<PAGE>
As filed with the Securities and Exchange Commission on February 14, 2000
Registration No. [333- ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
Radio One, Inc.
(Exact name of Registrant as specified in its charter)
----------------
Delaware 52-1166660 4832
(State or other (I.R.S. Employer (Primary Standard
jurisdiction of Identification No.) Industry Classification
incorporation or Number)
organization)
5900 Princess Garden Parkway, 8th Floor
Lanham, MD 20706
Telephone: (301) 306-1111
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
ALFRED C. LIGGINS, III
Chief Executive Officer and President
Radio One, Inc.
5900 Princess Garden Parkway, 8th Floor
Lanham, MD 20706
Telephone: (301) 306-1111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copies to:
RICHARD L. PERKAL, ESQ. ANTOINETTE COOK BUSH, ESQ.
Kirkland & Ellis STEPHEN W. HAMILTON, ESQ.
655 Fifteenth Street, N.W. Skadden, Arps, Slate, Meagher & Flom LLP
Washington, D.C. 20005 1440 New York Avenue, N.W.
Telephone: (202) 879-5000 Washington, D.C. 20005
Telephone: (202) 371-7000
----------------
Approximate date of commencement of the proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed
Proposed maximum
Amount maximum aggregate Amount of
Title of each Class of to be offering price offering registration
Securities to be Registered registered(/1/) per share(/2/) price(/2/) fee
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<S> <C> <C> <C> <C>
Class A Common Stock, par value 5,500,000
$0.001 per share................ Shares $85.75 $471,625,000 $124,509.00
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</TABLE>
(1) Includes 500,000 shares that the underwriters have the option to purchase
from the Company to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(f)(2) based on the average high and low sale
price per share of class A common stock on The Nasdaq Stock Market's
National Market on February 10, 2000.
----------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this Registration Statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
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- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 14, 2000
5,000,000 Shares
[LOGO OF RADIO ONE]
Class A Common Stock
---------
We are selling 5,000,000 shares of class A common stock.
Our class A common stock is traded on The Nasdaq Stock Market's National
Market under the symbol "ROIA." The last reported sale price for our class A
common stock on February 11, 2000 was $83.00 per share.
The underwriters have an option to purchase a maximum of 500,000 additional
shares to cover over-allotments of shares.
Investing in our class A common stock involves risks. See "Risk Factors" on
page 7.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Radio One
-------- ------------- -----------
<S> <C> <C> <C>
Per Share................... $ $ $
Total....................... $ $ $
</TABLE>
Delivery of the shares of class A common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Deutsche Banc Alex. Brown
The date of this prospectus is , 2000.
<PAGE>
[Map of Eastern U.S. with ROI radio station logos, call signs and frequencies.]
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 7
Use of Proceeds..................... 12
Dividend Policy..................... 12
Price Range of Our Class A Common
Stock.............................. 13
Capitalization...................... 14
Recent and Pending Transactions..... 15
Unaudited Pro Forma Consolidated
Financial Information.............. 17
Selected Historical Consolidated
Financial Data..................... 27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 29
Business............................ 39
<CAPTION>
Page
----
<S> <C>
Management.......................... 60
Certain Relationships and Related
Transactions....................... 65
Principal Stockholders.............. 67
Description of Capital Stock........ 69
Description of Indebtedness......... 71
Shares Eligible for Future Sale..... 73
Underwriting........................ 75
Notice to Canadian Residents........ 77
Legal Matters....................... 78
Experts............................. 78
Where You Can Find Additional
Information........................ 78
Index to Financial Statements....... F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Radio One's principal executive offices are located at 5900 Princess Garden
Parkway, 8th Floor, Lanham, MD 20706, and our telephone number is (301) 306-
1111.
<PAGE>
PROSPECTUS SUMMARY
This summary contains a general discussion of our business, this offering
and summary financial information. We encourage you to read the entire
prospectus for a more complete understanding of Radio One and this offering.
Except where otherwise noted, all share numbers and per share data in this
prospectus give effect to the capitalization transactions described in
"Capitalization." Unless otherwise indicated, all information in this
prospectus assumes that the underwriters' over-allotment option will not be
exercised.
RADIO ONE, INC.
Introduction
We were founded in 1980 and are the largest radio broadcasting company in
the United States primarily targeting African-Americans. After we complete our
pending acquisitions, we will own 27 radio stations. Twenty-six of these
stations (nineteen FM and seven AM) are in nine of the top 20 African-American
radio markets: Washington, D.C., Baltimore, Atlanta, Philadelphia, Detroit,
Cleveland, St. Louis, Richmond and Boston. Our strategy is to expand within our
existing markets and into new markets that have a significant African-American
presence. We believe radio broadcasting primarily targeting African-Americans
has significant growth potential. We also believe that we have a competitive
advantage in the African-American market, and the radio industry in general,
due to our focus on formats primarily targeting African-American audiences, our
skill in programming and marketing these formats, and our turnaround expertise.
The radio stations that we owned or managed as of September 30, 1999,
grouped by market, were ranked in the top three in their markets in combined
audience and revenue share among radio stations primarily targeting African-
Americans. Due to successful implementation of our business strategy, our net
broadcast revenue, broadcast cash flow and after-tax cash flow have grown
significantly:
. Same station net broadcast revenue increased 30.6% from year-end 1997 to
year-end 1998 and 27.2% for the nine months ended September 30, 1999,
compared to the same period in 1998.
. Same station broadcast cash flow increased 50.4% from year-end 1997 to
year-end 1998 and 32.9% for the nine months ended September 30, 1999,
compared to the same period in 1998.
. After-tax cash flow increased 152.6% from year-end 1997 to year-end 1998
and 75.0% for the nine months ended September 30, 1999, compared to the
same period in 1998.
Radio One is led by our Chairperson and co-founder, Catherine L. Hughes, and
her son, Alfred C. Liggins, III, our Chief Executive Officer and President, who
together have over 40 years of operating experience in radio broadcasting. Ms.
Hughes, Mr. Liggins and our strong management team have successfully
implemented a strategy of acquiring and turning around underperforming radio
stations. We believe that we are well positioned to apply our proven operating
strategy to our recently or soon to be acquired stations in Cleveland, St.
Louis, Richmond, Boston and Philadelphia, and to other radio stations in
existing and new markets as attractive acquisition opportunities arise.
The African-American Market Opportunity
We believe that operating radio stations in large African-American markets,
with formats primarily targeting African-American audiences, has significant
growth potential for the following reasons:
. African-Americans are experiencing faster population growth than the
population as a whole.
. African-Americans are experiencing higher income growth than the
population as a whole.
. There is significant growth in advertising targeting the African-
American market.
1
<PAGE>
. We believe there is a growing influence of African-American culture on
American society.
. We believe that radio formats primarily targeting African-Americans are
becoming more popular with mainstream audiences.
. We can reach our target audience with fewer radio stations due to the
concentration of African-Americans in the top 40 African-American
markets.
. African-Americans exhibit stronger radio audience listenership and
loyalty than the population as a whole.
Station Portfolio
We operate in some of the largest African-American markets. We have also
acquired or agreed to acquire 14 radio stations since January 1, 1999. These
acquisitions diversify our net broadcast revenue, broadcast cash flow and asset
bases and increase the number of top 20 African-American markets in which we
operate from five to nine. The table below outlines our station operations and
information about our markets from the BIA 1999 Fourth Edition.
Radio One and Our Markets
<TABLE>
<CAPTION>
Radio One Including Pending Acquisitions Market Data
---------------------------------------------------- ---------------------------------------------
Number of African-American
Stations Market 1999 Entire Market 1997 MSA Population
--------- ---------------- ------------------------- ----------------------
Estimated Ranking by
1999 Annual Size of
Audience Summer 1999 January- Radio African- African-
Share Revenue Audience December 1999 Revenue American Total American
Market FM AM Rank Rank Share Revenue Share ($millions) Population (in millions) %
- ------ ---- ---- -------- ------- ----------- ------------- ----------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Washington, D.C. 2 2 1 1 11.0 10.1% $289.7 3 4.3 26.5%
Detroit............. 2 2 2 2 5.2 3.7 246.1 5 4.6 22.3
Philadelphia........ 2 -- 2 2 6.1 5.3 283.7 6 4.9 20.2
Atlanta............. 2 -- 2 3 6.9 5.1 280.6 7 3.7 26.0
Baltimore........... 2 2 1 1 16.1 21.4 121.1 10 2.5 27.6
St. Louis........... 1 -- n/a n/a n/a n/a 123.7 14 2.6 17.7
Cleveland........... 1 1 2 2 4.7 3.0 106.6 17 2.1 19.2
Boston.............. 1 -- n/a n/a n/a n/a 279.3 18 4.3 7.1
Richmond............ 6 1 1 1 23.3 22.3 50.1 19 0.9 30.1
---- ----
Total............. 19 8
==== ====
</TABLE>
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 includes acquiring and turning
around underperforming radio stations principally in the top 40 African-
American markets. We will also make 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.
