, plus
(2) all dividends or other distributions (other than the
redemption of the existing preferred stock with a portion of the
proceeds of the offerings and other than dividends or
distributions on the new preferred stock and other than the
exchange of the new preferred stock for exchange debentures in
accordance with the terms of the certificate of incorporation)
paid or made by Radio One or any Restricted Subsidiary on any
Disqualified Stock of Radio One or any of its Subsidiaries
during such period;
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(B) the aggregate Net Cash Proceeds received by Radio One from
the issuance or sale of its Equity Interests (other than
Disqualified Stock) subsequent to the Issue Date other than an
issuance or sale to a Subsidiary of Radio One and other than an
issuance or sale to an employee stock ownership plan or to a trust
established by Radio One or any of its Subsidiaries for the benefit
of their employees;
(C) the amount by which Indebtedness of Radio One is reduced on
Radio One's balance sheet upon the conversion or exchange (other
than by a Subsidiary of Radio One) subsequent to the Issue Date of
any Indebtedness of Radio One convertible or exchangeable for Equity
Interests (other than Disqualified Stock) of Radio One, less the
amount of any cash, or the fair value of any property distributed by
Radio One upon such conversion or exchange other than Equity
Interests not constituting Disqualified Stock; and
(D) an amount equal to the sum of
(1) the net reduction in Investments in Unrestricted
Subsidiaries resulting from dividends, repayments of loans or
advances or other transfers of assets, in each case to Radio One
or any Restricted Subsidiary from Unrestricted Subsidiaries, and
(2) the portion (proportionate to Radio One's equity
interest in such Subsidiary) of the fair market value of the net
assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary;
provided, that the foregoing sum shall not exceed, in the case
of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by Radio
One or any Restricted Subsidiary in such Unrestricted
Subsidiary.
(b) Notwithstanding the provisions of the foregoing paragraph (a), the
foregoing paragraph (a) shall not prohibit:
(1) any Restricted Payment made out of the proceeds of the
substantially concurrent sale of, and any acquisition of any Equity
Interest of Radio One made by exchange for, Equity Interests of Radio One
(other than Disqualified Stock and other than Equity Interests issued or
sold to a Subsidiary of Radio One or an employee stock ownership plan or to
a trust established by Radio One or any of its Subsidiaries for the benefit
of their employees); provided, that
(A) such Restricted Payment shall be excluded in the calculation of
the amount of Restricted Payments, and
(B) the Net Cash Proceeds from such sale shall be excluded from the
calculation of amounts under clause (3)(B) of paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Debt made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of Radio One which is permitted to be Incurred pursuant to the
covenant described under "--Limitation on Incurrence of Indebtedness and
Issuance of Preferred Stock"; provided, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value shall
be excluded in the calculation of the amount of Restricted Payments;
(3) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with this
covenant; provided, that
(A) at the time of payment of such dividend, no Default shall have
occurred and be continuing (or result therefrom), and
(B) such dividend shall be included in the calculation of the
amount of Restricted Payments from and after such time;
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(4) loans to members of management of Radio One or any Restricted
Subsidiary the proceeds of which are used for a concurrent purchase of
Equity Interests of Radio One or a capital contribution to Radio One
(provided that the proceeds from such purchase of Equity Interests or
capital contribution shall be excluded from the calculation of amounts
under clause (3)(B) of paragraph (a) above); provided, further, that such
loans shall be included in the calculation of the amount of Restricted
Payments from and after such time;
(5) any principal payment on, or purchase, redemption, defeasance or
other acquisition or retirement for value of, any Indebtedness that is
subordinated by its terms to the exchange debentures out of Excess Proceeds
available for general corporate purposes after consummation of all required
purchases of exchange debentures pursuant to an Offer to Purchase,
provided, that the amount of such payments shall be excluded in the
calculation of the amount of Restricted Payments from and after such time;
(6) repurchases of Equity Interests of Radio One from any employee of
Radio One, other than a Principal Shareholder, whose employment with Radio
One has ceased; provided, that the aggregate amount of such repurchases
shall not exceed $1 million in any year; provided, further, that the amount
of such payments shall be included in the calculation of the amount of
Restricted Payments from and after such time;
(7) Minority Investments of up to $10 million in the aggregate at any
one given time outstanding; provided, that the amount of such Minority
Investments shall be included in the calculation of the amount of
Restricted Payments from and after such time; and
(8) any other payment or payments of up to $15 million in the aggregate
that would otherwise constitute a Restricted Payment(s); provided, that the
amount of such payments shall be included in the calculation of the amount
of Restricted Payments from and after such time.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. Radio One will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions to Radio One or any
other Restricted Subsidiary on its Equity Interests or with respect to any
other interest or participation in, or measured by, its profits,
(2) pay any Indebtedness owed to Radio One or any other Restricted
Subsidiary,
(3) make loans or advances to Radio One or any other Restricted
Subsidiary, or
(4) transfer any of its properties or assets to Radio One or any other
Restricted Subsidiary,
except for such encumbrances or restrictions existing under or by reason of:
(A) any Existing Indebtedness or the exchange debentures;
(B) applicable law;
(C) any instrument governing Indebtedness or Equity Interests of a
Person acquired by Radio One or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), provided that
(1) such restriction is not applicable to any other Person or the
properties or assets of any other Person, and
(2) the consolidated net income (loss) of such acquired Person for
any period prior to the acquisition shall not be taken into account in
determining whether such acquisition was permitted by the terms of the
exchange indenture;
(D) by reason of customary nonassignment provisions in leases entered
into in the ordinary course of business and consistent with past practices;
(E) Purchase Money Indebtedness for property acquired in the ordinary
course of business that only impose restrictions on the property so
acquired;
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(F) Refinancing Indebtedness permitted under the exchange indenture,
provided that the restrictions contained in the agreements governing such
Refinancing Indebtedness are no more restrictive in the aggregate than
those contained in the agreements governing the Indebtedness being
refinanced immediately prior to such refinancing;
(G) the Credit Agreement;
(H) agreements relating to the financing of the acquisition of real or
tangible personal property acquired after the date of the exchange
indenture, provided, that such encumbrance or restriction relates only to
the property which is acquired and, in the case of any encumbrance or
restriction that constitutes a Lien, such Lien constitutes a Purchase Money
Lien;
(I) any restriction or encumbrance contained in contracts for sale of
assets in respect of the assets being sold pursuant to such contract; or
(J) any encumbrances or restrictions contained in the terms of any
Indebtedness or any agreement pursuant to which that Indebtedness was
Incurred if the board of directors determines in good faith that any such
encumbrances or restrictions are no more restrictive in the aggregate than
those contained in the 12% notes indenture.
Limitation on Certain Asset Sales. Radio One will not, and will not permit
any of its Restricted Subsidiaries to:
(1) sell, lease, transfer, convey or otherwise dispose of any assets,
including by way of a sale-and-leaseback, other than in the ordinary course
of business, or
(2) issue or sell Equity Interests of any of its Restricted
Subsidiaries, in each case, whether in a single transaction or a series of
related transactions, to any Person, other than
(A) an issuance, sale, lease, conveyance or disposal by a
Restricted Subsidiary to Radio One or one of its Restricted
Subsidiaries,
(B) an Asset Swap permitted by the covenant described under "--
Limitation on Asset Swaps", or
(C) the sale of the Equity Interests of any Unrestricted
Subsidiary, (each of (A), (B) and (C), an "Asset Sale"), unless:
(1) Radio One or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value of the assets or Equity Interests sold or otherwise
disposed of;
(2) at least 75% of such consideration is in the form of cash and Cash
Equivalents; and
(3) if such Asset Sale includes Equity Interests of any Restricted
Subsidiary, 100% of the Equity Interests of such Restricted Subsidiary
owned by Radio One or any other Restricted Subsidiary are sold or otherwise
disposed of in such Asset Sale.
Following any Asset Sale, Radio One may elect to apply all or a portion of
the Net Proceeds from such Asset Sale, within 360 days of such Asset Sale,
(a) to permanently reduce or satisfy any Senior Debt, and, in the event
that such Senior Debt is extended under a revolving credit or similar
facility, to permanently reduce the aggregate commitments thereunder as
then in effect, or
(b) to acquire Broadcast Assets.
Pending the final application of any Net Proceeds, Radio One may temporarily
reduce Senior Debt or invest such Net Proceeds in Permitted Investments or to
reduce loans outstanding under any revolving credit
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facility of Radio One or any Restricted Subsidiary. Any Net Proceeds from an
Asset Sale not applied to the reduction of Senior Debt or to the acquisition of
Broadcast Assets as provided in the first sentence of this paragraph, upon
expiration of such 360-day period will be deemed to constitute "Excess
Proceeds."
Whenever aggregate Excess Proceeds realized since the Issue Date minus the
aggregate purchase price of exchange debentures, which have been the subject of
any previous Offer to Purchase ("Net Excess Proceeds"), exceeds $5.0 million
Radio One will commence an Offer to Purchase within 30 days. The Offer to
Purchase shall be for a principal amount of exchange debentures then
outstanding having an aggregate purchase price equal to such Net Excess
Proceeds in accordance with the procedures set forth in the exchange indenture.
Radio One and the Restricted Subsidiaries will not be required to apply any
Net Proceeds in accordance with this covenant except to the extent that the
aggregate Net Proceeds from all Asset Sales which are not applied in accordance
with this covenant exceed $5.0 million.
For the purpose of this covenant, the following are deemed to be cash:
(A) the assumption of Senior Debt of Radio One or any Restricted
Subsidiary and the release of Radio One or such Restricted Subsidiary from
all liability on such Senior Debt in connection with such Asset Sale, other
than customary indemnification provisions relating thereto which do not
involve the repayment of funded indebtedness, and
(B) securities received by Radio One or any Restricted Subsidiary from
the transferee that are promptly converted by Radio One or such Restricted
Subsidiary into cash.
Limitation on Asset Swaps. Radio One will not, and will not permit any
Restricted Subsidiary to, engage in any Asset Swaps, unless:
(1) at the time of entering into the agreement to swap assets and
immediately after giving effect to the proposed Asset Swap, no Default or
Event of Default shall have occurred and be continuing;
(2) at the time of entering into the agreement to swap assets and after
giving pro forma effect to the proposed Asset Swap as if such Asset Swap
had occurred at the beginning of the applicable four-quarter period, Radio
One would be permitted to incur at least $1.00 of additional Indebtedness
under the Debt to EBITDA Ratio test described above under "-Limitation on
Incurrence of Indebtedness and Issuance of Preferred Stock";
(3) after giving pro forma effect to the proposed Asset Swap as if such
Asset Swap had occurred at the beginning of the four most recent full
fiscal quarters ending immediately prior to the date of the proposed Asset
Swap, the ratio of
(A) EBITDA of Radio One and its Restricted Subsidiaries on a
consolidated basis for such four-quarter period to
(B) the Consolidated Cash Interest Expense of Radio One and its
Restricted Subsidiaries for such four-quarter period
exceeds 1.2 to 1.0; and
(4) the respective Fair Market Values of the assets being purchased and
sold by Radio One or any of its Restricted Subsidiaries are substantially
the same at the time of entering into the agreement to swap assets.
Transactions with Affiliates. Radio One will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate of Radio
One or any Restricted Subsidiary (each of the foregoing, an "Affiliate
Transaction"), unless:
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(1) such Affiliate Transaction is on terms that are no less favorable
to Radio One or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by Radio One or such
Restricted Subsidiary with a non-Affiliated Person;
(2) such Affiliate Transaction is approved by a majority of the
disinterested members of Radio One's board of directors; and
(3) Radio One delivers to the Trustee:
(a) with respect to any Affiliate Transaction involving aggregate
payments in excess of $1.0 million, an Officers' Certificate certifying
that such Affiliate Transaction complies with clauses (1) and (2)
above; and
(b) with respect to any Affiliate Transaction (or series of related
transactions) with an aggregate value in excess of $10.0 million, an
opinion from an independent investment banking firm, independent
investment adviser, accounting firm or other qualified appraiser,
including, in the case of a transaction involving real estate, a real
estate appraisal firm, in each case, of national standing or with a
national reputation, to the effect that the transaction is fair to
Radio One or the Restricted Subsidiary, as the case may be, from a
financial point of view;
provided that none of the following shall constitute an Affiliate
Transaction:
(A) employment arrangements (including customary benefits thereunder)
entered into by Radio One or any of its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practice of Radio
One or such Restricted Subsidiary;
(B) transactions solely between or among Radio One and its Restricted
Subsidiaries or solely between or among Restricted Subsidiaries;
(C) transactions permitted by the provisions of the exchange indenture
described above under "--Limitation on Restricted Payments";
(D) any agreement as in effect on the Issue Date or any amendment
thereto or any transaction contemplated thereby and any replacement
agreement thereto so long as any such amendment or replacement agreement is
not more disadvantageous to the holders of exchange debentures in any
material respect than the original agreement as in effect on the Issue
Date;
(E) the existence of, or the performance by Radio One or any of its
Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement, including any registration rights agreement or
purchase agreement related thereto, to which it is a party on the Issue
Date;
(F) services provided to any Unrestricted Subsidiary of Radio One for
fees approved by the board of directors; and
(G) the issuance, sale or other disposition of any Equity Interest
(other than Disqualified Stock) of Radio One, including any equity-related
agreements relating thereto such as registration rights and voting
agreements so long as such agreements do not result in such Equity
Interests being Disqualified Stock.
Limitation on Restricted Subsidiary Equity Interests. Radio One will not
permit any Restricted Subsidiary to issue any Equity Interests, except for
(1) Equity Interests issued to and held by Radio One or a Restricted
Subsidiary, and
(2) Equity Interests issued by a Person prior to the time
(A) such Person becomes a Restricted Subsidiary,
(B) such Person merges with or into a Restricted Subsidiary, or
(C) a Restricted Subsidiary merges with or into such Person;
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provided that such Equity Interests were not issued or incurred by such
Person in anticipation of the type of transaction contemplated by subclause
(A), (B) or (C).
Limitation on Merger, Consolidation and Sale of Assets. Radio One may not
consolidate or merge with or into (whether or not Radio One is the Surviving
Person), or sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its properties or assets in one or more related
transactions, to another Person, unless:
(1) the Surviving Person is a corporation organized or existing under
the laws of the United States, any state thereof or the District of
Columbia;
(2) the Surviving Person (if other than Radio One) assumes all the
obligations of Radio One under the exchange debentures and the exchange
indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee;
(3) at the time of and immediately after such Disposition, no Default
shall have occurred and be continuing;
(4) the Surviving Person will, at the time of such Disposition and
after giving pro forma effect thereto, be permitted to incur at least $1.00
of additional Indebtedness pursuant to the Debt to EBITDA Ratio test
described under "--Covenants--Limitation on Incurrence of Indebtedness and
Issuance of preferred stock"; and
(5) Radio One delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the exchange
indenture.