We expect to use the net proceeds of this offering, together with available
cash, amounts available under our existing credit facility and additional
financings, to acquire radio broadcasting assets and businesses. The amount of
our future acquisitions, if any, may exceed the net proceeds from this
offering, and the magnitude of such acquisitions, both individually and in the
aggregate, may significantly exceed that of our past acquisitions.
2
<PAGE>
Turnarounds - Historically, we have entered a market by acquiring a station
or stations that have little or negative broadcast cash flow. Additional
stations we have acquired in existing markets have often been, in our opinion,
substantially underperforming. By implementing our operating strategy, we have
succeeded in increasing ratings, net broadcast revenue and broadcast cash flow
of all the FM stations we have owned and operated or managed for at least one
year. We have achieved these improvements while operating against much larger
competitors.
Operations - In order to maximize net broadcast revenue and broadcast cash
flow at our radio stations, we strive to achieve the largest audience share of
African-American listeners in each market, to convert these audience share
ratings to advertising revenue, and to control operating expenses.
Preliminary Unaudited Fourth Quarter and Fiscal Year 1999 Results
The following table summarizes selected data for the three month and fiscal
year periods ended December 31, 1998 and 1999. Dollar figures are in millions.
<TABLE>
<CAPTION>
Three
Months Fiscal Year
Ended Ended
December December
31, 31,
----------- -----------
Percentage Percentage
1998 1999 Increase 1998 1999 Increase
----- ----- ---------- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Net broadcast revenue........... $12.8 $24.7 93.0% $46.1 $81.7 77.2%
Broadcast cash flow............. 5.9 11.7 98.3 21.6 37.4 73.1
EBITDA (excluding non-cash
compensation expense).......... 5.1 10.6 107.8 18.8 33.3 77.1
After-tax cash flow............. 1.3 5.9 353.8 7.2 16.3 126.4
</TABLE>
The increases in our net broadcast revenue resulted primarily from
continuing broadcast revenue growth in our Washington, Baltimore and
Philadelphia markets as we benefitted from historical ratings increases at
certain of our radio stations, improved power ratios at these stations as well
as industry growth in each of these markets. Additional revenue gains were
derived from our recently acquired stations in Detroit, Cleveland and Richmond,
and from stations in Richmond being operated under a time brokerage agreement
and from stations in Atlanta acquired in March 1999.
In the fourth quarter of 1999, on a same station basis (including results
from our Atlanta radio stations which, until March 1999, were owned by an
affiliate but managed by us), our net broadcast revenue increased approximately
35% and broadcast cash flow increased approximately 48% from 1998.
The increases in our broadcast cash flow were attributable to the increases
in broadcast revenue partially offset by higher operating expenses related to
our rapid expansion in our markets.
The increases in our EBITDA, excluding non-cash compensation expense, were
attributable to the increase in broadcast revenue partially offset by higher
operating expenses and higher corporate expenses partially associated with the
costs of operating as a public company.
3
<PAGE>
The Offering
<TABLE>
<C> <S> <C>
Class A common stock offered(/1/)............................. 5,000,000 shares of class A common stock
Common stock to be outstanding after this offering(/1/)(/2/).. 22,272,622 shares of class A common stock
2,867,463 shares of class B common stock
3,132,458 shares of class C common stock
28,272,543 shares of common stock
Voting Rights................................................. Holders of class A common stock are
entitled
to one vote per share and are entitled to
elect
two independent directors. Holders of
class B
common stock are entitled to ten votes per
share. Holders of class C common stock do
not have voting rights, except as required
by
law.
Other Rights.................................................. Except as to voting and conversion rights,
each class of common stock has the same
rights.
Use of Proceeds............................................... We plan to use the net proceeds from this
offering:
. to fund future acquisitions;
. for continued business development
activities; and
. for general corporate purposes.
NASDAQ Symbol................................................. ROIA
</TABLE>
- --------
(1) Excludes 500,000 shares of class A common stock that may be issued to cover
over-allotments of shares.
(2) Excludes 207,208 shares of class A common stock issuable upon exercise of
stock options outstanding at an average exercise price of $24.00.
4
<PAGE>
Summary Historical and Pro Forma Consolidated Financial Data
The following table contains summary historical financial information
derived from the audited consolidated financial statements for the years ended
December 31, 1996, 1997 and 1998, and the unaudited financial statements for
the nine months ended September 30, 1998 and 1999, of Radio One. The table also
contains summary unaudited pro forma financial information derived from the
unaudited pro forma financial information set forth under "Unaudited Pro Forma
Consolidated Financial Information." The summary unaudited pro forma
consolidated financial information does not purport to represent what our
results of operations or financial condition would actually have been had the
transactions described below occurred on the dates indicated or to project our
results of operations or financial condition for any future period or date. The
summary financial data set forth in the following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Unaudited Pro Forma Consolidated Financial
Information," and the unaudited financial statements and the audited
consolidated financial statements of Radio One included elsewhere in this
prospectus.
. The pro forma amounts for the year ended December 31, 1998, and the nine
months ended September 30, 1999, are adjusted to give effect to the
following transactions as if they had occurred as of January 1, 1998:
-- the acquisitions of:
. Bell Broadcasting Company;
. Allur-Detroit, Inc.;
. Radio One of Atlanta, Inc.;
. Dogwood Communications, Inc. (by Radio One of Atlanta, Inc.);
. WENZ-FM and WERE-AM in Cleveland;
. the assets of WFUN-FM in St. Louis (pro forma balance sheet only);
. WKJS-FM and WARV-FM in Richmond;
. WDYL-FM in Richmond; and
. the assets of WBOT-FM in Boston (pro forma balance sheet only);
-- the pending acquisitions of WJRV-FM, WCDX-FM, WPLZ-FM, and WGCV-AM in
Richmond;
-- the pending acquisition of WPLY-FM in Philadelphia;
-- the repayment of debt;
-- our initial public offering of class A common stock on May 5, 1999;
-- our public offering of class A common stock on November 11, 1999; and
-- this offering.
. The pro forma balance sheet data are adjusted to give effect to the
transactions described above as if they had occurred as of September 30,
1999 unless the transactions had actually occurred prior to that date.
5
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September
Fiscal Year Ended December 31, 30,
-------------------------------------- ------------------------------
Historical Historical
------------------------- -----------------
1998 Pro 1999 Pro
1996 1997 1998 Forma 1998 1999 Forma
------- ------- ------- ----------- ------- -------- -----------
(unaudited) (unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Net broadcast revenue... $23,702 $32,367 $46,109 $79,882 $33,304 $ 56,975 $ 70,424
Station operating
expenses............... 13,927 18,848 24,501 47,913 17,550 31,211 38,925
Corporate expenses...... 1,793 2,155 2,800 2,800 2,051 3,301 3,322
Depreciation and
amortization........... 4,262 5,828 8,445 26,315 6,042 12,209 19,543
------- ------- ------- ------- ------- -------- --------
Operating income...... 3,720 5,536 10,363 2,854 7,661 10,254 8,634
Interest expense........ 7,252 8,910 11,455 9,628 7,996 11,479 7,498
Other income (expense),
net.................... (77) 415 358 543 267 199 279
Income tax expense
(benefit).............. -- -- (1,575) (2,786) -- 731 1,889
------- ------- ------- ------- ------- -------- --------
Income (loss) before
extraordinary item... $(3,609) $(2,959) $ 841 $(3,445) $ (68) $ (1,757) $ (474)
======= ======= ======= ======= ======= ======== ========
Loss applicable to
common stockholders
before extraordinary
item................... $(3,609) $(4,996) $(2,875) $(3,445) $(2,794) $ (3,233) $ (474)
======= ======= ======= ======= ======= ======== ========
Earnings per common
share:
Basic and diluted..... $ (0.38) $ (0.53) $ (0.31) $ (0.12) $ (0.30) $ (0.22) $ (0.02)
======= ======= ======= ======= ======= ======== ========
Weighted average common
shares outstanding:
Basic and diluted..... 9,392 9,392 9,392 28,273 9,392 14,547 28,273
======= ======= ======= ======= ======= ======== ========
Other Data:
Broadcast cash flow..... $ 9,775 $13,519 $21,608 $31,969 $15,754 $ 25,764 $ 31,499
Broadcast cash flow
margin................. 41.2% 41.8% 46.9% 40.0% 47.3% 45.2% 44.7%
EBITDA (before non-cash
compensation expense).. $ 7,982 $11,364 $18,808 $29,169 $13,703 $ 23,620 $ 28,402
After-tax cash flow..... 806 2,869 7,248 21,794 5,974 10,452 18,487
Cash interest expense... 4,815 4,413 7,192 5,996 3,495 6,340 4,497
Accreted preferred stock
dividends.............. -- 2,037 3,716 -- 2,726 1,476 --
Capital expenditures.... 252 2,035 2,236 4,678 1,357 2,580 3,160
Ratio of total debt to EBITDA (before non-cash
compensation expense).......................... 2.8x
Ratio of EBITDA (before non-cash compensation
expense) to interest expense................... 3.0x 3.8x
Ratio of EBITDA (before non-cash compensation
expense) to cash interest expense.............. 4.9x 6.3x
Balance Sheet Data (at
period end):
Cash and cash equivalents........................................... $ 4,428 $560,751
Intangible assets, net.............................................. 212,363 336,020
Total assets........................................................ 257,826 935,899
Total debt (including current portion and deferred interest)........ 107,585 81,585
Total stockholders' equity ......................................... 124,854 828,927
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information in
this prospectus before deciding to invest in shares of class A common stock of
Radio One.
Dependence on Key Personnel - The loss of key personnel could disrupt the
management of our business.
Our business depends upon the continued efforts, abilities and expertise of
our executive officers and other key employees. We intend to enter into
employment agreements with several of our key employees, including Catherine L.
Hughes, Alfred C. Liggins, III, and other executive officers. We believe that
the unique combination of skills and experience possessed by these individuals
would be difficult to replace, and that the loss of any one of them could have
a material adverse effect on us. These adverse effects could include the
impairment of our ability to execute our acquisition and operating strategies
and a decline in our standing in the radio broadcast industry.
Risks of Acquisition Strategy - Our growth depends on successfully executing
our acquisition strategy.
We intend to grow by acquiring radio stations primarily in top 40 African-
American markets. We cannot assure you that our acquisition strategy will be
successful. Our acquisition strategy is subject to a number of risks,
including:
. Our pending acquisitions may not be consummated, and we may not
successfully identify and consummate future acquisitions;
. Acquired stations may not increase our broadcast cash flow or yield
other anticipated benefits;
. Required regulatory approvals may result in unanticipated delays in
completing acquisitions;
. We may have difficulty managing our rapid growth; and
. We may be required to raise additional financing and our ability to do
so is limited by the terms of our debt instruments.
History of Net Losses - If we have losses in the future, the market price of
our common stock and our ability to raise capital could be adversely affected.
We cannot be certain that we will sustain profitability. Failure to sustain
profitability may adversely affect the market price of our common stock, which
in turn may adversely affect our ability to raise additional equity capital and
to incur additional debt.
Since 1994, we have experienced net losses in three out of six years. The
primary reasons for these losses are significant charges for depreciation and
amortization relating to the acquisition of radio stations and interest charges
on our outstanding debt. If we acquire additional stations, these charges will
probably increase.
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 cable and broadcast television,
newspapers, direct mail, outdoor advertising and the Internet. 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.
7
<PAGE>
Restrictions Imposed by Our Debt - The terms of our debt restrict us from
engaging in many activities and require us to satisfy various financial tests.
Our bank credit facility and the agreements governing our other outstanding
debt contain covenants that restrict, among other things, our ability to incur
additional debt, pay cash dividends, purchase our capital stock, make capital
expenditures, make investments or other restricted payments, swap or sell
assets, engage in transactions with related parties, secure non-senior debt
with our assets, or merge, consolidate or sell all or substantially all of our
assets.
Our bank credit facility also requires us to get our banks' consent before
we make acquisitions. This restriction may make it more difficult to pursue our
acquisition strategy. Our bank credit facility also requires us to maintain
specific financial ratios. Events beyond our control could affect our ability
to meet those financial ratios, and we cannot assure you that we will meet
them.
All of the loans under our bank credit facility are due on December 31,
2003. A breach of any of the covenants contained in our bank credit facility
could allow our lenders to declare all amounts outstanding under the bank
credit facility to be immediately due and payable. In addition, our banks could
proceed against the collateral granted to them to secure that indebtedness. If
the amounts outstanding under the bank credit facility are accelerated, we
cannot assure you that our assets will be sufficient to repay in full the money
owed to the banks or to our other debt holders.
Substantial Debt - Our substantial level of debt could limit our ability to
grow and compete.
As of September 30, 1999, we had outstanding total debt of $107.6 million
(including $26.0 million bearing interest at variable rates) and stockholders'
equity of $124.9 million.
Our substantial level of indebtedness could adversely affect us for various
reasons, including limiting our ability to:
. obtain additional financing for working capital, capital expenditures,
acquisitions, debt payments or other corporate purposes;
. have sufficient funds available for operations, future business
opportunities or other purposes;
. compete with competitors that have less debt than we do; and
. react to changing market conditions, changes in our industry and
economic downturns.
Additional Borrowings Available--In addition to our current level of
indebtedness, we have the ability to incur substantially more debt. This
additional debt could further exacerbate the risks described above.
Although the agreements governing our indebtedness place certain limitations
on the incurrence of additional indebtedness by us, under certain circumstances
we can incur substantial amounts of additional indebtedness. For example, we
may be able to borrow up to $100.0 million under our bank credit facility.
Additionally, the agreements governing our indebtedness would have permitted us
to incur up to approximately $275.0 million of additional debt as of December
31, 1999, after giving effect to the transactions described under "Unaudited
Pro Forma Consolidated Information," as if they had occurred on December 31,
1999, unless the transactions had actually occurred prior to that date. If we
incur additional debt, the related risks discussed above could intensify. See
"Description of Indebtedness" for a more detailed discussion of the terms of
certain of our indebtedness.
Controlling Stockholders - Two common stockholders have a majority interest in
Radio One and have the power to control matters on which Radio One's common
stockholders may vote.
Upon completion of this offering, Catherine L. Hughes and her son, Alfred C.
Liggins, III, will collectively hold approximately 56.2% (55.7% if the
underwriters exercise their over-allotment option) of the
8
<PAGE>
outstanding voting power of Radio One's common stock. As a result, Ms. Hughes
and Mr. Liggins will control most decisions involving Radio One, including
transactions involving a change of control of Radio One, such as a sale or
merger. In addition, certain covenants in Radio One's debt instruments require
that Ms. Hughes and Mr. Liggins maintain specified ownership and voting
interests in Radio One, and prohibit other parties' voting interests from
exceeding specified amounts. Ms. Hughes and Mr. Liggins have agreed to vote
their shares together in elections to the board of directors.
Technology Changes, New Services and Evolving Standards - We must respond to
the rapid changes in technology, services and standards which characterize our
industry in order to remain competitive.
The radio broadcasting industry is subject to rapid technological change,
evolving industry standards and the emergence of new media technologies. We
cannot assure you that we will have the resources to acquire new technologies
or to introduce new services that could compete with these new technologies.
Several new media technologies are being developed, including the following:
. Audio programming by cable television systems, direct broadcast
satellite systems, Internet content providers and other digital audio
broadcast formats;
. Satellite digital audio radio service, which could result in the
introduction of several new satellite radio services with sound quality
equivalent to that of compact discs; and
. In-band on-channel digital radio, which could provide multi-channel,
multi-format digital radio services in the same bandwidth currently
occupied by traditional AM and FM radio services.