The phrase "all or substantially all" of the assets of Radio One will likely
be interpreted under applicable state law and will be dependent upon particular
facts and circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of "all or substantially all" of the
assets of Radio One has occurred.
SEC Reports. Even if Radio One is not subject to the reporting requirements
of Section 13 or 15(d) of the Exchange Act, Radio One will file with the SEC
and provide the Trustee and the holders of the exchange debentures with such
annual reports and such information, documents and other reports as are
specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S.
corporation subject to those sections, at the times specified for the filing of
such information, documents and reports under such Sections.
Events of Defaults and Remedies
Specified Events of Default may result in an acceleration of our obligations
under the exchange debenture. Individual holders generally cannot enforce these
obligations.
Each of the following is an Event of Default under the exchange indenture:
(a) failure to pay principal of (or premium, if any, on) any exchange
debenture when due; whether or not prohibited by the subordination
provisions of the exchange indenture;
(b) failure to pay for 30 days interest on any exchange debenture when
due; whether or not prohibited by the subordination provisions of the
exchange indenture;
(c) failure to redeem or purchase (whether or not prohibited by the
subordination provisions of the exchange indenture) any exchange debenture
when required pursuant to the exchange indenture, including in connection
with any Offer to Purchase as described under "--Covenants--Limitation on
Certain Asset Sales" or in connection with an Offer to Purchase as
described under "--Change of Control";
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(d) failure to comply with the provisions described under "--
Covenants--Limitation on Merger, Consolidation and Sale of Assets";
(e) failure to perform any other covenant or agreement of Radio One
under the exchange indenture or the exchange debentures continued for 30
days after written notice to Radio One by the Trustee or Holders of at
least 25% in aggregate principal amount of exchange debentures then
outstanding;
(f) default under the terms of any instrument evidencing or securing
Indebtedness for money borrowed by Radio One or any Restricted Subsidiary
having an outstanding principal amount of $10.0 million individually or in
the aggregate which default results in the acceleration of the payment of
such Indebtedness or constitutes the failure to pay such Indebtedness when
due at final maturity and such non-payment shall have continued for 30
days;
(g) the rendering of a final judgment or judgments (not subject to
appeal) against Radio One or any Restricted Subsidiary in an amount in
excess of $10.0 million which remains undischarged or unstayed for a period
of 60 days after the later of
(A) entry of such final judgment or decree, and
(B) the date on which the right to appeal has expired; or
(h) certain events of bankruptcy, insolvency or reorganization
affecting Radio One or any Restricted Subsidiary.
If an Event of Default relating to certain events of bankruptcy, insolvency
or reorganization of Radio One occurs and is continuing, the Default Amount on
all the exchange debentures will ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
holders of the exchange debentures. If an Event of Default occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of
the outstanding exchange debentures may declare the principal amount of and
accrued but unpaid interest, if any, on all the exchange debentures to be due
and payable (collectively, the "Default Amount"). Upon such a declaration, the
Default Amount shall be due and payable immediately. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
exchange debentures may rescind any such acceleration with respect to the
exchange debentures and its consequences.
Subject to the provisions of the exchange indenture relating to the duties
of the Trustee, in case an Event of Default occurs and is continuing, the
Trustee will be under no obligation to exercise any of the rights or powers
under the exchange indenture at the request or direction of any of the holders
of the exchange debentures unless such holders have offered to the Trustee
reasonable indemnity or security against any loss, liability or expense. Except
to enforce the right to receive payment of principal, premium (if any) or
interest when due, no holder of an exchange debenture may pursue any remedy
with respect to the exchange indenture or the exchange debentures unless:
(1) such holder has previously given the Trustee notice that an Event
of Default is continuing,
(2) holders of at least 25% in principal amount of the outstanding
exchange debentures have requested the Trustee to pursue the remedy,
(3) such holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense,
(4) the Trustee has not complied with such request within 60 days after
the receipt thereof and the offer of security or indemnity, and
(5) the holders of a majority in principal amount of the outstanding
exchange debentures have not given the Trustee a direction inconsistent
with such request within such 60-day period.
Subject to specified restrictions, the holders of a majority in principal
amount of the outstanding exchange debentures are given the right to direct the
time, method and place of conducting any proceeding for any
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remedy available to the Trustee or of exercising any trust or power conferred
on the Trustee. The Trustee, however, may refuse to follow any direction that
conflicts with law or the exchange indenture or that the Trustee determines is
unduly prejudicial to the rights of any other holder of an exchange debenture
or that would involve the Trustee in personal liability.
The exchange indenture provides that if a Default occurs and is continuing
and is known to the Trustee, the Trustee must mail to each holder of the
exchange debentures notice of the Default within 90 days after it occurs. In
addition, Radio One is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. Radio One
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action Radio One is taking or proposes to take in respect
thereof.
Modification and Waiver
The terms of the exchange indenture can be changed by agreement of Radio One
and holders of a majority of the aggregate principal amount of the exchange
debentures, subject to specified exceptions.
Modifications and amendments of the exchange indenture may be made by Radio
One and the Trustee with the consent of the holders of a majority in aggregate
principal amount of the exchange debentures then outstanding. However, no such
modification or amendment may, without the consent of the holder of each
exchange debenture then outstanding affected thereby,
(a) change the stated maturity of the principal of, or any installment
of interest on, any exchange debenture,
(b) reduce the principal amount of (or the premium), or interest on,
any exchange debenture,
(c) change the place or currency of payment of principal of (or
premium), or interest on, any exchange debenture,
(d) impair the right to institute suit for the enforcement of any
payment on or with respect to any exchange debenture,
(e) reduce the above-stated percentage of exchange debentures then
outstanding necessary to modify or amend the exchange indenture,
(f) reduce the percentage of aggregate principal amount of exchange
debentures then outstanding necessary for waiver of compliance with certain
provisions of the exchange indenture or for waiver of certain defaults,
(g) modify any provisions of the exchange indenture relating to the
modification and amendment of the exchange indenture or the waiver of past
defaults or covenants, except as otherwise specified,
(h) modify any of the provisions of the exchange indenture relating to
the subordination of the exchange debentures in a manner materially adverse
to the holders,
(i) modify any provisions of the exchange indenture relating to the
guarantee by Radio One of the Indebtedness of any Unrestricted
Subsidiaries, or
(j) following the mailing of any Offer to Purchase, modify any Offer to
Purchase for the exchange debentures required under the covenant described
under "--Covenants--Limitation on Certain Asset Sales", or modify any offer
to purchase for the exchange debentures required under the covenant
described under "--Change of Control", in each case, in a manner materially
adverse to the holders thereof.
The holders of a majority in aggregate principal amount of the outstanding
exchange debentures, on behalf of all holders of exchange debentures, may waive
compliance by Radio One with certain restrictive provisions
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of the exchange indenture. Subject to certain rights of the Trustee, as
provided in the exchange indenture, the holders of a majority in aggregate
principal amount of the exchange debentures then outstanding, on behalf of all
holders of exchange debentures, may waive any past default under the exchange
indenture, except a default in the payment of principal, premium or interest, a
default arising from failure to purchase any exchange debenture tendered
pursuant to an Offer to Purchase or a default in respect of a provision that
cannot be amended without the consent of each Holder affected.
Transfer
The exchange debentures will be issued in registered form and will be
transferable only upon the surrender of the exchange debentures being
transferred for registration of transfer. Radio One may require payment of a
sum sufficient to cover any tax, assessment or other governmental charge
payable in connection with certain transfers and exchanges.
Defeasance
Radio One can terminate some or substantially all of its obligations under
the exchange indenture by taking specified actions, including depositing funds
in a trust to make payment on the exchange debentures.
Radio One at any time may terminate all its obligations under the exchange
debentures and the exchange indenture ("legal defeasance"), except for
specified obligations, including those respecting:
.the defeasance trust,
. obligations to register the transfer or exchange of the exchange
debentures,
. to replace mutilated, destroyed, lost or stolen exchange debentures and
.to maintain a registrar and paying agent in respect of the exchange
debentures.
Radio One at any time may terminate its obligations under the covenants
described under "--Covenants" (other than "--Limitation or Merger,
Consolidation and Sale of Assets"), the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Restricted Subsidiaries,
and the judgment default provision described under Events of Default and the
limitations contained in clause (4) under "--Covenants--Limitation on Merger,
Consolidation and Sale of Assets" above ("covenant defeasance").
Radio One may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Radio One exercises its legal
defeasance option, payment of the exchange debentures may not be accelerated
because of an Event of Default with respect thereto. If Radio One exercises its
covenant defeasance option, payment of the exchange debentures may not be
accelerated because of an Event of Default specified in clause (c), (f), (g),
or (h) (with respect only to Restricted Subsidiaries) under "Events of Default"
above or because of the failure of Radio One to comply with clause (4) under
"--Covenants--Limitation on Merger, Consolidation and Sale of Assets" above.
In order to exercise either defeasance option, Radio One must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the
exchange debentures to redemption or maturity, as the case may be, and must
comply with other conditions, including delivery to the Trustee of an Opinion
of Counsel to the effect that holders of the exchange debentures will not
recognize income, gain or loss for Federal income tax purposes as a result of
such deposit and defeasance and will be subject to Federal income tax on the
same amounts and in the same manner and at the same times as would have been
the case if such deposit and defeasance had not occurred (and, in the case of
legal defeasance only, the Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
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Concerning the Trustee
is to be the Trustee under the exchange indenture.
The holders of a majority in principal amount of the outstanding exchange
debentures generally will have the right to direct the time, method and place
of conducting any proceeding for exercising any remedy available to the
Trustee. The exchange indenture provides that if an Event of Default occurs
(and is not cured), the Trustee will be required, in the exercise of its power,
to use the degree of care of a prudent man in the conduct of his own affairs.
Subject to the provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the exchange indenture at the request of any
holder of exchange debentures, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability
or expense and then only to the extent required by the terms of the exchange
indenture.
Governing Law
The exchange indenture provides that it and the exchange debentures will be
governed by, and construed in accordance with, the laws of the State of New
York without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be
required thereby.
Certain Definitions
"Acquired Debt" means, with respect to any specified Person, Indebtedness of
any other Person existing at the time such other Person merges with or into, or
becomes a Subsidiary of, such specified Person, including Indebtedness incurred
in connection with, or in contemplation of, such other Person merging with or
into, or becoming a Subsidiary of, such specified Person.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control of" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with") any Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise. Beneficial ownership
of 10% or more of the voting securities of a Person shall be deemed to be
control.
"Asset Swap" means the execution of a definitive agreement, subject only to
FCC approval and other customary closing conditions, that Radio One in good
faith believes will be satisfied, for a substantially concurrent purchase and
sale, or exchange, of Broadcast Assets between Radio One or any of its
Restricted Subsidiaries and another Person or group of affiliated Persons other
than Asset Swaps among Radio One and any of its Restricted Subsidiaries. Any
amendment to or waiver of any closing condition which individually or in the
aggregate is material to the Asset Swap shall be deemed to be a new Asset Swap.
"Broadcast Assets" means assets used or useful in the ownership or operation
of an AM or FM radio station.
"Capital Lease Obligation" means, at any time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on the balance sheet in
accordance with GAAP.
"Cash Equivalents" means
(1) United States dollars,
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof
having maturities of less than one year from the date of acquisition,
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(3) certificates of deposit and eurodollar time deposits with
maturities of less than one year from the date of acquisition, bankers'
acceptances with maturities of less than one year and overnight bank
deposits, in each case with any lender party to the Credit Agreement or
with any domestic commercial bank having capital and surplus in excess of
$500,000,000 and a Keefe Bank Watch Rating of "B" or better,
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) entered
into with any financial institution meeting the qualifications specified in
clause (3) immediately above,
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Ratings Services and in each
case maturing within nine months after the date of acquisition, and
(6) interests in money market mutual funds which invest solely in
assets or securities of the type described in clauses (1)-(5) immediately
above.
"Consolidated Cash Interest Expense" means, with respect to any period, the
amount of Consolidated Interest Expense for such period to the extent it
represents cash disbursements for such purpose by Radio One and its Restricted
Subsidiaries during such period.
"Consolidated Interest Expense" means, without duplication, with respect to
any period, the sum of
(a) the interest expense and all capitalized interest of Radio One and
its Restricted Subsidiaries for such period, on a consolidated basis,
including, without limitation,
(1) amortization of debt discount,
(2) the net cost under interest rate contracts (including
amortization of debt discount),
(3) the interest portion of any deferred payment obligation, and
(4) accrued interest, plus
(b) the interest component of any Capital Lease Obligation paid or
accrued or scheduled to be paid or accrued by Radio One during such period,
determined on a consolidated basis in accordance with GAAP.
"Continuing Director" means any member of the board of directors of Radio
One who
(1) is a member of that board of directors on the Issue Date, or
(2) was nominated for election by either
(a) one or more of the Principal Shareholders (or a Related Party
thereof), or
(b) the board of directors a majority of whom were directors at the
Issue Date or whose election or nomination for election was previously
approved by one or more of the Principal Shareholders or such
directors.
"Credit Agreement" means one or more term loans or revolving credit or
working capital facilities (including any letter of credit subfacility) or
other similar facilities with one or more banks or other institutional lenders
in favor of Radio One or any of its Restricted Subsidiaries, as such may be
amended from time to time.
"Debt to EBITDA Ratio" means, with respect to any date, the ratio of
(a) the aggregate principal amount of all outstanding Indebtedness of
Radio One (excluding Hedging Obligations, including interest rate swap
obligations, that are incurred in the ordinary course of business for the
purpose of fixing or hedging interest rate risk with respect to any
floating rate Indebtedness which Indebtedness is permitted by the terms of
the certificate of incorporation or exchange indenture, as
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applicable, to be outstanding) and its Restricted Subsidiaries as of such
date on a consolidated basis, plus the aggregate liquidation preference or
redemption amount of all outstanding Disqualified Stock of Radio One and
its Restricted Subsidiaries as of such date (excluding any such
Disqualified Stock held by Radio One or a Wholly Owned Restricted
Subsidiary), to
(b) EBITDA of Radio One and its Restricted Subsidiaries on a
consolidated basis for the four most recent full fiscal quarters ending
immediately prior to such date, determined on a pro forma basis after
giving effect to each acquisition or disposition of assets made by Radio
One and its Restricted Subsidiaries from the beginning of such four-quarter
period through such date as if such acquisition or disposition had occurred
at the beginning of such four-quarter period.