We have entered into a programming agreement with a satellite digital audio
radio service, and have also invested in a developer of digital audio broadcast
technology and two Internet content providers. However, we cannot assure you
that these arrangements will be successful or enable us to adapt effectively to
these new media technologies.
Importance of the Washington, D.C. and Baltimore Markets - A large portion of
our net broadcast revenue and broadcast cash flow comes from these markets.
Based upon the stations we owned or managed as of September 30, 1999, our
radio stations in Washington, D.C. and Baltimore collectively accounted for
62.4% and 74.1% of our net broadcast revenue and broadcast cash flow,
respectively, for the nine-month period ended September 30, 1999, adjusted to
include results of stations acquired between January 1, 1999 and September 30,
1999. A significant decline in net broadcast revenue or broadcast cash flow
from our stations in either of these markets could have a material adverse
effect on our financial position and results of operations.
Government Regulation - Our business depends on maintaining our licenses with
the FCC. We cannot assure you that we will be able to maintain these licenses.
Radio broadcasters depend upon maintaining radio broadcasting licenses
issued by the FCC. These licenses are ordinarily issued for a maximum term of
eight years and may be renewed. Our radio broadcasting licenses expire at
various times from October 1, 2003 to August 1, 2006. Although we may apply to
renew our FCC licenses, interested third parties may challenge our renewal
applications. In addition, if Radio One or any of our stockholders, officers,
or directors violates the FCC's rules and regulations or the Communications Act
of 1934, as amended, or is convicted of a felony, the FCC may commence a
proceeding to impose sanctions upon us. Examples of possible sanctions include
the imposition of fines; the revocation of our broadcast licenses; or the
renewal of one or more of our broadcasting licenses for a term of fewer than
eight years. If the FCC were to issue an order denying a license renewal
application or revoking a license, we would be required to cease operating the
radio station covered by the license only after we had exhausted administrative
and judicial review without success.
The radio broadcasting industry is subject to extensive and changing federal
regulation. Among other things, the Communications Act and FCC rules and
policies limit the number of broadcasting properties that any person or entity
may own (directly or by attribution) in any market and require FCC approval for
transfers of control and assignments of licenses. The filing of petitions or
complaints against Radio One or any FCC licensee from which
9
<PAGE>
we are acquiring a station could result in the FCC delaying the grant of, or
refusing to grant or imposing conditions on its consent to the assignment or
transfer of control of licenses. The Communications Act and FCC rules also
impose limitations on non-U.S. ownership and voting of the capital stock of
Radio One.
Antitrust Matters - We may have difficulty obtaining regulatory approval for
acquisitions in our existing markets and, potentially, new markets.
An important part of our growth strategy is the acquisition of additional
radio stations. After the passage of the Telecommunications Act of 1996, the
U.S. Department of Justice has become more aggressive in reviewing proposed
acquisitions of radio stations and radio station networks. The Justice
Department is particularly aggressive when the proposed buyer already owns one
or more radio stations in the market of the station it is seeking to buy. The
Justice Department has challenged a number of radio broadcasting transactions.
Some of those challenges ultimately resulted in consent decrees requiring,
among other things, divestitures of certain stations. In general, the Justice
Department has more closely scrutinized radio broadcasting acquisitions that
result in local market shares in excess of 40% of radio advertising revenue.
Similarly, the FCC has adopted procedures to review proposed radio broadcasting
transactions even if the proposed acquisition otherwise complies with the FCC's
ownership limitations. In particular, the FCC may invite public comment on
proposed radio transactions that the FCC believes, based on its initial
analysis, may present ownership concentration concerns in a particular local
radio market.
Shares of Common Stock Eligible for Future Sale - Future sales by holders of
unrestricted stock could depress the market price of the class A common stock.
Upon completion of this offering, we will have 22,272,622 shares of class A
common stock, 2,867,463 shares of class B common stock and 3,132,458 shares of
class C common stock issued and outstanding, assuming no exercise of the
underwriters' over-allotment option. Of these shares, the 5,000,000 shares of
class A common stock being sold in this offering (plus any shares issued upon
exercise of the underwriters' over-allotment option), the 7,150,000 shares of
class A common stock sold in our initial public offering in May 1999, the
5,870,000 shares of class A common stock sold in our November 1999 public
offering and approximately 2,293,000 shares of unrestricted class A common
stock will be freely transferable without restriction in the public market,
except to the extent these shares have been acquired by our affiliates, whose
sale of such shares is restricted by Rule 144 under the Securities Act. The
remaining shares of our common stock are "restricted" securities under Rule 144
which, among other things, limits the number of such shares available for sale
in the public market. However, many of the restrictions of Rule 144 do not
apply to persons who are not our affiliates.
The market price of our class A common stock could decline as a result of
future sales of substantial amounts of class A common stock, or the perception
that such sales could occur. Furthermore, certain of our existing stockholders
have the right to require us to register their shares, which may facilitate
their sale of shares in the public market.
We may be harmed by delayed year 2000 problems.
Although the date is now past January 1, 2000, and we have not experienced
immediate adverse impact from the transition to the year 2000, we cannot
provide assurance that we or our suppliers and advertisers will not be affected
in a manner that is not yet apparent. In addition, some computer programs that
were date sensitive to the year 2000 may not have been programmed to process
the year 2000 as a leap year, and any negative consequential effects remain
unknown. As a result, we will continue to monitor our year 2000 compliance and
the year 2000 compliance of our suppliers and advertisers.
10
<PAGE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934. These forward-looking statements are not historical facts, but
rather are based on our current expectations, estimates and projections about
Radio One's industry, our beliefs and assumptions. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and other factors, some of which are beyond our control,
are difficult to predict and could cause actual results to differ materially
from those expressed or forecasted in the forward-looking statements. These
risks and uncertainties are described in "Risk Factors" and elsewhere in this
prospectus. We caution you not to place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this
prospectus. We are not obligated to update these statements or publicly release
the result of any revisions to them to reflect events or circumstances after
the date of this prospectus or to reflect the occurrence of unanticipated
events.
11
<PAGE>
USE OF PROCEEDS
The net proceeds from this offering to Radio One, after deducting
underwriting discounts and commissions and estimated offering expenses, based
on the public offering price of $ per share, are estimated to be
approximately $ million ($ million if the underwriters' over-allotment
option is exercised in full).
We expect to use the net proceeds of this offering to acquire radio
broadcasting assets and businesses. As part of our ongoing business development
activities, we expect that we will continue to consider acquisition
opportunities. In this regard, we are currently evaluating certain acquisition
opportunities. We cannot assure, however, that we will identify suitable
acquisition candidates or that we will consummate any acquisition. We may also
use remaining net proceeds for continued business development activities and
general corporate purposes.
The actual amount of net proceeds we spend on a particular use will depend
on many factors, including our future revenue growth, additional financing
sources, if any, and the amount of cash generated by our operations. Many of
these factors are beyond our control. We reserve the right to allocate proceeds
to different uses if, in management's view, the needs of the business so
require. Until we use the net proceeds of this offering as described above, we
intend to invest the net proceeds in short-term investment-grade marketable
securities.
DIVIDEND POLICY
Since becoming a public company in May 1999, we have not declared any
dividends on our common stock. We intend to retain future earnings for use in
our business and do not anticipate declaring or paying any cash or stock
dividends on shares of our common stock in the foreseeable future. In addition,
any determination to declare and pay dividends will be made by our board of
directors in light of our earnings, financial position, capital requirements,
the bank credit facility, and the 12% notes indenture, and such other factors
as the board of directors deems relevant. See "Description of Indebtedness."
12
<PAGE>
PRICE RANGE OF OUR CLASS A COMMON STOCK
Our class A common stock is traded on The Nasdaq Stock Market's National
Market under the symbol "ROIA." The table below shows, for the quarters
indicated, the reported high and low bid quotes for our class A common stock on
the Nasdaq Stock Market's National Market.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fiscal Year 1999
Second Quarter (beginning May 6)......................... $47.00 $28.00
Third Quarter............................................ 46.50 39.63
Fourth Quarter .......................................... 97.50 41.50
Fiscal Year 2000
First Quarter (through February 11)...................... 96.50 71.00
</TABLE>
The initial public offering of our class A common stock was priced on May 5,
1999 at a price of $24.00 per share. The last reported sale price for our class
A common stock on The Nasdaq Stock Market's National Market on February 11,
2000, was $83.00.