"Default" means any event which is, or after notice or passage of time or
both would be, in the case of the new preferred stock, a Voting Rights
Triggering Event and, in the case of the exchange debentures, an Event of
Default.
"Designated Senior Debt" means
(1) the Senior Bank Debt,
(2) the 12% notes due 2004, and
(3) any Senior Debt of Radio One permitted under the exchange indenture
the principal amount (or accreted value in the case of Indebtedness issued
at a discount) of which is $15 million or more at the time of designation
by Radio One (or otherwise available under a committed facility) in a
written instrument delivered to the Trustee.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such
Person is the Surviving Person) or the sale, assignment, transfer, lease
conveyance or other disposition of all or substantially all of such Person's
assets.
"Disqualified Stock" means any Equity Interest that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof (other than upon a Change of
Control of Radio One in circumstances where the holders of the new preferred
stock or exchange debentures, as the case may be, would have similar rights),
in whole or in part on or prior to one year after the stated maturity of the
new preferred stock or exchange debentures, as the case may be. The amount of
Disqualified Stock shall be the greater of the liquidation preference or
mandatory or optional redemption price thereof.
"EBITDA" of a specified Person means, for any period, the consolidated net
income of such specified Person and its Restricted Subsidiaries for such
period:
(1) plus (without duplication and to the extent involved in computing
such consolidated net income)
(a) interest expense,
(b) provision for taxes on income or profits, and
(c) depreciation and amortization and other non-cash items
(including amortization of goodwill and other intangibles and barter
expenses); and
(2) minus (without duplication and to the extent involved in computing
such consolidated net income)
(a) any gains (or plus losses), together with any related provision
for taxes on such gains or losses, realized in connection with any sale
of assets (including, without limitation, dispositions pursuant to sale
and leaseback transactions),
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(b) any non-cash or extraordinary gains (or plus losses), together
with any related provision for taxes on such extraordinary gains or
losses,
(c) the amount of any cash payments related to non-cash charges
that were added back in determining EBITDA in any prior period, and
(d) barter revenues;
provided, however, that:
(1) the net income of any other Person that is accounted for by the
equity method of accounting shall be included only to the extent of the
amount of dividends or distributions paid in cash to such specified Person
whose EBITDA is being determined or a Wholly Owned Restricted Subsidiary
thereof;
(2) the net income of any other Person that is a Restricted Subsidiary
(other than a Wholly Owned Restricted Subsidiary) or is an Unrestricted
Subsidiary shall be included only to the extent of the amount of dividends
or distributions paid in cash to such specified Person whose EBITDA is
being determined or a Wholly Owned Restricted Subsidiary thereof; provided,
that for purposes of the covenant described under "--Covenants--Limitation
on Restricted Payments" only, any such dividend or distribution shall be
excluded to the extent it has already been included under clause (a)(3)(D)
thereof (in the case of the""--Description of the Exchange Debentures") or
under clause (a)(4)(D) thereof (in the case of the""--Description of the
New Preferred Stock");
(3) the net income (loss) of any other Person acquired after the Issue
Date in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded (to the extent otherwise included);
and
(4) gains or losses from sales of assets other than sales of assets
acquired and held for resale in the ordinary course of business shall be
excluded (to the extent otherwise included).
All of the foregoing will be determined in accordance with GAAP.
"Equity Interests" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
preferred stock, but excluding any debt securities convertible into such
equity, and including, in the case of a partnership, partnership interests
(whether general or limited) and any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, such partnership.
"Exchange Date" means the date on which the exchange debentures are
exchanged for the new preferred stock.
"Existing Indebtedness" means any outstanding Indebtedness of Radio One and
its Restricted Subsidiaries as of the Issue Date, including the 12% notes due
2004.
"Existing Investors" means Syncom Capital Corporation, BancBoston
Investments, Inc., Alta Subordinated Debt Partners III, L.P., and their
respective affiliates.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer under no compulsion to buy. All determinations in the covenants of Fair
Market Value shall be made by the board of directors of Radio One and shall be
evidenced by a resolution of such board set forth in an Officers' Certificate
delivered to the Transfer Agent or Trustee, upon which the Transfer Agent or
Trustee may conclusively rely.
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"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants,
(2) statements and pronouncements of the Financial Accounting Standards
Board,
(3) such other statements by such other entity as approved by a
significant segment of the accounting profession, and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Hedging Obligations" means, with respect to any Person, the Obligations of
such Person under
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements, and
(2) other agreements or arrangements designed to manage such Person's
interest rate exposure.
"Holder" or "Debentureholder" means the Person in whose name an exchange
debenture is registered on the Registrar's books.
"Immediate Family Member" means, with respect to any individual, such
individual's spouse (past or current), descendants (natural or adoptive, of the
whole or half blood) of the parents of such individual, such individual's
grandparents and parents (natural or adoptive), and the grandparents, parents
and descendants of parents (natural or adoptive, of the whole or half blood) of
such individual's spouse (past or current).
"Incur" means issue, assume, guarantee, incur or otherwise become liable
for; provided, that any Indebtedness or Equity Interests of a Person existing
at the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary. The term "Incurrence" when used as a noun
shall have a correlative meaning. The accretion of principal of a non-interest
bearing or other discount security shall not be deemed the Incurrence of
Indebtedness.
"Indebtedness" means, with respect to any Person, whether or not contingent,
(1) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (other than current trade
liabilities incurred in the ordinary course of business and payable in
accordance with customary practices) or which is evidenced by a note, bond,
debenture or similar instrument,
(2) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock of such
Person (but excluding, in each case, any accrued dividends),
(3) all Capital Lease Obligations of such Person,
(4) all obligations of such Person in respect of letters of credit or
bankers' acceptances issued or created for the account of such Person,
(5) all Hedging Obligations of such Person,
(6) all liabilities of the type referred to in clause (1), (2), (3) or
(4) immediately above which are secured by any Lien on any property owned
by such Person even if such Person has not assumed or otherwise become
liable for the payment thereof to the extent of the value of the property
subject to such Lien,
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(7) to the extent not otherwise included, any guarantee by such Person
of any other Person's indebtedness or other obligations described in
clauses (1) through (6) above;
For purposes of this definition, the obligation of such Person with respect
to the redemption, repayment or repurchase price of any Disqualified Stock that
does not have a fixed redemption, repayment or repurchase price shall be
calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock were redeemed, repaid or repurchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture.
However, if the Disqualified Stock is not then permitted to be redeemed, repaid
or repurchased, the redemption, repayment or repurchase price shall be the book
value of such Disqualified Stock as reflected in the most recent financial
statements of such Person.
"Independent Financial Advisor" means a United States investment banking
firm of national standing in the United States which does not, and whose
directors, officers and employees or affiliates do not, have a direct or
indirect financial interest in, or other affiliation with, Radio One.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the lender) or other extensions
of credit (including by way of guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others
or any payment for property or services for the account or use of others), or
any purchase or acquisition of Equity Interests, Indebtedness or other similar
instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and the
covenant described under "--Covenants--Limitation on Restricted Payments":
(1) "Investment" shall include the portion (proportionate to Radio
One's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of Radio One at the time that such Subsidiary
is designated an Unrestricted Subsidiary; provided, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, Radio One
shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary equal to an amount (if positive) equal to
(A) Radio One's "Investment" in such Subsidiary at the time of such
redesignation, less
(B) the portion (proportionate to Radio One's equity interest in
such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer, in
each case as determined in good faith by the board of directors.
"Issue Date" means , 1999.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in any asset and any filing of, or agreement to give, any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Minority Investment" means any Investment in any Person engaged in any
business reasonably related or ancillary or complementary to the business of
Radio One and its Restricted Subsidiaries as conducted on , 1999, which
Investment results in the ownership by Radio One and/or its Restricted
Subsidiaries of not less than 20%, but not more than 50%, of the outstanding
Voting Equity Interests of such Person.
"Net Cash Proceeds," with respect to any issuance or sale of Equity
Interests, means the cash proceeds of such issuance or sale net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Net Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate cash proceeds received by such Person in respect of such Asset Sale,
which amount is equal to the excess, if any, of:
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(1) the cash received by such Person (including any cash payments
received by way of deferred payment pursuant to, or monetization of, a note
or installment receivable or otherwise, but only as and when received) in
connection with such Asset Sale, over
(2) the sum of
(a) the amount of any Indebtedness including any premium thereon
and fees and expenses associated therewith which is required to be
repaid by such Person in connection with such Asset Sale, plus
(b) the out-of-pocket expenses
(1) incurred by such Person in connection with such Asset Sale,
and
(2) if such Person is a Restricted Subsidiary, incurred in
connection with the transfer of such amount to the parent company or
entity of such Person, plus
(c) provision for taxes, including income taxes, attributable to
the Asset Sale or attributable to required prepayments or repayments of
Indebtedness with the proceeds of such Asset Sale, plus
(d) a reasonable reserve for the after-tax costs of any
indemnification payments (fixed or contingent) attributable to the
seller's indemnities to the purchaser in respect of such Asset Sale
undertaken by Radio One or any of its Restricted Subsidiaries in
connection with such Asset Sale.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offer to Purchase" means a written offer (an "Offer") sent to each holder
of new preferred stock or exchange debentures, as applicable, offering to
purchase in cash up to the principal amount or liquidation preference, as
applicable, of new preferred stock or exchange debentures, as applicable,
specified in such Offer at a purchase price equal to 101% of the liquidation
preference or principal amount, as applicable, of the new preferred stock or
exchange debentures, as applicable, plus accumulated and unpaid dividends or
accrued and unpaid interest, as applicable, if any. Unless otherwise required
by applicable law, the Offer shall specify an expiration date ("Expiration
Date") of the Offer to Purchase which shall be, subject to any contrary
requirements of applicable law, not less than 30 days nor more than 60 days
after the date of such Offer and a settlement date ("Purchase Date") for
purchase of new preferred stock or exchange debentures, as applicable, within
five Business Days after the Expiration Date. Radio One shall notify the
Transfer Agent or Trustee, as applicable, at least 15 Business Days (or such
shorter period as is acceptable to the Transfer Agent or Trustee, as
applicable) prior to the mailing of the Offer of Radio One's obligation to make
an Offer to Purchase, and the Offer shall be sent by first class mail by Radio
One or, at Radio One's request and expense, by the Transfer Agent or Trustee,
as applicable, in the name and at the expense of Radio One. The Offer shall
contain information concerning the business of Radio One and its Subsidiaries
which Radio One in good faith believes will enable such Holders to make an
informed decision with respect to the Offer to Purchase, including
(1) the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the documents required to be filed with the
Transfer Agent pursuant to the certificate of incorporation or Trustee
pursuant to the exchange indenture, as applicable, which requirements may
be satisfied by delivery of such documents together with the Offer,
(2) a description of material developments in Radio One's business
subsequent to the date of the latest of such financial statements referred
to in clause (1) including a description of the events requiring Radio One
to make the Offer to Purchase,
(3) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring Radio One to make
the Offer to Purchase, and
(4) any other information required by applicable law to be included
therein.
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The Offer shall contain all instructions and materials necessary to enable
such holders to tender new preferred stock or exchange debentures, as
applicable, pursuant to the Offer to Purchase. The Offer shall also state:
(1) the Section of the certificate of incorporation or exchange
indenture, as applicable, pursuant to which the Offer to Purchase is being
made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate liquidation preference or principal amount, as
applicable, of the outstanding new preferred stock or exchange debentures,
as applicable, offered to be purchased by Radio One (the "Purchase
Amount"), including, if less than 100% of the liquidation preference or
principal amount, as applicable, the manner by which such has been
determined pursuant to the Section hereof requiring the Offer to Purchase;
(4) the purchase price to be paid by Radio One (the "Purchase Price")
for each $1,000 of liquidation preference or principal amount, as
applicable, of the outstanding new preferred stock or exchange debentures,
as applicable, accepted for payment as specified pursuant to the
certificate of incorporation or exchange indenture, as applicable;
(5) that the holder may tender all or any portion of the new preferred
stock or exchange debentures, as applicable, registered in the name of such
holder and that any portion of a share of new preferred stock or an
exchange debenture, as applicable, tendered must be tendered in an integral
multiple of $1,000 liquidation preference or principal amount, as
applicable;
(6) the place or places where the new preferred stock or exchange
debentures, as applicable, are to be surrendered for tender pursuant to the
Offer to Purchase;
(7) that dividends on any new preferred stock or interest on any
exchange debentures not tendered or tendered but not purchased by Radio One
pursuant to the Offer to Purchase will continue to accumulate or accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each share of new preferred stock or exchange debenture, as
applicable, being accepted for payment pursuant to the Offer to Purchase
and that dividends or interest thereon shall cease to accumulate or accrue
on and after the Purchase Date;
(9) that each holder electing to tender a share of new preferred stock
or an exchange debenture, as applicable, pursuant to the Offer to Purchase
will be required to surrender such new preferred stock or exchange
debenture at the place or places specified in the Offer prior to the close
of business on the Expiration Date (such new preferred stock or exchange
debenture being, if Radio One or the Trustee or Transfer Agent so requires,
duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to Radio One and the Trustee or Transfer Agent duly
executed by, the holder thereof or his attorney duly authorized in
writing);
(10) that holders will be entitled to withdraw all or any portion of
new preferred stock or exchange debentures tendered if Radio One (or the
Paying Agent) receives, not later than the close of business on the
Expiration Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the liquidation preference of the new
preferred stock or principal amount of the exchange debenture that the
holder tendered, the certificate number of the new preferred stock or
exchange debenture that the holder tendered and a statement that such
holder is withdrawing all or a portion of his tender;
(11) that
(a) if new preferred stock in an aggregate liquidation preference
or exchange debentures in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn
pursuant to the Offer to Purchase, Radio One shall purchase all such
new preferred stock or exchange debentures, and
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(b) if new preferred stock in an aggregate liquidation preference
or exchange debentures in an aggregate principal amount in excess of
the Purchase Amount are tendered and not withdrawn pursuant to the
Offer to Purchase, Radio One shall purchase new preferred stock having
an aggregate liquidation preference or exchange debentures having an
aggregate principal amount equal to the Purchase Amount on a pro rata
basis (with such adjustments as may be deemed appropriate so that only
shares of new preferred stock or exchange debentures in denominations
of $1,000 liquidation preference or principal amount or integral
multiples thereof shall be purchased); and
(12) that in the case of any holder whose new preferred stock or
exchange debenture is purchased only in part, Radio One shall execute, and
the Transfer Agent or Trustee shall authenticate and deliver to the holder
of the securities without service charge, new share(s) of new preferred
stock or exchange debenture(s), of any authorized denomination as requested
by such holder, in an aggregate amount equal to and in exchange for the
unpurchased portion of the new preferred stock or exchange debentures so
tendered.