13
<PAGE>
CAPITALIZATION
The table below sets forth our capitalization as of September 30, 1999, on
an actual basis and on a pro forma basis giving effect to the transactions
identified below.
. The acquisitions of:
-- WJRV-FM, WCDX-FM, WPLZ-FM and WGCV-AM in Richmond ("Richmond III");
and
-- WPLY-FM in Philadelphia.
. the repayment of certain debt;
. our public offering of class A common stock on November 11, 1999; and
. this offering.
The information in this table should be read in conjunction with "Use of
Proceeds," "Unaudited Pro Forma Consolidated Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
As of September
30, 1999
-------------------
Actual Pro Forma
-------- ---------
(unaudited)
(in thousands
except
share data)
<S> <C> <C>
Cash and cash equivalents.............................. $ 4,428 $560,751
======== ========
Long-term debt (including current portion):
Bank credit facility................................. $ 26,000 $ --
12% senior subordinated notes due May 15, 2004....... 81,466 81,466
Other long-term debt................................. 119 119
-------- --------
Total debt......................................... 107,585 81,585
-------- --------
Stockholders' equity:
Class A common stock, $0.001 par value, 30,000,000
shares authorized, 12,034,000 and 22,273,000 shares
issued and outstanding, respectively................ 12 22
Class B common stock, $0.001 par value, 30,000,000
shares authorized, 2,873,000 and 2,867,000 shares
issued and outstanding.............................. 3 3
Class C common stock, $0.001 par value, 30,000,000
shares authorized, 3,195,000 and 3,132,000 shares
issued and outstanding, respectively................ 3 3
Additional paid-in capital........................... 152,933 856,996
Accumulated deficit.................................. (28,097) (28,097)
-------- --------
Total stockholders' equity ........................ 124,854 828,927
-------- --------
Total capitalization............................. $232,439 $910,512
======== ========
</TABLE>
14
<PAGE>
RECENT AND PENDING TRANSACTIONS
We have acquired or agreed to acquire 14 radio stations since January 1,
1999. These acquisitions diversify our net broadcast revenue, broadcast cash
flow and asset bases and increase the number of top 20 African-American markets
in which we operate from five to nine.
The table below sets forth information regarding each of the recently
completed or pending acquisitions as of February 14, 2000.
<TABLE>
<CAPTION>
Approximate
No. of Call Purchase Price Date
Stations Letters (in millions) Completed
-------- ------- -------------- ---------
<S> <C> <C> <C> <C>
Completed Transactions
Atlanta (ROA and Dogwood)...... 2 WHTA-FM (/1/) 3/99
WAMJ-FM
Cleveland...................... 2 WENZ-FM $ 20.0 4/99
WERE-AM
St. Louis...................... 1 WFUN-FM 13.6 6/99
Richmond I..................... 1 WDYL-FM 4.6 7/99
Richmond II.................... 2 WKJS-FM 12.0 7/99
WARV-FM
Boston......................... 1 WBOT-FM 10.0 10/99
--- ------
Subtotal..................... 9 60.2(/2/)
--- ------
Pending Transactions
Richmond III................... 4 WJRV-FM 34.0 --
WCDX-FM
WPLZ-FM
WGCV-AM
Philadelphia................... 1 WPLY-FM 80.0 --
--- ------
Subtotal..................... 5 114.0
--- ------
Total.......................... 14 $174.2(/2/)
=== ======
</TABLE>
- --------
(/1/) Radio One issued approximately 3.3 million shares of our common stock and
assumed approximately $16.3 million of debt in this transaction.
(/2/) Excludes ROA and Dogwood.
Completed Transactions
Atlanta--Radio One of Atlanta and Dogwood Communications Acquisitions
On March 30, 1999, Radio One acquired ROA, an affiliate of Radio One, for
approximately 3.3 million shares of Radio One common stock. Radio One also
assumed and retired approximately $16.3 million of indebtedness of ROA and
Dogwood. At the time, ROA owned approximately 33% of Dogwood. On March 30,
1999, ROA acquired the remaining approximate 67% of Dogwood for $3.6 million.
Founded in 1995, ROA owns and operates WHTA-FM. Dogwood owns WAMJ-FM which,
prior to ROA's acquisition of 100% of Dogwood, ROA operated under a local
marketing agreement ("LMA"). Upon the completion of these acquisitions, ROA
became a wholly owned subsidiary of Radio One, and Dogwood became a wholly
owned subsidiary of ROA. See "Certain Relationships and Related Transactions."
Cleveland--WENZ-FM and WERE-AM Acquisition
On April 30, 1999, Radio One acquired WENZ-FM and WERE-AM, both of which are
licensed to Cleveland, Ohio, for approximately $20.0 million in cash.
15
<PAGE>
St. Louis--WFUN-FM Acquisition
On June 4, 1999, Radio One acquired the assets of WFUN-FM, licensed to
Bethalto, Illinois, for approximately $13.6 million in cash. We are in the
process of moving WFUN-FM to a broadcast tower site closer to downtown St.
Louis and upgrading its signal from 6 kW to 25 kW, and we expect to reformat
the station.
Richmond I and II--WDYL-FM Acquisition and WKJS-FM and WARV-FM Acquisition
On July 1, 1999, Radio One acquired WKJS-FM, licensed to Crewe, Virginia,
and WARV-FM, licensed to Petersburg, Virginia, for approximately $12.0 million
in cash, subject to purchase price adjustments.
On July 15, 1999, Radio One acquired WDYL-FM, licensed to Chester, Virginia,
for approximately $4.6 million in cash.
Boston--WBOT-FM Acquisition
On October 1, 1999, Radio One acquired the assets of WBOT-FM, licensed to
Brockton, Massachusetts, for approximately $10.0 million in cash. WBOT-FM began
broadcasting a Young Urban Contemporary format on December 1, 1999.
Pending Transactions
Richmond III--WJRV-FM, WCDX-FM, WPLZ-FM and WGCV-AM Acquisitions
Pursuant to an asset purchase agreement dated May 6, 1999, Radio One has
agreed to acquire WCDX-FM, licensed to Mechanicsville, Virginia; WPLZ-FM,
licensed to Petersburg, Virginia; WJRV-FM, licensed to Richmond, Virginia; and
WGCV-AM, licensed to Petersburg, Virginia, for approximately $34.0 million in
cash. We have been operating WCDX-FM, WPLZ-FM and WJRV-FM under a time
brokerage agreement since June 1, 1999, and we expect to complete the
acquisition no later than the second half of 2000.
Philadelphia--WPLY-FM Acquisition
On December 3, 1999, Radio One agreed to acquire the assets of WPLY-FM,
licensed to Media, Pennsylvania for approximately $80.0 million in cash. The
FCC approved this acquisition on February 3, 2000. We expect to complete the
acquisition by the end of the first quarter of 2000. We expect to continue
operating WPLY-FM in an Alternative Rock format.
16
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements for the
year ended December 31, 1998, and the nine months ended September 30, 1999 (the
"Pro Forma Consolidated Financial Statements"), are based on the historical
Consolidated Financial Statements of Radio One included elsewhere in this
prospectus.
The pro forma amounts for the year ended December 31, 1998 and the nine
months ended September 30, 1999, are adjusted to give effect to the following
transactions as if they had occurred as of January 1, 1998:
-- the acquisitions of:
. Bell Broadcasting;
. Allur-Detroit;
. ROA;
. Dogwood by ROA;
. WENZ-FM and WERE-AM in Cleveland
. the assets of WFUN-FM in St. Louis (pro forma balance sheet only);
. WDYL-FM in Richmond;
. WKJS-FM and WARV-FM in Richmond; and
. the assets of WBOT-FM in Boston (pro forma balance sheet only);
-- the pending acquisition of WJRV-FM, WCDX-FM, WPLZ-FM and WGCV-AM in
Richmond;
-- the pending acquisition of WPLY-FM in Philadelphia;
-- the repayment of certain debt;
-- our initial public offering of class A common stock on May 5, 1999;
-- our public offering of class A common stock on November 11, 1999; and
-- this offering.
The pro forma balance sheet data are adjusted to give effect to the
transactions described above as if they had occurred as of September 30, 1999
unless the transaction had actually occurred prior to that date.
These transactions are described in the accompanying notes to the Pro Forma
Consolidated Financial Statements. The pro forma data are based upon available
information and certain assumptions that management believes are reasonable.
The Pro Forma Consolidated Financial Statements do not purport to represent
what Radio One's results of operations or financial condition would actually
have been had these transactions occurred on the dates indicated or to project
Radio One's results of operations or financial condition for any future period
or date. The Pro Forma Consolidated Financial Statements should be read in
conjunction with the Consolidated Financial Statements of Radio One and the
historical consolidated financial statements of ROA, Bell Broadcasting, Allur-
Detroit, Richmond II, Richmond III and WPLY-FM included elsewhere in this
prospectus, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The pending acquisitions of the operations of the four stations in Richmond
and WPLY-FM in Philadelphia will be accounted for using the purchase method of
accounting. After an acquisition, the total consideration of such acquisition
will be allocated to the tangible and intangible assets acquired and
liabilities assumed, if any, based upon their respective estimated fair values.
The allocation of the aggregate total consideration included in the Pro Forma
Consolidated Financial Statements is preliminary as we believe further
refinement is impractical at this time. However, we do not expect that the
final allocation of the total consideration will materially differ from the
preliminary allocations.
17
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations and Other Data
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-----------------------------------------------------------------------------------------------
(in thousands)
Pro Forma
Completed Pro Forma Pending for Completed Pro Forma
Transactions for Completed Transactions and Pending Offering as
Historical(a) Adjustments(b) Transactions Adjustments(c) Transactions Adjustments Adjusted
------------- -------------- ------------- -------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue... $46,109 $19,476 $65,585 $14,297 $79,882 $ -- $79,882
Station operating
expenses............... 24,501 12,966 37,467 10,446 47,913 -- 47,913
Corporate expenses...... 2,800 -- 2,800 -- 2,800 -- 2,800
Depreciation and
amortization........... 8,445 9,753 18,198 8,117 26,315 -- 26,315
------- ------- ------- ------- ------- ------ -------
Operating income....... 10,363 (3,243) 7,120 (4,266) 2,854 2,854
Interest expense........ 11,455 -- 11,455 -- 11,455 (1,827)(d) 9,628
Other income (expense),
net.................... 358 93 451 92 543 -- 543
Income tax expense
(benefit).............. (1,575) 370 (1,205) (1,670) (2,875) 89 (e) (2,786)
------- ------- ------- ------- ------- ------ -------
Net income (loss)...... $ 841 $(3,520) $(2,679) $(2,504) $(5,183) $1,738 $(3,445)
======= ======= ======= ======= ======= ====== =======
Net loss applicable to
common stockholders.... $(2,875) $(3,445)
======= =======
Earnings per common
share:
Basic and diluted...... $ (.31) $ (0.12)
Weighted average common
shares outstanding:
Basic and diluted...... 9,392 28,273
Other Data:
Broadcast cash flow(f).. $21,608 $31,969
Broadcast cash flow
margin(g).............. 46.9% 40.0%
EBITDA (before non-cash
compensation
expense)(f)............ $18,808 $29,169
After-tax cash flow(f).. 7,248 21,794
Cash interest
expense(h)............. 7,192 5,996
Capital expenditures.... 2,236 4,678
Ratio of total debt to EBITDA (before non-cash compensation expense)......................................... 2.8x
Ratio of EBITDA (before non-cash compensation expense) to interest expense................................... 3.0x
Ratio of EBITDA (before non-cash compensation expense) to cash interest expense.............................. 4.9x
</TABLE>
18
<PAGE>
Footnotes for the Unaudited Pro Forma Consolidated Statement of Operations and
Other Data for the Year Ended December 31, 1998
(a) See the consolidated financial statements included elsewhere in this
prospectus.
(b) The table below gives effect to the acquisitions completed during the
period from January 1, 1998 through February 14, 2000 as if they had
occurred on January 1, 1998:
<TABLE>
<CAPTION>
Historical
---------------------------------------------------------------------------------------------
Bell
Broadcasting(/1/) Allur-Detroit(/2/) ROA(/3/) Cleveland(/4/) Richmond I(/4/) Richmond II(/5/)
----------------- ------------------ -------- -------------- --------------- ----------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of
Operations:
Net broadcast
revenue.......... $2,025 $ 2,854 $10,140 $3,295 $400 $1,062
Station operating
expenses......... 1,423 3,239 5,529 1,979 368 1,002
Corporate
expenses......... 663 336 667 -- 14 15
Depreciation and
amortization..... 63 194 896 811 4 416
------ ------- ------- ------ ---- ------
Operating income
(loss)......... (124) (915) 3,048 505 14 (371)
Interest expense.. 52 383 2,007 600 -- 500
Other income
(expense), net... (28) (50) 7 101 -- 21
Income tax expense
(benefit)........ 14 -- 499 2 6 --
------ ------- ------- ------ ---- ------
Net income
(loss)......... $ (218) $(1,348) $ 549 $ 4 $ 8 $(850)
====== ======= ======= ====== ==== ======
<CAPTION>
Pro Forma
Adjustments(/6/) Total
------------------- --------
<S> <C> <C>
Statement of
Operations:
Net broadcast
revenue.......... $ (300)(/7/) $19,476
Station operating
expenses......... (574)(/8/) 12,966
Corporate
expenses......... (1,695)(/9/) --
Depreciation and
amortization..... 7,369 (/10/) 9,753
------------------- --------
Operating income
(loss)......... (5,400) (3,243)
Interest expense.. (3,542)(/11/) --
Other income
(expense), net... 42 (/12/) 93
Income tax expense
(benefit)........ (151)(/13/) 370
------------------- --------
Net income
(loss)......... $(1,665) $(3,520)
=================== ========
</TABLE>
- --------
(/1/) See the unaudited financial statements of Bell Broadcasting for the six
months ended June 30, 1998, included elsewhere in this prospectus, which
is the period during 1998 that Bell Broadcasting was not owned by Radio
One.
(/2/) Derived from the unaudited financial statements of Allur-Detroit for the
period from January 1, 1998 to December 28, 1998, which is the period
during 1998 that the entity was not owned by Radio One.
(/3/) See the consolidated financial statements of ROA included elsewhere in
the prospectus.
(/4/) The column represents the historical results of operations of the
stations acquired for the year ended December 31, 1998. As these
stations acquired did not prepare stand-alone financial statements,
these financial statements were carved out from a larger entity and
include the direct revenue and expenses charged to the stations and an
allocation of those expenses which benefited the stations but were not
directly charged to the stations. As these results of operations include
allocated expenses, these financial statements do not represent what the
results from operations would have been if the stations operated on a
stand-alone basis or what they would have been if they were owned by
Radio One.
(/5/) The column represents the historical results of operations for the year
ended December 31, 1998 that were obtained from carveout audited
financial statements. See the financial statements included elsewhere in
this prospectus.
(/6/) Historical financial statements and pro forma adjustments related to the
St. Louis and Boston acquisitions have not been included in this pro
forma income statement, because Radio One has determined that these
acquisitions are a purchase of assets. Income statement activity would
not be relevant, because Radio One had taken the current stations off
the air and will reformat them.
(/7/) To reflect the elimination of the management fee paid by ROA to Radio
One for administrative services provided by Radio One.
(/8/) To record compensation expense of $105 for a manager and a general
manager Radio One will need to hire to manage the Detroit market,
eliminate bonuses of $115 paid by Allur-Detroit to employees because of
the sale, and eliminate the salary, bonus and benefits of $564 paid to
the previous Allur-Detroit general manager who was not retained by Radio
One.
(/9/) To eliminate corporate expenses which Radio One does not expect to incur
going forward which consist primarily of compensation of $617 to
officers and former owners of Bell Broadcasting who were not retained by
Radio One, the management fee of $300 paid by ROA to Radio One,
charitable contributions and management fees of $336 paid by the former
owners of Allur-Detroit that would not have been distributed if the
station had been owned by Radio One and other corporate management fees.
(/10/) To record the additional depreciation and amortization expense that
would have been recognized if the Bell Broadcasting, Allur-Detroit, 20%
of Dogwood, ROA Cleveland, Richmond I and Richmond II acquisitions had
occurred as of January 1, 1998.
(/11/) To eliminate interest expense of the acquisitions assuming Radio One
would use proceeds from this offering, the November 11, 1999 offering
and the May 5, 1999 offering to fund the acquisitions and retire certain
outstanding debt.