Any Offer to Purchase will be governed by and effected in accordance with
the Offer for such Offer to Purchase.
"Offerings" means the sale and issuance to the public on the Issue Date of
shares of new preferred stock and common stock of Radio One pursuant to
registration statements under the Securities Act.
"Permitted Investment" means:
(1) any Investment in Radio One or any Restricted Subsidiary;
(2) any Investment in Cash Equivalents;
(3) any Investment in a Person if, as a result of such Investment,
(a) such Person becomes a Wholly Owned Restricted Subsidiary of
Radio One, or
(b) such Person either
(1) is merged, consolidated or amalgamated with or into Radio
One or one of its Wholly Owned Restricted Subsidiaries and Radio One
or such Wholly Owned Restricted Subsidiary is the Surviving Person
or the Surviving Person becomes a Wholly Owned Restricted
Subsidiary, or
(2) transfers or conveys all or substantially all of its assets
to, or is liquidated into, Radio One or one of its Wholly Owned
Restricted Subsidiaries;
(4) any Investment in accounts and notes receivable acquired in the
ordinary course of business;
(5) notes from employees issued to Radio One representing payment of
the exercise price of options to purchase capital stock of Radio One;
(6) Investments in Unrestricted Subsidiaries represented by Equity
Interests (other than Disqualified Stock) or assets and property acquired
in exchange for Equity Interests (other than Disqualified Stock) of Radio
One; and
(7) Any Investment in any Person received as non-cash consideration in
an Asset Sale otherwise permitted by, and made in compliance with, the
covenant described under "--Limitation on Certain Asset Sales."
Any Investment in an Unrestricted Subsidiary shall not be a Permitted
Investment unless permitted pursuant to any of clauses (1) through (7) above.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof or
any other entity.
"Principal Shareholders" means Catherine L. Hughes and Alfred C. Liggins,
III and their respective estates, executors and heirs.
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"Public Equity Offering" means an underwritten primary public offering of
Capital Stock (other than Disqualified Stock) of Radio One pursuant to an
effective registration statement under the Securities Act, other than the
public offering undertaken on the Issue Date.
"Purchase Money Indebtedness" means Indebtedness of Radio One and its
Restricted Subsidiaries incurred in connection with the purchase of property or
assets for the business of Radio One and its Restricted Subsidiaries.
"Purchase Money Lien" means any Lien securing solely Purchase Money
Indebtedness.
"Refinancing Indebtedness" means
(1) Indebtedness of Radio One or any Restricted Subsidiary incurred or
given in exchange for, or the proceeds of which are used to extend,
refinance, renew, replace, substitute, defease or refund, any other
Indebtedness or Disqualified Stock permitted by the terms of the
certificate of incorporation or exchange indenture, as applicable, and
(2) Indebtedness of any Restricted Subsidiary incurred or given in
exchange for, or the proceeds of which are used to extend, refinance,
renew, replace, substitute, defease or refund, any other Indebtedness or
Disqualified Stock of Radio One or any Restricted Subsidiary permitted by
the terms of the certificate of incorporation or exchange indenture, as
applicable.
"Related Party" with respect to any Principal Shareholder means
(1) any 80% (or more) owned Subsidiary or Immediate Family Member (in
the case of an individual) of such Principal Shareholder,
(2) any Person, the beneficiaries, stockholders, partners, owners or
Persons beneficially holding an 80% or more controlling interest of which
consist of such Principal Shareholder or an Immediate Family Member, or
(3) any Person employed by Radio One in a management capacity as of the
Issue Date.
"Restricted Subsidiary" means a Subsidiary of Radio One other than an
Unrestricted Subsidiary.
"Secured Debt" means any Indebtedness of Radio One secured by a Lien.
"Senior Bank Debt" means the Indebtedness Incurred pursuant to the Credit
Agreement and any other agreement that replaces the Credit Agreement or
otherwise refunds or refinances any or all of the indebtedness thereunder.
"Senior Debt" means, with respect to Radio One, the principal of and
interest (including post-petition interest whether or not allowed as a claim)
on, and all other amounts owing in respect of Indebtedness permitted to be
incurred by Radio One under the terms of the exchange indenture, including the
Credit Agreement and the 12% notes due 2004 (including but not limited to
reasonable fees and expenses of counsel and all other charges, fees and
expenses incurred in connection with such Indebtedness), whether presently
outstanding or hereafter created, incurred or assumed, unless the instrument
creating or evidencing such Indebtedness or pursuant to which such Indebtedness
is outstanding expressly provides that such Indebtedness is on a parity with or
subordinated in right of payment to the exchange debentures.
Notwithstanding the foregoing, Senior Debt shall not include
(A) any Indebtedness consisting of Disqualified Stock,
(B) any liability for federal, state, local, or other taxes,
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(C) any Indebtedness among or between Radio One, any Restricted
Subsidiary or any of their Affiliates,
(D) any trade payables and any Indebtedness to trade creditors (other
than amounts accrued thereon) incurred for the purchase of goods or
materials, or for services obtained, in the ordinary course of business or
any Obligations to trade creditors in respect of any such Indebtedness, or
(E) any Indebtedness that is incurred in violation of the exchange
indenture.
"Subordinated Debt" means any Indebtedness of Radio One if the instrument
creating or evidencing such Indebtedness or pursuant to which such Indebtedness
is outstanding expressly provides that such Indebtedness is subordinated in
right of payment to the exchange debentures.
"Subsidiary" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the total voting power of
all Voting Equity Interests entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees or
other governing body thereof is at the time owned or controlled by such Person
(regardless of whether such Equity Interests are owned directly or through one
or more other Subsidiaries of such Person or a combination thereof).
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or
the Person to which such Disposition is made.
"12% notes due 2004" means Radio One's outstanding 12% notes due 2004 issued
pursuant to the 12% notes indenture.
"12% notes indenture" means the indenture, dated as of May 15, 1997, between
Radio One and United States Trust Company of New York, as trustee.
"Unrestricted Subsidiary" means
(1) any Subsidiary of Radio One that at the time of determination shall
be an Unrestricted Subsidiary (as designated by the board of directors of
Radio One, as provided below), and
(2) any direct or indirect Subsidiary of an Unrestricted Subsidiary.
The board of directors of Radio One may designate any Subsidiary of Radio
One (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary if all of the following conditions apply:
(a) neither Radio One nor any of its Restricted Subsidiaries provides
credit support for any Indebtedness of such Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness) other
than capital contributions or other Restricted Payments permitted under the
covenant "--Covenants--Limitation on Restricted Payments,"
(b) such Subsidiary is not liable, directly or indirectly, with respect
to any Indebtedness other than Unrestricted Subsidiary Indebtedness,
(c) such Unrestricted Subsidiary is not a party to any agreement,
contract, arrangement or understanding at such time with Radio One or any
Restricted Subsidiary of Radio One except for transactions with Affiliates
permitted by the terms of the certificate of incorporation or exchange
indenture, as applicable, unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to Radio One or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of Radio One (the "Third Party Value") or,
in the event such condition is not satisfied, an amount equal to the value
of the portion of such agreement, contract, arrangement or understanding to
such Subsidiary in excess of the Third Party Value shall be deemed a
Restricted Payment, and
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(d) such Unrestricted Subsidiary does not own any Equity Interest in or
Indebtedness of any Subsidiary of Radio One that has not theretofore been
and is not simultaneously being designated an Unrestricted Subsidiary.
Any such designation by the board of directors of Radio One shall be
evidenced to the Transfer Agent or the Trustee, as applicable, by filing with
the Transfer Agent or the Trustee, as applicable, of a board resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complies with the foregoing conditions. The board of directors of
Radio One may designate any Unrestricted Subsidiary as a Restricted Subsidiary;
provided, however, that:
(1) immediately after giving effect to such designation, Radio One
could incur $1.00 of additional Indebtedness pursuant to the Debt to EBITDA
Ratio test described under the "--Covenants--Limitation on Incurrence of
Indebtedness and Issuance of Preferred Stock", and
(2) all Indebtedness of such Unrestricted Subsidiary shall be deemed to
be incurred on the date such Subsidiary is designated a Restricted
Subsidiary.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary means
Indebtedness of such Unrestricted Subsidiary (other than a guarantee of
Indebtedness of Radio One or any Restricted Subsidiary which is non-recourse to
Radio One and its Restricted Subsidiaries)
(1) as to which neither Radio One nor any Restricted Subsidiary is
directly or indirectly liable (by virtue of Radio One or any such
Restricted Subsidiary being the primary obligor on, guarantor of, or
otherwise liable in any respect to, such Indebtedness), and
(2) which, upon the occurrence of a default with respect thereto, does
not result in, or permit any holder of any Indebtedness of Radio One or any
Restricted Subsidiary to declare, a default on such Indebtedness of Radio
One or any Restricted Subsidiary or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Equity Interest" of a Person means all classes of Equity Interest or
other interests (including partnership interests) of such Person then
outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required scheduled payment of principal,
including payment at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment, by
(2) the then outstanding aggregate principal amount of such
Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all of
the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by Radio One or a Surviving
Person of any Disposition involving Radio One, as the case may be.
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Book-Entry, Delivery and Form
The new preferred stock will initially be issued in the form of one or more
global securities held in book-entry form (each a "Global Security"). The
global securities will be deposited with the trustee as custodian for The
Depository Trust Company (the "Depositary"), and the Depositary or its nominee
will initially be the sole registered holder of the new preferred stock for all
purposes under the certificate of incorporation. Except as set forth below, a
Global Security may not be transferred except as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary.
Upon the issuance of a Global Security, the Depositary or its nominee will
credit, on its internal system, the accounts of persons holding through it with
the respective shares of the individual beneficial interests represented by
such Global Security purchased by such persons in this offering. Ownership of
beneficial interests in a Global Security will be limited to persons that have
accounts with the Depositary ("participants") or persons that may hold
interests through participants. Ownership of beneficial interests by
participants in a Global Security will be shown on, and the transfer of that
ownership interest will be effected only through, records maintained by the
Depositary or its nominees for such Global Security. Ownership of beneficial
interests in such Global Security by persons that hold through participants
will be shown on, and the transfer of that ownership interest within such
participant will be effected only through, records maintained by such
participant. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Security.
Payment of liquidation preference, premium, if any, and dividends on the new
preferred stock represented by any such Global Security will be made to the
Depositary or its nominee, as the case may be, as the sole registered owner and
the sole holder of the new preferred stock represented thereby for all purposes
under the certificate of incorporation. None of Radio One, the trustee or any
agent of Radio One will have any responsibility or liability for any aspect of
the Depositary's reports relating to, or payments made on account of,
beneficial ownership interests in a Global Security representing any new
preferred stock or for maintaining, supervising or reviewing any of the
Depositary's records relating to such beneficial ownership interests.
Radio One has been advised by the Depositary that upon receipt of any
payment of liquidation preference of, premium, if any, or dividends on, any
Global Security, the Depositary will immediately credit, on its book-entry
registration and transfer system, the accounts of participants with payments in
amounts proportionate to their respective beneficial interests in the face
amount of such Global Security, as shown on the records of the Depositary.
Radio One expects that payments by participants to owners of beneficial
interests in a Global Security held through such participants will be governed
by standing instructions and customary practices as is now the case with
securities held for customer accounts registered in "street name" and will be
the sole responsibility of such participants.
So long as the Depositary or its nominee is the registered owner or holder
of such Global Security, the Depositary or such nominee, as the case may be,
will be considered the sole owner or holder of the new preferred stock
represented by such Global Security for the purposes of receiving payment on
the new preferred stock, receiving notices and for all other purposes under the
certificate of incorporation and the new preferred stock. Beneficial interests
in the new preferred stock will be evidenced only by, and transfers thereof
will be effected only through, records maintained by the Depositary and its
participants. Except as provided below, owners of beneficial interests in a
Global Security will not be entitled to receive physical delivery of
certificated shares in definitive form and will not be considered the holders
of such Global Security for any purposes under the certificate of
incorporation. Accordingly, each person owning a beneficial interest in a
Global Security must rely on the procedures of the Depositary and, if such
person is not a participant, on the procedures of the participant through which
such person owns its interest, to exercise any rights of a holder under the
certificate of incorporation. Radio One understands that under existing
industry practices, in the event that Radio One requests any action of holders
or that an owner of a beneficial interest in a Global Security desires to give
or take any action that a holder is entitled to give or take under the
certificate of incorporation,
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the Depositary would authorize the participants holding the relevant
beneficial interest to give or take such action, and such participants would
authorize beneficial owners owning through such participants to give or take
such action or would otherwise act upon the instructions of beneficial owners
owning through them.
The Depositary has advised Radio One that it will take any action permitted
to be taken by a holder of new preferred stock only at the direction of one or
more participants to whose account with the Depositary interests in the Global
Security are credited and only in respect of such portion of the aggregate
shares of new preferred stock as to which such participant or participants has
or have given such direction.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in global securities among participants of
the Depositary, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. None of
Radio One, the trustee or any agent of Radio One will have any responsibility
for the performance by the Depositary or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
The Depositary has advised Radio One that the Depositary is a limited-
purpose trust company organized under the Banking Law of the State of New
York, a "banking organization" within the meaning of New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the Exchange Act. The Depositary was created to hold the
securities of its participants and to facilitate the clearance and settlement
of securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations, some of whom
(and/or their representatives) own the Depositary. Access to the Depositary's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a participant either directly or indirectly.
Certificated Securities
New preferred stock represented by a Global Security are exchangeable for
certificated securities only if:
(1) the Depositary notifies Radio One that it is unwilling or unable to
continue as a depositary for such Global Security and a successor
depositary is not appointed by Radio One within 90 days, or if at any time
the Depositary ceases to be a clearing agency registered under the Exchange
Act;
(2) there shall have occurred and be continuing an Event of Default; or
(3) Radio One, in its sole discretion, notifies the Transfer Agent and
Depositary in writing that it elects to cause the issuance of certificated
securities under the certificate of incorporation.
Any Global Security that is exchangeable for certificated securities
pursuant to the preceding sentence will be transferred to, and registered and
exchanged for, certificated securities in authorized denominations and
registered in such names as the Depositary or its nominee holding such Global
Security may direct. Subject to the foregoing, a Global Security is not
exchangeable, except for a Global Security of like denomination to be
registered in the name of the Depositary or its nominee. In the event that a
Global Security becomes exchangeable for certificated securities,
(1) certificated securities will be issued only in fully registered form
in denominations of $1,000 liquidation preference or integral multiples
thereof,
(2) payment of liquidation preference, premium, if any, and dividends on
the certificated securities generally will be payable, and the transfer of
the certificated securities will be registrable, at the office or agency of
Radio One maintained for such purposes, and
(3) no service charge will be made for any issuance of the certificated
securities, although Radio One may require payment of a sum sufficient to
cover any tax or governmental charge imposed in connection therewith.