(/12/) To eliminate tax penalties incurred by Bell Broadcasting that are not
expected to be incurred by Radio One on a going-forward basis.
(/13/) To record additional tax benefit related to additional loss as a result
of the acquisitions.
19
<PAGE>
(c) The table below gives effect to the acquisitions pending as of February 14,
2000:
<TABLE>
<CAPTION>
Richmond III WPLY Pro Forma
Historical(/1/) Historical(2) Adjustments Total
--------------- ------------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue... $ 7,458 $ 6,839 $ -- $ 14,297
Station operating
expenses............... 4,668 5,778 -- 10,446
Corporate expenses...... 413 584 (997)(/3/) --
Depreciation and
amortization........... 648 95 7,374 (/4/) 8,117
-------- -------- ------- ---------
Operating income ..... 1,729 382 (6,377) (4,266)
Other income............ -- 102 (10) 92
Income tax benefit...... -- -- (1,670)(/5/) (1,670)
-------- -------- ------- ---------
Net income (loss) .... $ 1,729 $ 484 $(4,717) $ (2,504)
======== ======== ======= =========
</TABLE>
- --------
(/1/) The column represents the historical results of operations for the year
ended December 31, 1998, that were carved out audited financial
statements. See the financial statements included elsewhere in this
prospectus.
(/2/) The column represents the historical results of operations for the year
ended December 31, 1998. See the financial statements included elsewhere
in this prospectus.
(/3/) To eliminate corporate management fees and corporate officers' salaries
which would not be incurred by Radio One.
(/4/) To record additional amortization of $7,374 for intangibles related to
the Richmond III and WPLY excess purchase price of $32,790 and $79,657
respectively over 15 years, less the amortization previously recorded by
the acquired companies.
(/5/) To record additional tax benefit related to additional loss as a result
of the acquisitions.
(d) To record the decrease in interest expense assuming Radio One uses the
proceeds of this offering, the November 11, 1999 offering and the May 5,
1999 offering to retire certain outstanding debt.
(e) To reflect the tax effect for pro forma income.
(f) Broadcast cash flow consists of operating income before depreciation,
amortization, local marketing agreement fees and corporate expenses.
EBITDA (before non-cash compensation expense) consists of operating
income before depreciation, amortization, non-cash compensation expense
and local marketing agreement fees. After-tax cash flow consists of
income before income tax expense (benefit) and extraordinary items, minus
net gain on sale of assets (net of tax) and the current income tax
provision, plus depreciation and amortization expense and non-cash
compensation expense. Although broadcast cash flow, EBITDA (before non-
cash compensation expense), and after-tax cash flow are not measures of
performance or liquidity calculated in accordance with GAAP, we believe
that these measures are useful to an investor in evaluating Radio One
because these measures are widely used in the broadcast industry as a
measure of a radio broadcasting company's performance. Nevertheless,
broadcast cash flow, EBITDA (before non-cash compensation expense) and
after-tax cash flow should not be considered in isolation from or as a
substitute for net income, cash flows from operating activities and other
income or cash flow statement data prepared in accordance with GAAP, or
as a measure of profitability or liquidity. Moreover, because broadcast
cash flow, EBITDA (before non-cash compensation expense) and after-tax
cash flow are not measures calculated in accordance with GAAP, these
performance measures are not necessarily comparable to similarly titled
measures employed by other companies.
(g) Broadcast cash flow margin is defined as broadcast cash flow divided by
net broadcast revenue.
(h) Cash interest expense is calculated as interest expense less non-cash
interest, including the accretion of principal, the amortization of
discounts on debt and the amortization of deferred financing costs, for
the indicated period.
20
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations and Other Data
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
--------------------------------------------------------------------------------------------
Pro Forma
Pro Forma for
Completed for Pending Completed Pro
Transactions Completed Transactions and Pending Offerings Forma as
Historical(a) Adjustments(b) Transactions Adjustments(c) Transactions Adjustments Adjusted
------------- -------------- ------------ -------------- ------------ ----------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue... $56,975 $4,967 $61,942 $8,482 $70,424 -- $70,424
Station operating
expenses............... 31,211 2,742 33,953 4,972 38,925 -- 38,925
Corporate expenses...... 3,301 21 3,322 -- 3,322 -- 3,322
Depreciation and
amortization........... 12,209 1,561 13,770 5,773 19,543 -- 19,543
------- ------ ------- ------ ------- ------ -------
Operating income....... 10,254 643 10,897 (2,263) 8,634 -- 8,634
Interest expense........ 11,479 -- 11,479 (932) 10,547 (3,049)(d) 7,498
Other income, net....... 199 8 207 72 279 279
Income tax expense
(benefit).............. 731 500 1,231 (504) 727 1,162 (e) 1,889
------- ------ ------- ------ ------- ------ -------
Net income (loss)...... $(1,757) $ 151 $(1,606) $ (755) $(2,361) $1,887 $ (474)
======= ====== ======= ====== ======= ====== =======
Net loss applicable to
common stockholders.... $(3,233) $ (474)
======= =======
Earnings per common
share:
Basic and diluted...... $ (0.22) $ (0.02)
Weighted average common
shares outstanding:
Basic and diluted...... 14,547 28,273
Other Data:
Broadcast cash
flow(f)............... $25,764 $31,499
Broadcast cash flow
margin(f)............. 45.2% 44.7%
EBITDA (before non-cash
compensation
expense)(g)........... $23,620 $28,402
After-tax cash
flow(f)............... 10,452 18,487
Cash interest
expense(h)............ 6,340 4,497
Capital expenditures... 2,580 3,160
Ratio of EBITDA (before non-cash compensation expense) to interest expense................................ 3.8x
Ratio of EBITDA (before non-cash compensation expense) to cash interest expense........................... 6.3x
</TABLE>
21
<PAGE>
Footnotes for the Unaudited Pro Forma Consolidated Statement of Operations and
Other Data for the Nine Months Ended September 30, 1999
(a) See the consolidated financial statements included elsewhere in this
prospectus.
(b) The table below gives effect to the acquisitions completed during the
period from January 1, 1999 through February 14, 2000 as if they had
occurred on January 1, 1998. The operating results includes the activities
of these entities during 1999 prior to the period acquired by Radio One.
The 1999 operating results after the acquisition by Radio One are included
in the Radio One historical amounts.
<TABLE>
<CAPTION>
ROA Cleveland Richmond I Richmond II Pro Forma
Historical(/1/) Historical(/2/) Historical(/2/) Historical(/3/) Adjustments(/4/) Total
--------------- --------------- --------------- --------------- ---------------- ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue... $2,447 $977 $198 $1,420 $ (75)(/5/) $4,967
Station operating
expenses............... 1,388 513 182 659 -- 2,742
Corporate expenses...... 96 -- 6 8 (89)(/6/) 21
Depreciation and
amortization........... 202 137 8 182 1,032 (/7/) 1,561
------ ---- ---- ------ ------ ------
Operating income
(loss)............... 761 327 2 571 (1,018) 643
Interest expense,
including extraordinary
item................... 491 -- -- 231 (722)(/8/) --
Other income, net....... -- -- -- 8 -- 8
Income tax expense...... 100 -- 6 -- 394 (/9/) 500
------ ---- ---- ------ ------ ------
Net income (loss)..... $ 170 $327 $ (4) $ 348 $ (690) $ 151
====== ==== ==== ====== ====== ======
</TABLE>
- --------
(/1/) See the consolidated financial statements of ROA included elsewhere in
the prospectus.
(/2/) The column represents the historical results of operations of the
stations acquired during the nine months ended September 30, 1999. As
these stations acquired did not prepare stand-alone financial statements,
these financial statements were carved out from a larger entity and
include the direct revenue and expenses charged to the stations and an
allocation of those expenses which benefited the stations but were not
directly charged to the stations. As these results of operations include
allocated expenses, these financial statements do not represent what the
results from operations would have been if the stations operated on a
stand-alone basis or what they would have been if they were owned by
Radio One.
(/3/) The column represents the historical results of operations for 1999 that
were obtained from carveout unaudited financial statements. See the
financial statements included elsewhere in this prospectus.