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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 4.5x;
. a minimum interest coverage ratio; and
. a minimum fixed charge coverage ratio.
The credit agreement contains the following customary events of default:
. failure to make payments when due;
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. 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 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.
129
<PAGE>
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.
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<PAGE>
SUMMARY OF MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
General
The following is a summary of material United States Federal income tax
consequences of the purchase, ownership and disposition of the new preferred
stock acquired pursuant to this offering and the ownership and disposition of
the exchange debentures received in exchange for the new preferred stock. This
summary is based upon existing United States Federal income tax law, which is
subject to change, possibly retroactively. This summary does not discuss all
aspects of United States Federal income taxation which may be important to
particular Holders in light of their individual investment circumstances, such
as new preferred stock and exchange debentures held by Holders subject to
special tax rules (e.g., financial institutions, insurance companies, broker-
dealers, tax-exempt organizations and foreign Holders) or to persons who will
hold the new preferred stock or exchange debentures as part of a straddle,
hedge, conversion, or synthetic security transaction for United States Federal
income tax purposes or that have a functional currency other than the United
States dollar, all of whom may be subject to rules that differ significantly
from those summarized below. In addition, this summary does not discuss any
foreign, state, or local tax considerations. This summary assumes that Holders
will hold their new preferred stock and exchange debentures as "capital assets"
(generally, property held for investment) under the Internal Revenue Code of
1986, as amended (the "Code"), and with respect to Holders of new preferred
stock, such Holders do not hold and will not acquire equity, other than the new
preferred stock, in Radio One. Prospective Holders are urged to consult their
tax advisors regarding the United States Federal, state, local and foreign
income and other tax considerations associated with the purchase, ownership,
and disposition of the new preferred stock and the ownership and disposition of
the exchange debentures received in exchange for the new preferred stock.
The New Preferred Stock
Dividends. Distributions on the new preferred stock will constitute dividend
income for United States Federal income tax purposes, subject to tax as
ordinary income, to the extent paid from current or accumulated earnings and
profits of Radio One as specially determined for United States Federal income
tax purposes. Distributions on the new preferred stock in excess of current and
accumulated earnings and profits of Radio One will be treated by a Holder as a
return of capital which will not be subject to tax to the extent of such
Holder's adjusted tax basis in his new preferred stock, and thereafter will be
subject to tax as capital gain income. Dividends "paid in kind" through the
issuance of additional new preferred stock will be treated for United States
Federal income tax purposes as distributions in an amount equal to the fair
market value of such additional new preferred stock as of the date of
distribution. Such fair market value will also generally be the initial issue
price and the tax basis of the newly distributed new preferred stock for United
States Federal income tax purposes. To the extent the redemption price of the
newly distributed new preferred stock exceeds the initial issue price (such
excess, the "Redemption Premium") by more than a statutorily defined de minimis
amount, Holders of such new preferred stock would generally be required to
include such Redemption Premium in income over the period the stock is
outstanding, regardless of whether cash dividends are actually paid on such new
preferred stock. Such accrual would generally be determined under a constant
yield method that results in increasing amounts of income accrual over the term
of the new preferred stock.
Dividends Received Deduction. Under section 243 of the Code, a corporate
Holder will generally be able to claim as a deduction 70% of the amount of any
distribution qualifying as a dividend for United States Federal income tax
purposes on the new preferred stock, subject to certain limitations, including
limitations relating to minimum holding periods, the financing of such Holder's
acquisition or holding of the new preferred stock, and extraordinary dividend
treatment.
Disposition of New Preferred Stock. A Holder's adjusted tax basis in the new
preferred stock will generally equal the Holder's initial tax basis of such new
preferred stock increased by the Redemption Premium, if any, previously
included in income by the Holder (and decreased by any dividends received in
respect of previously included Redemption Premium). Upon the sale or other
disposition of new preferred stock
131
<PAGE>
(including an exchange of the new preferred stock for exchange debentures or a
complete redemption of the new preferred stock), a Holder will generally
recognize capital gain or loss equal to the difference between the amount
realized upon the disposition and the adjusted tax basis of the new preferred
stock. In the case of a Holder that actually or constructively owns Radio One
capital stock other than the new preferred stock, a partial or complete
redemption of such Holder's new preferred stock could result in the proceeds of
such redemption being treated, for United States Federal income tax purposes,
as a dividend distribution. Holders should consult their tax advisors regarding
potential dividend treatment on a partial or complete redemption of the new
preferred stock.
In the case of an exchange of new preferred stock for exchange debentures,
the amount realized in the exchange will be equal to the "issue price" of the
exchange debentures plus any cash received in the exchange. If either the new
preferred stock or the exchange debentures are traded on an established
securities market, the issue price of exchange debentures will be equal to its
fair market value, determined as of the exchange date, as reflected in the
public trading in the new preferred stock or exchange debentures. If neither
the new preferred stock nor the exchange debentures are so traded, the issue
price of the exchange debentures would be the stated principal amount of the
exchange debentures, provided that the yield on the exchange debentures is
equal to or greater than the "applicable Federal rate" in effect at the time
the exchange debentures are issued. If the yield on the exchange debentures is
less than such applicable Federal rate, the issue price of the exchange
debentures would be equal to the present value as of the issue date of all
payments to be made on the exchange debentures, discounted at the applicable
Federal rate. It can not be determined at the present time whether the new
preferred stock or the exchange debentures will be, at the relevant time,
traded on an established securities market or whether the yield on the exchange
debentures will equal or exceed the applicable Federal rate.
Depending on a Holder's particular circumstances, the tax consequences of
holding exchange debentures may be less advantageous than the tax consequences
of holding new preferred stock because, for example, payments of interest on
the exchange debentures will not be eligible for any dividends received
deduction that may be available to corporate Holders.
The Exchange Debentures
Original Issue Discount. If at the time of issuance, the exchange debentures
are issued with a "stated redemption price at maturity" that exceeds the "issue
price" by an amount that is equal to or greater than a statutorily defined de
minimis amount, the excess of the "stated redemption price at maturity" over
the "issue price" will be subject to original issue discount treatment for
United States Federal income tax purposes. If the exchange debentures are
issued with original issue discount, Holders will be required to include such
original issue discount in income (as ordinary income) over the period that
they hold the exchange debentures, in advance of the receipt of cash
attributable thereto. The amount of original issue discount to be included in
income will be determined using a constant yield method which will result in a
greater portion of such discount being included in income in the later part of
the term of the exchange debentures. Any amount of discount included in income
will increase a Holder's adjusted tax basis in the exchange debentures.
Disposition of exchange debentures. Upon the sale, exchange or retirement of
an exchange debenture, a Holder will recognize capital gain or loss equal to
the difference between the amount realized and the Holder's adjusted tax basis
in the exchange debentures.
The foregoing summary does not discuss all aspects of federal income
taxation that may be relevant to a particular holder of exchangeable preferred
stock or exchange debentures in light of his particular circumstances and
income tax situation. Each holder of exchangeable preferred stock or exchange
debentures should consult such holder's tax advisor as to the specific tax
consequences to such holder of the ownership and disposition of the
exchangeable preferred stock or exchange debentures, including the application
and effect of state, local, foreign and other tax laws, or subsequent versions
thereof.
132
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, NationsBanc Montgomery
Securities LLC, and First Union Capital Markets Corp. are acting as
representatives, the following respective number of shares of new preferred
stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ----------
<S> <C>
Credit Suisse First Boston Corporation............................
NationsBanc Montgomery Securities LLC.............................
First Union Capital Markets Corp..................................
----------
Total........................................................... 50,000
==========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of new preferred stock in the offering if any are
purchased. The underwriting agreement also provides that if an underwriter
defaults, the purchase commitments of non-defaulting underwriters may be
increased or the offering of new preferred stock may be terminated.
The underwriters propose to offer the shares of new preferred 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 dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Underwriting Discounts and Commissions paid by us................... $ $
Expenses payable by us.............................................. $ $
</TABLE>
The new preferred stock is a new issue of securities with no established
trading market. One or more of the underwriters intends to make a secondary
market for the new preferred stock. However, they are not obligated to do so
and may discontinue making a secondary market for the new preferred stock at
any time without notice. No assurance can be given as to how liquid the trading
market for the new preferred stock will be.
The representatives have informed Radio One that the underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
We are currently in compliance in all material respects with the terms of
the credit agreement. The decision of Credit Suisse First Boston Corporation,
NationsBanc Montgomery Securities LLC and First Union
133
<PAGE>
Capital Markets Corp. to distribute the new preferred stock was made in
accordance with their respective customary procedures. Credit Suisse First
Boston Corporation and NationsBanc Montgomery Securities LLC and First Union
Capital Markets Corp. will not receive any benefit from this offering other
than their respective portions of the underwriting discounts as set forth on
the cover page of this prospectus.
We 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 respect thereof.
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.
Prior to this offering, there has been no public market for the new
preferred stock. The initial public offering price for the new preferred stock
will be negotiated between us and the representatives. Among the principal
factors to be considered in determining the initial public offering price will
be market conditions for initial public offerings, the history of and prospects
for our business, our past and present operations, our past and present
earnings and current financial position, an assessment of our management, the
market of securities of companies in businesses similar to ours, the general
condition of the securities markets and other relevant factors.
The representatives, may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Exchange Act. 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 new preferred 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 new preferred stock originally sold
by such syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the new preferred
stock to be higher than it would otherwise be in the absence of such
transactions. These transactions, if commenced, may be discontinued at any
time.
134
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the new preferred stock in Canada is being made only on
a private placement basis exempt from the requirement that we prepare and file
a prospectus with the securities regulatory authorities in each province where
trades of the new preferred stock are effected. Accordingly, any resale of the
new preferred 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 new preferred stock.
Representations of Purchasers
Each purchaser of the new preferred stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (1) such purchaser is entitled under
applicable provincial securities laws to purchase such new preferred 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
section 32 of the Regulation under the Securities Act (Ontario). 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 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 substantial portions of the assets of
the issuer and such persons may be located out side 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 new preferred 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 new preferred 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 such report must be filed in respect of the new preferred stock
acquired on the same date and under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of the new preferred stock should consult their own
legal and tax advisors with respect to the tax consequences of an investment in
the new preferred stock in their particular circumstances and with respect to
the eligibility of the new preferred stock for investment by the purchaser
under relevant Canadian legislation.
135
<PAGE>
LEGAL MATTERS
Kirkland & Ellis will pass upon the legality of the new preferred stock and
other matters specified in the underwriting agreement for Radio One. Davis
Wright & Tremaine LLP will pass upon legal matters regarding FCC issues.
Skadden, Arps, Slate, Meagher & Flom LLP will pass upon matters specified in
the underwriting agreement for the underwriters.
EXPERTS
The audited consolidated financial statements and schedules 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 WSOJ-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.
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,
136
<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. Our class A common stock is quoted on the Nasdaq National
Market and our reports, proxy statements and other information may also be
inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C. 20006.
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 new preferred 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 new preferred 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.
137
<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............. F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997, and 1998.................................................... F-4
Consolidated Statements of Changes in Stockholders' Deficit for the years
ended December 31, 1996, 1997, and 1998................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997, and 1998.................................................... 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............. F-18
Consolidated Statements of Operations for the years ended December 31,
1996, 1997, and 1998.................................................... F-19
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1996, 1997, and 1998................................. F-20
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997, and 1998.................................................... 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................. F-50
Combined Statements of Operations and Changes in Station Equity for the
years ended December 31, 1997 and 1998.................................. F-51
Combined Statements of Cash Flows for the years ended December 31, 1997
and 1998................................................................ F-52
Notes to Financial Statements............................................ F-53
Stations WKJS-FM and WSOJ-FM of FM 100, Inc.
Report of Independent Public Accountants................................. F-56
Combined Balance Sheet as of December 31, 1998........................... F-57
Combined Statement of Operations and Changes in Station Deficit for the
year ended December 31, 1998............................................ F-58
Combined Statement of Cash Flows for the year ended December 31, 1998.... F-59
Notes to Financial Statements............................................ F-60
</TABLE>
F-1
<PAGE>
The accompanying consolidated financial statements do not reflect the
completion of a 34,060 for one stock split and the exercise of certain warrants
which will take place on or prior to the effective date of an offering of
common stock to the public. The following report is in the form which will be
issued by us upon completion of the two transactions above, which are described
in Note 1 to the consolidated financial statements, and assuming that from
December 31, 1998 to the date of such completion no other material events have
occurred that would affect the accompanying consolidated financial statements
or require disclosure therein:
/s/ Arthur Andersen LLP
Baltimore, Maryland,
March 11, 1999
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.
Baltimore, Maryland,
, 1999
F-2
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 8,500,000 $ 4,455,000
Trade accounts receivable, net of allowance for
doubtful accounts of $904,000 and $1,243,000,
respectively.................................... 8,722,000 12,026,000
Prepaid expenses and other....................... 315,000 334,000
Deferred taxes................................... -- 826,000
------------ ------------
Total current assets........................... 17,537,000 17,641,000
PROPERTY AND EQUIPMENT, net........................ 4,432,000 6,717,000
INTANGIBLE ASSETS, net............................. 54,942,000 127,639,000
OTHER ASSETS....................................... 2,314,000 1,859,000
------------ ------------
Total assets................................... $ 79,225,000 $153,856,000
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable................................. $ 258,000 $ 1,190,000
Accrued expenses................................. 3,029,000 3,708,000
Income taxes payable............................. -- 143,000
------------ ------------
Total current liabilities...................... 3,287,000 5,041,000
LONG-TERM DEBT AND DEFERRED INTEREST, net of
current
portion........................................... 74,954,000 131,739,000
DEFERRED TAX LIABILITY............................. -- 15,251,000
------------ ------------
Total liabilities.............................. 78,241,000 152,031,000
------------ ------------
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' DEFICIT:
Common stock--class A, $.01 par value, 30,000,000
shares authorized,
33,719 shares issued and outstanding............ -- --
Common stock--class B, $.01 par value, 30,000,000
shares authorized,
and 1,560,969 shares issued and outstanding..... 16,000 16,000
Common stock--class C, $.01 par value, 30,000,000
shares authorized,
3,120,915 shares issued and outstanding......... 31,000 31,000
Additional paid-in capital....................... -- --
Accumulated deficit.............................. (22,031,000) (24,906,000)
------------ ------------
Total stockholders' deficit.................... (21,984,000) (24,859,000)
------------ ------------
Total liabilities and stockholders' deficit.... $ 79,225,000 $153,856,000
============ ============
</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
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <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
Less: Agency commissions........... 3,325,000 4,588,000 6,587,000
------------ ------------ ------------
Net broadcast revenue............ 23,702,000 32,367,000 46,109,000
------------ ------------ ------------
OPERATING EXPENSES:
Program and technical.............. 4,157,000 5,934,000 8,015,000
Selling, general and
administrative.................... 9,770,000 12,914,000 16,486,000
Corporate expenses................. 1,793,000 2,155,000 2,800,000
Depreciation and amortization...... 4,262,000 5,828,000 8,445,000
------------ ------------ ------------
Total operating expenses......... 19,982,000 26,831,000 35,746,000
------------ ------------ ------------
Operating income................. 3,720,000 5,536,000 10,363,000
INTEREST EXPENSE, including
amortization of deferred financing
costs............................... 7,252,000 8,910,000 11,455,000
OTHER (EXPENSE) INCOME, net.......... (77,000) 415,000 358,000
------------ ------------ ------------
Loss before benefit from income
taxes and extraordinary item...... (3,609,000) (2,959,000) (734,000)
BENEFIT FROM INCOME TAXES............ -- -- 1,575,000
------------ ------------ ------------
(Loss) income before extraordinary
item.............................. (3,609,000) (2,959,000) 841,000
EXTRAORDINARY ITEM:
Loss on early retirement of debt... -- 1,985,000 --
------------ ------------ ------------
Net (loss) income................ $ (3,609,000) $ (4,944,000) $ 841,000
============ ============ ============
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS........................ $ (3,609,000) $ (6,981,000) $ (2,875,000)
============ ============ ============
BASIC AND DILUTED EARNINGS PER COMMON
SHARE:
Loss before extraordinary item..... $ (.38) $ (.53) $ (.31)
============ ============ ============
Net loss........................... $ (.38) $ (.74) $ (.31)
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted.................. 9,392,000 9,392,000 9,392,000
============ ============ ============
</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
<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............... $-- $16,000 $31,000 $1,158,000 $(12,599,000) $(11,394,000)
Net loss.............. -- -- -- -- (3,609,000) (3,609,000)
---- ------- ------- ---------- ------------ ------------
BALANCE, as of December
31, 1996............... -- 16,000 31,000 1,158,000 (16,208,000) (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............... -- 16,000 31,000 -- (22,031,000) (21,984,000)
Net income............ -- -- -- -- 841,000 841,000
Preferred stock
dividends............ -- -- -- -- (3,716,000) (3,716,000)
---- ------- ------- ---------- ------------ ------------
BALANCE, as of December
31, 1998............... $-- $16,000 $31,000 $ -- $(24,906,000) $(24,859,000)
==== ======= ======= ========== ============ ============
</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
<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income................... $(3,609,000) $ (4,944,000) $ 841,000
Adjustments to reconcile net (loss)
income to net cash
from operating activities:
Depreciation and amortization..... 4,262,000 5,828,000 8,445,000
Amortization of debt financing
costs, unamortized
discount and deferred interest... 3,005,000 3,270,000 4,110,000
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)
Effect of change in operating
assets and liabilities--
Trade accounts receivable....... (656,000) (2,302,000) (1,933,000)
Prepaid expenses and other...... 114,000 (198,000) (4,000)
Other assets.................... (71,000) (147,000) (1,391,000)
Accounts payable................ (818,000) (131,000) 830,000
Accrued expenses................ 234,000 1,576,000 296,000
Income tax payable.............. -- -- 143,000
----------- ------------ ------------
Net cash flows from operating
activities................... 2,614,000 4,937,000 9,299,000
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.. (252,000) (2,035,000) (2,236,000)
Proceeds from disposal of property
and equipment...................... -- -- 150,000
Deposits and payments for station
purchases.......................... (1,000,000) (21,164,000) (59,085,000)
----------- ------------ ------------
Net cash flows from investing
activities................... (1,252,000) (23,199,000) (61,171,000)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt................... (2,408,000) (45,599,000) (485,000)
Proceeds from new debt.............. 51,000 72,750,000 49,350,000
Deferred debt financing costs....... -- (2,148,000) (1,038,000)
Financed equipment purchases........ -- 51,000 --
----------- ------------ ------------
Net cash flows from financing
activities................... (2,357,000) 25,054,000 47,827,000
----------- ------------ ------------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS.......................... (995,000) 6,792,000 (4,045,000)
CASH AND CASH EQUIVALENTS, beginning
of year.............................. 2,703,000 1,708,000 8,500,000
----------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of
year................................. $ 1,708,000 $ 8,500,000 $ 4,455,000
=========== ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for--
Interest.......................... $ 4,815,000 $ 4,413,000 $ 7,192,000
=========== ============ ============
Income taxes...................... $ 50,000 $ -- $ 338,000
=========== ============ ============
</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 and for other
general corporate purposes. Concurrent with the IPO, Radio One intends to issue
$50,000,000 of Series C Preferred Stock and use the proceeds to redeem all of
the existing Senior Cumulative Redeemable Preferred Stock, to retire debt or to
finance pending and future acquisitions.
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.
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).
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.
F-7
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
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 prior to
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 34,060 for one stock split, effective , 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 the 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.
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
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 1,117,000 $ 1,711,000
Trade accounts receivable, net of allowance for
doubtful accounts of $112,000 and $312,000........ 1,259,000 2,479,000
Prepaid expenses and other......................... 59,000 82,000
Due from Mableton.................................. 77,000 120,000
Income tax receivable.............................. -- 164,000
----------- -----------
Total current assets............................. 2,512,000 4,556,000
PROPERTY AND EQUIPMENT, net.......................... 585,000 1,758,000
INTANGIBLE ASSETS, net............................... 10,994,000 10,867,000
OTHER ASSETS......................................... 112,000 40,000
DEFERRED TAXES....................................... -- 60,000
----------- -----------
Total assets..................................... $14,203,000 $17,281,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 108,000 $ 276,000
Accrued expenses................................... 782,000 909,000
Current portion of long-term debt.................. 568,000 327,000
Due to affiliate................................... 68,000 4,000
----------- -----------
Total current liabilities........................ 1,526,000 1,516,000
LONG-TERM DEBT AND DEFERRED INTEREST, net of current
portion............................................. 13,398,000 15,525,000
----------- -----------
Total liabilities................................ 14,924,000 17,041,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 14,670 shares
authorized, 10,000 shares issued and outstanding.. 10,000 10,000
Additional paid-in capital......................... 978,000 1,390,000
Accumulated deficit................................ (1,709,000) (1,160,000)
----------- -----------
Total stockholders' (deficit) equity............. (721,000) 240,000
----------- -----------
Total liabilities and stockholders' equity....... $14,203,000 $17,281,000
=========== ===========
</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
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- -----------
<S> <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
Less: Agency commissions................ 497,000 794,000 1,437,000
---------- ---------- -----------
Net broadcast revenue................. 3,760,000 5,731,000 10,140,000
---------- ---------- -----------
OPERATING EXPENSES:
Program and technical................... 1,017,000 1,432,000 1,418,000
Selling, general and administrative..... 1,426,000 1,994,000 4,111,000
Corporate expenses...................... 241,000 637,000 667,000
Depreciation and amortization........... 429,000 577,000 896,000
---------- ---------- -----------
Total operating expenses.............. 3,113,000 4,640,000 7,092,000
---------- ---------- -----------
Operating income...................... 647,000 1,091,000 3,048,000
INTEREST EXPENSE, including amortization
of deferred financing costs.............. 839,000 1,663,000 2,007,000
OTHER EXPENSES, net....................... -- 111,000 (7,000)
---------- ---------- -----------
(Loss) income before provision for
income taxes......................... (192,000) (683,000) 1,048,000
PROVISION FOR INCOME TAXES................ -- -- 499,000
---------- ---------- -----------
Net (loss) income..................... $ (192,000) $ (683,000) $ 549,000
========== ========== ===========
</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
<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
======= ========== =========== ===========
</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
<TABLE>
<CAPTION>
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $(192,000) $ (683,000) $ 549,000
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation and amortization........... 429,000 577,000 896,000
Amortization of debt financing costs and
unamortized discount................... 399,000 172,000 630,000
Compensation expense from stock options
granted................................ -- 264,000 294,000
Loss on disposals....................... -- 157,000 --
Deferred tax liability.................. -- -- 58,000
Effect of change in operating assets and
liabilities--
Trade accounts receivable............. (774,000) (243,000) (1,220,000)
Prepaid expenses and other............ (16,000) (4,000) (23,000)
Due from Mableton..................... -- (77,000) (43,000)
Income tax receivable................. -- -- (164,000)
Other assets.......................... -- (112,000) 72,000
Accounts payable...................... (22,000) 97,000 168,000
Accrued expenses...................... 423,000 386,000 127,000
Due to affiliate...................... (19,000) (10,000) (64,000)
--------- ---------- ----------
Net cash flows from operating
activities......................... 228,000 524,000 1,280,000
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........ (235,000) (385,000) (1,242,000)
Acquisition of Dogwood.................... -- (6,792,000) --
Acquisition of intangibles................ -- -- (678,000)
--------- ---------- ----------
Net cash flows from investing
activities......................... (235,000) (7,177,000) (1,920,000)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issuance............... -- 7,577,000 2,000,000
Repayment of debt......................... -- -- (744,000)
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
--------- ---------- ----------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS........................... (7,000) 874,000 594,000
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 250,000 243,000 1,117,000
--------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period.... $ 243,000 $1,117,000 $1,711,000
========= ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.................... $ 441,000 $1,305,000 $1,616,000
========= ========== ==========
Income taxes paid......................... $ -- $ -- $ 499,000
========= ========== ==========
</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)
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 have 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
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 55,000 $ 142,000
Trade accounts receivable, net of allowance for
doubtful accounts of $39,000 and $50,000,
respectively.......................................... 1,282,000 1,400,000
Prepaid expenses and other............................. 47,000 31,000
---------- ----------
Total current assets................................. 1,384,000 1,573,000
PROPERTY AND EQUIPMENT, net.............................. 922,000 1,202,000
INTANGIBLE ASSETS, net................................... 4,065,000 3,692,000
---------- ----------
Total assets......................................... $6,371,000 $6,467,000
========== ==========
LIABILITIES AND STATION EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.................. $ 423,000 $ 566,000
COMMITMENTS
STATION EQUITY........................................... 5,948,000 5,901,000
---------- ----------
Total liabilities and station equity................. $6,371,000 $6,467,000
========== ==========
</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
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
REVENUE:
Broadcast revenue, including barter revenue of
$249,000
and $304,000, respectively.......................... $8,330,000 $8,509,000
Less: Agency commissions............................. 1,041,000 1,051,000
---------- ----------
Net broadcast revenue.............................. 7,289,000 7,458,000
---------- ----------
OPERATING EXPENSES:
Program and technical................................ 1,313,000 1,498,000
Selling, general and administrative.................. 3,025,000 3,170,000
Corporate allocations................................ 311,000 413,000
Depreciation and amortization........................ 569,000 648,000
---------- ----------
Total operating expenses........................... 5,218,000 5,729,000
---------- ----------
Broadcast operating income......................... 2,071,000 1,729,000
---------- ----------
Net income......................................... 2,071,000 1,729,000
STATION EQUITY, beginning of year...................... 6,548,000 5,948,000
NET TRANSFER TO PARENT................................. (2,671,000) (1,776,000)
---------- ----------
STATION EQUITY, end of year............................ $5,948,000 $5,901,000
========== ==========
</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
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 2,071,000 $ 1,729,000
Adjustments to reconcile net income to net cash
from operating activities--
Depreciation and amortization.................... 569,000 648,000
Effect of change in operating assets and
liabilities--
Trade accounts receivable...................... 109,000 (118,000)
Prepaid expenses and other..................... (33,000) 16,000
Accounts payable and accrued expenses.......... (63,000) 143,000
----------- -----------
Net cash flows from operating activities..... 2,653,000 2,418,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................. (49,000) (555,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net transfer to parent............................. (2,671,000) (1,776,000)
----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS..... (67,000) 87,000
CASH AND CASH EQUIVALENTS, beginning of year......... 122,000 55,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of year............... $ 55,000 $ 142,000
=========== ===========
</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.
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.
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.
F-53
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
December 31, 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 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>
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 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-56
<PAGE>
STATIONS WKJS-FM AND WSOJ-FM OF FM 100 INC.
COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1998
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 34,000
Trade accounts receivable, net of allowance for doubtful
accounts of $28,000 326,000
----------
Total current assets 360,000
PROPERTY AND EQUIPMENT, net 1,079,000
INTANGIBLE ASSETS, net 3,343,000
----------
Total assets $4,782,000
==========
</TABLE>
LIABILITIES AND STATION DEFICIT
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 168,000
Capital lease obligations 13,000
----------
Total current liabilities 181,000
LONG-TERM LIABILITIES:
Allocation of long-term debt 5,000,000
Capital lease obligations 49,000
----------
Total liabilities 5,230,000
COMMITMENTS AND CONTINGENCIES
STATION DEFICIT (448,000)
----------
Total liabilities and station deficit $4,782,000
==========
</TABLE>
The accompanying notes are an integral part of this combined balance sheet.
F-57
<PAGE>
STATIONS WKJS-FM AND WSOJ-FM OF FM 100 INC.
COMBINED STATEMENT OF OPERATIONS AND CHANGES IN STATION DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
REVENUE:
Broadcast revenue, including barter revenue of $169,000 $1,187,000
Less: Agency commissions 125,000
----------
Net broadcast revenue 1,062,000
----------
OPERATING EXPENSES:
Program and technical 192,000
Selling, general and administrative 810,000
Corporate allocations 15,000
Depreciation and amortization 416,000
----------
Total operating expenses 1,433,000
----------
Operating loss (371,000)
----------
OTHER INCOME (EXPENSE):
Interest expense (500,000)
Other income 21,000
----------
Total other income (expense), net (479,000)
----------
Net loss (850,000)
STATION EQUITY, beginning of year 177,000
NET TRANSFER FROM PARENT 225,000
----------
STATION DEFICIT, end of year $ (448,000)
==========
</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 CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(850,000)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 416,000
Effect of change in operating assets and liabilities-
Trade accounts receivable (257,000)
Prepaid expenses and other 3,000
Accounts payable and accrued expenses 99,000
---------
Net cash flows used in operating activities (589,000)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (58,000)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net transfer from parent 225,000
Proceeds from parent debt 427,000
---------
Net cash flows from financing activities 652,000
---------
INCREASE IN CASH 5,000
CASH, beginning of year 29,000
---------
CASH, end of year $ 34,000
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 477,000
=========
</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.
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.
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-60
<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-61
<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-62
<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 estimated expenses to be incurred in
connection with the issuance and distribution of the securities being
registered, other than underwriting discounts and commissions, to be paid by
Radio One:
<TABLE>
<S> <C>
SEC registration fee.................................................. *
Printing and engraving fees........................................... *
Legal fees and expenses............................................... *
Accounting fees and expenses.......................................... *
Blue Sky fees and expenses............................................ *
Trustee fees.......................................................... *
Directors' and Officers' Insurance.................................... *
Miscellaneous......................................................... *
Total............................................................... $
</TABLE>
- --------
* To be filed by amendment
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 Amended and Restated 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
II-1
<PAGE>
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 has entered into indemnification agreements with the directors
and certain officers pursuant to which Radio One has agreed to maintain
directors' and officers' insurance and to indemnify such officers to the
fullest extent permitted by applicable law except for certain claims described
therein. [Reference is made to the form of Director and Officer
Indemnification Agreement filed as Exhibit [to come] 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 51,194 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>
<S> <C>
1.1/(5)/ Form of Underwriting Agreement
1.1/(6)/ Certificate of Incorporation of Radio One, Inc.
</TABLE>
- --------
(1) Incorporated by reference to Radio One's Annual Report on Form 10-K for
the period ended December 31, 1997 (File No. 333-30795; Film No.
98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K
filed July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K
filed January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q
for the period ended June 30, 1998 (File No. 333-30795; Film No.
98688998).
(5) To be filed by Amendment to this Registration Statement on Form S-1.
(6) Incorporated by reference to Radio One's Registration Statement on
Form S-1 (File No. 333-74351; Film No. 99564316).
(7) Incorporated by reference to Radio One's Amendment No. 1 to its
Registration Statement on Form S-1 filed April 6, 1999 (File No. 333-
74351; Film No. 99588274).
(8) 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. 99581532).
(9) Incorporated by reference to Radio One's Amendment No. 3 to its
Registration Statement on Form S-1 filed April 14, 1999 (File No. 333-
74351).
II-2
<PAGE>
<TABLE>
<S> <C>
3.2(/6/) Amended and Restated By-laws of Radio One, Inc.
4.1(/1/) Indenture dated as of May 15, 1997 among Radio One, Inc., Radio One Licenses,
Inc. and United States Trust Company of New York.
4.2(/2/) First Supplemental Indenture dated as of June 30, 1998, to Indenture dated as of
May 15, 1997, by and among Radio One, Inc., as Issuer and United States Trust
Company of New York, as Trustee, by and among Radio One, Inc., Bell Broadcasting
Company, Radio One of Detroit, Inc., and United States Trust Company of New York,
as Trustee.
4.3(/3/) Second Supplemental Indenture dated as of December 23, 1998, to Indenture dated
as of May 15, 1997, by and among Radio One, Inc., as Issuer and United States
Trust Company of New York, as Trustee, by and among Radio One, Inc., Allur-
Detroit, Allur Licenses, Inc., and United States Trust Company of New York, as
Trustee.
4.4(/1/) Purchase Agreement dated as of May 14, 1997 among Radio One, Inc., Radio One
Licenses, Inc., Credit Suisse First Boston Corporation and NationsBanc Capital
Markets, Inc.
4.5(/1/) Registration Rights Agreement dated as of May 14, 1997 among Radio One, Inc.,
Radio One Licenses, Inc., Credit Suisse First Boston Corporation and NationsBanc
Capital Markets, Inc.
4.6(/1/) Standstill Agreement dated as of May 19, 1997 among Radio One, Inc., Radio One
Licenses, Inc., NationsBank of Texas, N.A., United States Trust Company of New
York and the other parties thereto.
4.7(/4/) Standstill Agreement dated as of June 30, 1998 among Radio One, Inc., the
subsidiaries of Radio One, Inc., United States Trust Company of New York and the
other parties thereto.
4.8(/5/) [Exchange Indenture]
5.1(/5/) Form of Opinion and consent of Kirkland & Ellis.
8.1(/5/) Form of Opinion and consent of Kirkland & Ellis.
10.1(/1/) Office Lease dated February 3, 1997 between National Life Insurance Company and
Radio One, Inc. for premises located at 5900 Princess Garden Parkway, Lanham,
Maryland, as amended on February 24, 1997.
10.2(/1/) Purchase Option Agreement dated February 3, 1997 between National Life Insurance
Company and Radio One, Inc. for the premises located at 5900 Princess Garden
Parkway, Lanham, Maryland.
10.3(/1/) Office Lease commencing November 1, 1993 between Chalrep Limited Partnership and
Radio One, Inc., with respect to the property located at 100 St. Paul Street,
Baltimore, Maryland.
10.4(/1/) Preferred Stockholders' Agreement dated as of May 14, 1997 among Radio One, Inc.,
Radio One Licenses, Inc. and the other parties thereto.
10.5(/4/) First Amendment to Preferred Stockholders' Agreement dated as of June 30, 1998
among Radio One, Inc., Radio One Licenses, Inc., and the other parties thereto.
10.6(/1/) Warrantholders' Agreement dated as of June 6, 1995, as amended by the First
Amendment to Warrantholders' Agreement dated as of May 19, 1997, among Radio One,
Inc., Radio One Licenses, Inc. and the other parties thereto.
10.7(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to Syncom Capital Corporation.
10.8(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to Alliance Enterprise Corporation.
10.9(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to Greater Philadelphia Venture Capital Corporation, Inc.
10.10(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to Opportunity Capital Corporation.
</TABLE>
- --------
(1) Incorporated by reference to Radio One's Annual Report on Form 10-K
for the period ended December 31, 1997 (File No. 333-30795; Film No.
98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K
filed July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K
filed January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q
for the period ended June 30, 1998 (File No. 333-30795; Film No. 98688998).
(5) To be filed by Amendment to this Registration Statement on Form S-1.
(6) Incorporated by reference to Radio One's Registration Statement on
Form S-1 (File No. 333-74351; Film No. 99564316).
(7) Incorporated by reference to Radio One's Amendment No. 1 to its
Registration Statement on Form S-1 filed April 6, 1999 (File No. 333-74351;
Film No. 99588274).
(8) 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).
(9) Incorporated by reference to Radio One's Amendment No. 3 to its
Registration Statement on Form S-1 filed April 14, 1999 (File No. 333-74351).
II-3
<PAGE>
<TABLE>
<S> <C>
10.11(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to Capital Dimensions Venture Fund, Inc.
10.12(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to TSG Ventures Inc.
10.13(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to Fulcrum Venture Capital Corporation.
10.14(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to Alta Subordinated Debt Partners III, L.P.
10.15(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to BancBoston Investments, Inc.
10.16(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to Grant M. Wilson.
10.17(/4/) Credit Agreement dated June 30, 1998 among Radio One, Inc., as the borrower and
NationsBank, N.A., as Documentation Agent and Credit Suisse First Boston as the
Agent.
10.18(/1/) Management Agreement dated as of August 1, 1996 by and between Radio One, Inc.
and Radio One of Atlanta, Inc.
10.19(/1/) Fifth Amendment dated as of July 31, 1997 to that certain Letter of Intent dated
March 12, 1997 by and between Radio One, Inc. and Allied Capital Financial
Corporation, as amended.
10.20(/1/) Sixth Amendment dated as of September 8, 1997 to that certain Letter of Intent
dated March 12, 1997 by and between Radio One, Inc. and Allied Capital Financial
Corporation, as amended.
10.21(/1/) Time Management and Services Agreement dated March 17, 1998, among WYCB
Acquisition Corporation, Broadcast Holdings, Inc., and Radio One, Inc.
10.22(/1/) Stock Purchase Agreement dated December 23, 1997, between the shareholders of
Bell Broadcasting Company and Radio One, Inc.
10.23(/1/) Option and Stock Purchase Agreement dated November 19, 1997, among Allied Capital
Financial Corporation, G. Cabell Williams III, Broadcast Holdings, Inc. and WYCB
Acquisition Corporation.
10.24(/1/) Amended and Restated Warrant of Radio One, Inc., dated January 9, 1998, issued to
TSG Ventures L.P.
10.25(/1/) Stock Purchase Warrant of Radio One, Inc., dated March 16, 1998 issued to Allied
Capital Financial Corporation.
10.26(/1/) Amended and Restated Credit Agreement dated May 19, 1997 among several lenders,
NationsBank of Texas, N.A. and Radio One, Inc.
10.27(/1/) First Amendment to Credit Agreement dated December 31, 1997 among several
lenders, NationsBank of Texas, N.A. and Radio One, Inc.
10.28(/1/) Amendment to Preferred Stockholders' Agreement dated as of December 31, 1997
among Radio One, Inc., Radio One Licenses, Inc. and the other parties thereto.
10.29(/1/) Assignment and Assumption Agreement dated October 23, 1997, between Greater
Philadelphia Venture Capital Corporation, Inc. and Alfred C. Liggins, III.
10.30(/1/) Agreement dated February 20, 1998 between WUSQ License Limited Partnership and
Radio One, Inc.
10.31(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to Capital Dimensions Venture Fund Inc.
10.32(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to Fulcrum Venture Capital Corporation.
10.33(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to Syncom Capital Corporation.
</TABLE>
- --------
(1) Incorporated by reference to Radio One's Annual Report on Form 10-K
for the period ended December 31, 1997 (File No. 333-30795; Film No.
98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K
filed July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K
filed January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q
for the period ended June 30, 1998 (File No. 333- 30795; Film No. 98688998).
(5) To be filed by Amendment to this Registration Statement on Form S-1.
(6) Incorporated by reference to Radio One's Registration Statement on
Form S-1 (File No. 333-74351; Film No. 99564316).
(7) Incorporated by reference to Radio One's Amendment No. 1 to its
Registration Statement on Form S-1 filed April 6, 1999 (File No. 333-74351;
Film No. 99588274).
(8) 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).
(9) Incorporated by reference to Radio One's Amendment No. 3 to its
Registration Statement on Form S-1 filed April 14, 1999 (File No. 333-74351).
II-4
<PAGE>
<TABLE>
<S> <C>
10.34(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to Alfred C. Liggins, III.
10.35(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to TSG Ventures L.P.
10.36(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to Alliance Enterprise Corporation.
10.37(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to Alta Subordinated Debt Partners III, L.P.
10.38(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to BancBoston Investments Inc.
10.39(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to Grant M. Wilson.
10.40(/9/) Merger Agreement dated as of March 30, 1999 relating to the acquisition of Radio
One of Atlanta, Inc.
10.41(/9/) Asset Purchase Agreement dated as of November 23, 1998 relating to the
acquisition of WFUN- FM, licensed to Bethalto, Illinois.
10.42(/9/) Asset Purchase Agreement relating to the Acquisition of WENZ-FM and WERE-AM, both
licensed to Cleveland, Ohio.
10.43(/9/) Asset Purchase Agreement dated as of February 10, 1999 relating to the
acquisition of WDYL-FM, licensed to Chester, Virginia.
10.44(/9/) Asset Purchase Agreement dated as of February 26, 1999 relating to the
acquisition of WKJS-FM, licensed to Crewe Virginia, and WSOJ-FM, licensed
Petersburg, Virginia.
10.45(/5/) [Asset Purchase Agreement 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.]
10.46(/8/) Stock Purchase Agreement dated as of October 26, 1998, by and between Radio One
and Syndicated Communications Venture Partners, II, L.P.
10.47(/9/) Second Amendment to Preferred Stockholders' Agreement dated as of November 23,
1998 among Radio One, Inc., Radio One Licenses, Inc. and the other parties
thereto.
10.48(/9/) Third Amendment to Preferred Stockholders' Agreement dated as of December 23,
1998 among Radio One, Inc., Radio One Licenses, Inc. and the other parties
thereto.
10.49(/9/) Fourth Amendment to Preferred Stockholders' Agreement dated as of December 31,
1998 among Radio One, Inc., Radio One Licenses, Inc. and the other parties
thereto.
10.50(/9/) 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.
10.51(/9/) Fifth Amendment to Preferred Stockholders' Agreement dated as of February 26,
1999 among Radio One, Inc., Radio One Licenses, Inc. and the other parties
thereto.
12.1 Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
21.1(/6/) Subsidiaries of Radio One, Inc.
23.1 Consent of Arthur Andersen, L.L.P.
23.2 Consent of Mitchell & Titus, L.L.P.
23.3(/5/) Consent of Kirkland & Ellis (included in Exhibit 5.1).
23.4(/5/) Consent of Kirkland & Ellis (included in Exhibit 8.1).
23.5(/7/) Consent of Larry Marcus
27.1 Financial Data Schedule (included on pages S1-S3).
</TABLE>
- --------
(1) Incorporated by reference to Radio One's Annual Report filed on Form 10-
K for the period ended December 31, 1997 (File No. 333-30795; Film No.
98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K
filed July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K
filed January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q
for the period ended June 30, 1998 (File No. 333-30795; Film No.
98688998).
(5) To be filed by Amendment to this Registration Statement on Form S-1.
(6) Incorporated by reference to Radio One's Registration Statement on
Form S-1 (File No. 333-74351; Film No. 99564316).
(7) Incorporated by reference to Radio One's Amendment No. 1 to its
Registration Statement on Form S-1 filed April 6, 1999 (File No. 333-
74351; Film No. 99588274).
(8) 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).
(9) Incorporated by reference to Radio One's Amendment No. 2 to its
Registration Statement on Form S-1 filed April 13, 1999 (File No. 333-
74351).
II-5
<PAGE>
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.
II-6
<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
April 13, 1999.
RADIO ONE, INC.
BY: __ /s/ Alfred C. Liggins, II____I
Name: Alfred C. Liggins, III
Title:
President and Chief Executive
Officer
II-7
<PAGE>
POWER OF ATTORNEY AND SIGNATURES
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, in the capacities and on the
dates indicated.
Radio One, Inc.
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----
<S> <C> <C>
_/s/ Catherine L. Hughe___s Chairperson of the Board of Directors April 13, 1999
Catherine L. Hughes
____/s/ Terry L. Jone_____s Director April 13, 1999
Terry L. Jones
___/s/ Brian W. McNeil____l Director April 13, 1999
Brian W. McNeill
/s/ Alfred C. Liggins, II_I President and Chief Executive Officer April 13, 1999
Alfred C. Liggins, III (Principal Executive Officer)
and Director
___/s/ Scott R. Royste____r Executive Vice President and April 13, 1999
Scott R. Royster Chief Financial Officer
(Principal Financial and
Accounting Officer)
</TABLE>
II-8
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................... S-2
Schedule II - Valuation and Qualifying Accounts............................ S-3
</TABLE>
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Radio One, Inc.
We have audited in accordance with generally accepted auditing standards,
the consolidated balance sheets and statements of operations, changes in
stockholders' deficit and cash flows of Radio One, Inc. and subsidiaries (the
Company) included in this registration statement and have issued our report
thereon dated . Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
in the accompanying index is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Baltimore, Maryland,
, 1999
S-2
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, and 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Additions Acquired Balance
Beginning Charged to from at End
Description of Year Expense Acquisitions Deductions of Year
----------- ---------- ---------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
1996.................. $ 669 $ 628 $ -- $ 532 $ 765
1997.................. 765 894 -- 755 904
1998.................. 904 1,942 258 1,861 1,243
TAX VALUATION RESERVE:
1996.................. 1,067 -- -- 1,067 --
1997.................. -- 2,058 -- -- 2,058
1998.................. 2,058 -- -- 2,058 --
</TABLE>
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1(/5/) Form of Underwriting Agreement
3.1(/6/) Certificate of Incorporation of Radio One, Inc.
3.2(/6/) Amended and Restated By-laws of Radio One, Inc.
4.1(/1/) Indenture dated as of May 15, 1997 among Radio One, Inc., Radio One Licenses,
Inc. and United States Trust Company of New York.
4.2(/2/) First Supplemental Indenture dated as of June 30, 1998, to Indenture dated as
of May 15, 1997, by and among Radio One, Inc., as Issuer and United States
Trust Company of New York, as Trustee, by and among Radio One, Inc., Bell
Broadcasting Company, Radio One of Detroit, Inc., and United States Trust
Company of New York, as Trustee.
4.3(/3/) Second Supplemental Indenture dated as of December 23, 1998, to Indenture dated
as of May 15, 1997, by and among Radio One, Inc., as Issuer and United States
Trust Company of New York, as Trustee, by and among Radio One, Inc., Allur-
Detroit, Allur Licenses, Inc., and United States Trust Company of New York, as
Trustee.
4.4(/1/) Purchase Agreement dated as of May 14, 1997 among Radio One, Inc., Radio One
Licenses, Inc., Credit Suisse First Boston Corporation and NationsBanc Capital
Markets, Inc.
4.5(/1/) Registration Rights Agreement dated as of May 14, 1997 among Radio One, Inc.,
Radio One Licenses, Inc., Credit Suisse First Boston Corporation and
NationsBanc Capital Markets, Inc.
4.6(/1/) Standstill Agreement dated as of May 19, 1997 among Radio One, Inc., Radio One
Licenses, Inc., NationsBank of Texas, N.A., United States Trust Company of New
York and the other parties thereto.
4.7(/4/) Standstill Agreement dated as of June 30, 1998 among Radio One, Inc., the
subsidiaries of Radio One, Inc., United States Trust Company of New York and
the other parties thereto.
4.8(/5/) [Exchange Indenture]
5.1(/5/) Form of Opinion and consent of Kirkland & Ellis.
8.1(/5/) Form of Opinion and consent of Kirkland & Ellis.
10.1(/1/) Office Lease dated February 3, 1997 between National Life Insurance Company and
Radio One, Inc. for premises located at 5900 Princess Garden Parkway, Lanham,
Maryland, as amended on February 24, 1997.
10.2(/1/) Purchase Option Agreement dated February 3, 1997 between National Life
Insurance Company and Radio One, Inc. for the premises located at 5900 Princess
Garden Parkway, Lanham, Maryland.
10.3(/1/) Office Lease commencing November 1, 1993 between Chalrep Limited Partnership
and Radio One, Inc., with respect to the property located at 100 St. Paul
Street, Baltimore, Maryland.
10.4(/1/) Preferred Stockholders' Agreement dated as of May 14, 1997 among Radio One,
Inc., Radio One Licenses, Inc. and the other parties thereto.
10.5(/4/) First Amendment to Preferred Stockholders' Agreement dated as of June 30, 1998
among Radio One, Inc., Radio One Licenses, Inc., and the other parties thereto.
10.6(/1/) Warrantholders' Agreement dated as of June 6, 1995, as amended by the First
Amendment to Warrantholders' Agreement dated as of May 19, 1997, among Radio
One, Inc., Radio One Licenses, Inc. and the other parties thereto.
10.7(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to Syncom Capital Corporation.
10.8(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to Alliance Enterprise Corporation.
<CAPTION>
Page
----------- ----
<C>
</TABLE>
- -------
(1) Incorporated by reference to Radio One's Annual Report on Form 10-K
for the period ended December 31, 1997 (File No. 333-30795; Film No.
98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K
filed July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K
filed January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q
for the period ended June 30, 1998 (File No. 333-30795; Film No. 98688998).
(5) To be filed by Amendment to this Registration Statement on Form S-1.
(6) Incorporated by reference to Radio One's Registration Statement on
Form S-1 (File No. 333-7435; Film No. 99564316).
(7) Incorporated by reference to Radio One's Amendment No. 1 to its
Registration Statement on Form S-1 filed April 6, 1999 (File No. 333-74351;
Film No. 99588274).
(8) 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).
(9) Incorporated by reference to Radio One's Amendment No. 3 to its
Registration Statement on Form S-1 filed April 14, 1999 (File No. 333-74351).
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.9(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to Greater Philadelphia Venture Capital Corporation, Inc.
10.10(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to Opportunity Capital Corporation.
10.11(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to Capital Dimensions Venture Fund, Inc.
10.12(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to TSG Ventures Inc.
10.13(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to Fulcrum Venture Capital Corporation.
10.14(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to Alta Subordinated Debt Partners III, L.P.
10.15(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to BancBoston Investments, Inc.
10.16(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to Grant M. Wilson.
10.17(/4/) Credit Agreement dated June 30, 1998 among Radio One, Inc., as the borrower and
NationsBank, N.A., as Documentation Agent and Credit Suisse First Boston as the
Agent.
10.18(/1/) Management Agreement dated as of August 1, 1996 by and between Radio One, Inc.
and Radio One of Atlanta, Inc.
10.19(/1/) Fifth Amendment dated as of July 31, 1997 to that certain Letter of Intent
dated March 12, 1997 by and between Radio One, Inc. and Allied Capital
Financial Corporation, as amended.
10.20(/1/) Sixth Amendment dated as of September 8, 1997 to that certain Letter of Intent
dated March 12, 1997 by and between Radio One, Inc. and Allied Capital
Financial Corporation, as amended.
10.21(/1/) Time Management and Services Agreement dated March 17, 1998, among WYCB
Acquisition Corporation, Broadcast Holdings, Inc., and Radio One, Inc.
10.22(/1/) Stock Purchase Agreement dated December 23, 1997, between the shareholders of
Bell Broadcasting Company and Radio One, Inc.
10.23(/1/) Option and Stock Purchase Agreement dated November 19, 1997, among Allied
Capital Financial Corporation, G. Cabell Williams III, Broadcast Holdings, Inc.
and WYCB Acquisition Corporation.
10.24(/1/) Amended and Restated Warrant of Radio One, Inc., dated January 9, 1998, issued
to TSG Ventures L.P.
10.25(/1/) Stock Purchase Warrant of Radio One, Inc., dated March 16, 1998 issued to
Allied Capital Financial Corporation.
10.26(/1/) Amended and Restated Credit Agreement dated May 19, 1997 among several lenders,
NationsBank of Texas, N.A. and Radio One, Inc.
10.27(/1/) First Amendment to Credit Agreement dated December 31, 1997 among several
lenders, NationsBank of Texas, N.A. and Radio One, Inc.
10.28(/1/) Amendment to Preferred Stockholders' Agreement dated as of December 31, 1997
among Radio One, Inc., Radio One Licenses, Inc. and the other parties thereto.
10.29(/1/) Assignment and Assumption Agreement dated October 23, 1997, between Greater
Philadelphia Venture Capital Corporation, Inc. and Alfred C. Liggins, III.
10.30(/1/) Agreement dated February 20, 1998 between WUSQ License Limited Partnership and
Radio One, Inc.
10.31(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to Capital Dimensions Venture Fund Inc.
10.32(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to Fulcrum Venture Capital Corporation.
10.33(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to Syncom Capital Corporation.
<CAPTION>
Page
----------- ----
<C>
</TABLE>
- --------
(1) Incorporated by reference to Radio One's Annual Report on Form 10-K
for the period ended December 31, 1997 (File No. 333-30795; Film No.
98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K
filed July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K
filed January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q
for the period ended June 30, 1998 (File No. 333-30795; Film No. 98688998).
(5) To be filed by Amendment to this Registration Statement on Form S-1.
(6) Incorporated by reference to Radio One's Registration Statement on
Form S-1 (File No. 333-74351; Film No. 99564316).
(7) Incorporated by reference to Radio One's Amendment No. 1 to its
Registration Statement on Form S-1 filed April 6, 1999 (File No. 333-74351;
Film No. 99588274).
(8) 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).
(9) Incorporated by reference to Radio One's Amendment No. 3 to its
Registration Statement on Form S-1 filed April 14, 1999 (File No. 333-74351).
<PAGE>
<TABLE>
<CAPTION>
Exhib No. Description
---------- -----------
<C> <S>
10.34(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to Alfred C. Liggins, III.
10.35(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to TSG Ventures L.P.
10.36(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to Alliance Enterprise Corporation.
10.37(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to Alta Subordinated Debt Partners III, L.P.
10.38(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to BancBoston Investments Inc.
10.39(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to Grant M. Wilson.
10.40(/9/) Merger Agreement dated as of March 30, 1999 relating to the acquisition of
Radio One of Atlanta, Inc.
10.41(/9/) Asset Purchase Agreement dated as of November 23, 1998 relating to the
acquisition of
WFUN- FM, licensed to Bethalto, Illinois.
10.42(/9/) Asset Purchase Agreement relating to the Acquisition of WENZ-FM and WERE-AM,
both licensed to Cleveland, Ohio.
10.43(/9/) Asset Purchase Agreement dated as of February 10, 1999 relating to the
acquisition of WDYL-FM, licensed to Chester, Virginia.
10.44(/9/) Asset Purchase Agreement dated as of February 26, 1999 relating to the
acquisition of WKJS-FM, licensed to Crewe Virginia, and WSOJ-FM, licensed
Petersburg, Virginia.
10.45(/5/) [Asset Purchase Agreement 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.]
10.46(/8/) Stock Purchase Agreement dated as of October 26, 1998, by and between Radio One
and syndicated communications Venture Partners, II, L.P.
10.47(/9/) Second Amendment to Preferred Stockholders' Agreement dated as of November 23,
1998 among Radio One, Inc., Radio One Licenses, Inc. and the other parties
thereto.
10.48(/9/) Third Amendment to Preferred Stockholders' Agreement dated as of December 23,
1998 among Radio One, Inc., Radio One Licenses, Inc. and the other parties
thereto.
10.49(/9/) Fourth Amendment to Preferred Stockholders' Agreement dated as of December 31,
1998 among Radio One, Inc., Radio One Licenses, Inc. and the other parties
thereto.
10.50(/9/) 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.
10.51(/9/) Fifth Amendment to Preferred Stockholders' Agreement dated as of February 26,
1999 among Radio One, Inc., Radio One Licenses, Inc. and the other parties
thereto.
12.1 Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
21.1(/6/) Subsidiaries of Radio One, Inc.
23.1 Consent of Arthur Andersen, L.L.P.
23.2 Consent of Mitchell & Titus, L.L.P.
23.3(/5/) Consent of Kirkland & Ellis (included in Exhibit 5.1).
23.4(/5/) Consent of Kirkland & Ellis (included in Exhibit 8.1).
23.5(/7/) Consent of Larry Markus.
27.1 Financial Data Schedule (included on pages S1-S3).
<CAPTION>
Page
---------- ----
<C>
</TABLE>
- --------
(1) Incorporated by reference to Radio One's Annual Report on Form 10-K
for the period ended December 31, 1997 (File No. 333-30795; Film No.
98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K
filed July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K
filed January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q
for the period ended June 30, 1998 (File No. 333-30795; Film No.
98688998).
(5) To be filed by Amendment to this Registration Statement on Form S-1.
(6) Incorporated by reference to Radio One's Registration Statement on
Form S-1 (File No. 333-74351; Film No. 99564316).
(7) Incorporated by reference to Radio One's Amendment No. 1 to its
Registration Statement on Form S-1 filed April 6, 1999 (File No. 333-
74351; Film No. 99588274).
(8) 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).
(9) Incorporated by reference to Radio One's Amendment No. 3 to its
Registration Statement on Form S-1 filed April 14, 1999 (File No. 333-
74351).
<PAGE>
EXHIBIT 12.1
RADIO ONE, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
FOR THE YEARS ENDED
DECEMBER 25, 1994 AND DECEMBER 31, 1995, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
December
--------------------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Earnings
Income (loss).............................. $ 1,223,000 $ (1,856,000) $ (3,609,000) (4,944,000) 841,000
Add:
Provision for income taxes................. 30,000 - - - -
Extraordinary item......................... - 468,000 - 1,985,000 -
Fixed charges (1).......................... 2,783,000 5,588,000 7,762,000 11,217,000 15,467,000
Less:
Accreted dividends......................... - - - 2,037,000 3,716,000
Benefit for income taxes................... - - - - 1,575,000
----------- ------------ ------------ ---------- -----------
Total earnings....................... $ 4,036,000 $ 4,200,000 4,153,000 6,221,000 11,017,000
----------- ------------ ------------ ---------- -----------
Fixed charges(1)............................. $ 2,783,000 $ 5,588,000 7,762,000 11,217,000 15,467,000
Ratio of earnings to combined
fixed charges and preferred
stock dividends............................ 1.45 0.75 .54 .55 .71
</TABLE>
(1) Fixed charges represented interest expense, including amortization of
discounts and the component of rent expense believed by management to be
representative of the interest factor (one-third of rent expense) and accreted
dividends on senior cumulative redeemable preferred stock.
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
Registration Statement.
/s/ Arthur Andersen LLP
Baltimore, Maryland
April 13, 1999
<PAGE>
[MITCHELL & TITUS, LLP LETTERHEAD APPEARS HERE]
Exhibit 23.2
To the Board of Directors of
Radio One
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".
/s/ Mitchell & Titus, LLP
Mitchell & Titus, LLP
Washington, D.C.
April 13, 1999