(/4/) Historical financial statements and pro forma adjustments related to the
St. Louis and Boston acquisitions have not been included in this pro
forma income statement, because Radio One has determined that these
acquisitions are purchases of assets. Income statement activity would not
be relevant, because Radio One had taken the current stations off the
air, and will reformat the stations.
(/5/) To reflect the elimination of the management fee paid by ROA to Radio One
for administrative services provided by Radio One.
(/6/) To eliminate corporate expenses which Radio One does not expect to incur
going forward which consist primarily of corporate management fees.
(/7/) To record the additional depreciation and amortization expense that would
have been recognized if the ROA, Cleveland and Richmond I and II
acquisitions had occurred.
(/8/) To eliminate interest expense of the acquisitions assuming Radio One uses
the proceeds from this offering, the November 11, 1999 offering and the
May 5, 1999 offering to fund the acquisitions and retire certain
outstanding debt.
(/9/) To record additional tax expense related to additional income as a result
of the acquisitions.
22
<PAGE>
(c) The table below gives effect to the acquisitions pending as of February 14,
2000:
<TABLE>
<CAPTION>
Richmond III WPLY Pro Forma
Historical(/1/) Historical(/2/) Adjustments Total
--------------- --------------- ----------- ------
(in thousands)
<S> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue... $2,564 $5,918 $ -- $8,482
Station operating
expenses............... 595 4,377 -- 4,972
Corporate expenses...... 206 448 (654)(/3/) --
Depreciation and
amortization........... 161 70 5,542 (/4/) 5,773
------ ------ ------- ------
Operating income ..... 1,602 1,023 (4,888) (2,263)
Interest expense........ 82 8 (1,022)(/5/) (932)
Other income............ -- 72 -- 72
Income tax benefit...... -- -- (504)(/6/) (504)
------ ------ ------- ------
Net income (loss)..... $1,520 $1,087 $(3,362) $ (755)
====== ====== ======= ======
</TABLE>
- --------
(/1/) The column represents the historical results of operations for the period
ended May 31, 1999 that were obtained from carveout unaudited financial
statements, as Radio One entered into an LMA with Richmond III effective
June 1, 1999.
(/2/) The column represents the historical results of operations for the nine
months ended September 30, 1999. See the financial statements included
elsewhere in this prospectus.
.
(/3/) To eliminate corporate management fees and corporate officers' salaries
which would be incurred by Radio One.
(/4/) To record additional amortization of $5,542 for intangibles related to
the Richmond III and WPLY excess purchase price of $32,790 and $79,675,
respectively over 15 years, less the amortization previously recorded by
the acquired companies.
(/5/) To eliminate the LMA fee paid by Radio One to Richmond III and to
eliminate interest expense of the Richmond III and WPLY acquisitions
assuming Radio One uses the proceeds from this offering, the November 11,
1999 and the May 5, 1999 offering to fund the acquisitions and retire the
outstanding debt.
(/6/) To record additional tax benefit related to additional loss as a result
of the acquisitions.
(d) To record the decrease in interest expense assuming Radio One uses the
proceeds of this offering, the November 11, 1999 offering and the May 5,
1999 offering to retire certain outstanding debt.
(e) To reflect the tax effect for pro forma income.
(f) Broadcast cash flow consists of operating income before depreciation,
amortization, local marketing agreement fees and corporate expenses.
EBITDA (before non-cash compensation expense) consists of operating
income before depreciation, amortization, non-cash compensation expense
and local marketing agreement fees. After-tax cash flow consists of
income before income tax expense (benefit) 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.
23
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
<TABLE>
<CAPTION>
As of September 30, 1999
-----------------------------------------------------------------------------------------------------
Pro Forma for
Completed Pro Forma for Pending Completed
Transactions Completed Transactions and Pending Offering Pro Forma
Historical (a) Adjustments (b) Transactions Adjustments (c) Transactions Adjustments as Adjusted
-------------- --------------- ------------- --------------- ------------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........ $ 4,428 $283,973 $288,401 $(112,250) $176,151 $384,600(d) $560,751
Trade accounts
receivable, net.... 19,689 -- 19,689 -- 19,689 -- 19,689
Prepaid expenses
and other.......... 613 -- 613 23 636 -- 636
Deferred taxes...... 991 -- 991 -- 991 -- 991
-------- -------- -------- --------- -------- -------- --------
Total current
assets........... 25,721 283,973 309,694 (112,227) 197,467 384,600 582,067
Property and
equipment, net...... 15,536 -- 15,536 320 15,856 -- 15,856
Intangible assets,
net................. 212,363 10,000 222,363 113,657 336,020 -- 336,020
Other assets......... 4,206 (500) 3,706 (1,750) 1,956 -- 1,956
-------- -------- -------- --------- -------- -------- --------
Total assets...... $257,826 $293,473 $551,299 $ -- $551,299 $384,600 $935,899
======== ======== ======== ========= ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
and accrued
expenses........... $ 10,444 $ -- $ 10,444 $ -- $ 10,444 $ -- $ 10,444
-------- -------- -------- --------- -------- -------- --------
Total current
liabilities...... 10,444 -- 10,444 -- 10,444 -- 10,444
Bank credit
facility............ 26,000 -- 26,000 -- 26,000 (26,000)(e) --
12% notes due 2004... 81,466 -- 81,466 -- 81,466 -- 81,466
Other long-term
debt................ 119 -- 119 -- 119 -- 119
Deferred tax
liability........... 14,943 -- 14,943 -- 14,943 -- 14,943
-------- -------- -------- --------- -------- -------- --------
Total
liabilities...... 132,972 -- 132,972 -- 132,972 (26,000) 106,972
-------- -------- -------- --------- -------- -------- --------
Stockholders' equity:
Class A common
stock.............. 12 5 17 -- 17 5 (f) 22
Class B common
stock.............. 3 -- 3 -- 3 -- 3
Class C common
stock.............. 3 -- 3 -- 3 -- 3
Additional paid in
capital............ 152,933 293,468 446,401 -- 446,401 410,595 (f) 856,996
Accumulated
deficit............ (28,097) -- (28,097) -- (28,097) -- (28,097)
-------- -------- -------- --------- -------- -------- --------
Total
stockholders'
equity........... 124,854 293,473 418,327 -- 418,327 410,600 828,927
-------- -------- -------- --------- -------- -------- --------
Total liabilities
and stockholders'
equity........... $257,826 $293,473 $551,299 $ -- $551,299 $384,600 $935,899
======== ======== ======== ========= ======== ======== ========
</TABLE>
24
<PAGE>
Footnotes for the Unaudited Pro Forma Consolidated Balance Sheet as of
September 30, 1999
(a) See the Consolidated Financial Statements included elsewhere in this
prospectus.
(b) The table below gives effect to the transactions completed between October
1, 1999 and February 14, 2000 as if they were completed on September 30,
1999.
<TABLE>
<CAPTION>
As of September 30, 1999
--------------------------------------------------------------------
November 11, Boston Acquisition
1999 Offering(/1/) Historical(/2/) Adjustments Total
------------------ --------------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents.......... $293,473 $ -- $(9,500)(/3/) $283,973
-------- ----- ------- --------
Total current
assets............. 293,473 -- (9,500) 283,973
Intangible assets, net.. -- -- 10,000 (/4/) 10,000
Other assets............ (500)(/3/) (500)
-------- ----- ------- --------
Total assets........ $293,473 $ -- $ -- $293,473
======== ===== ======= ========
EQUITY
Equity ................. $293,473 $ -- $ -- $293,473
-------- ----- ------- --------
Total station
equity............. $293,473 $ -- $ -- $293,473
======== ===== ======= ========
</TABLE>
- --------
(/1/) Net proceeds from the November 11, 1999 offering of 5,170,000 shares at
$59.25 per share, less underwriting discounts and commissions, and
offering costs.
(/2/) Historical financial statements related to the Boston 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/) To reflect the cash paid by Radio One of $10,000 for the Boston
acquisition net of the $500 deposit previously paid.
(/4/) To record intangible assets booked as a result of the acquisition of
Boston for $10,000.
25
<PAGE>
(c) The table below gives effect to the pending acquisitions as of February 14,
2000 as if they had occurred on September 30, 1999.
<TABLE>
<CAPTION>
WPLY Richmond III Acquisition
Historical(/1/) Historical(/2/) Adjustments Total
--------------- --------------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents........... $ 324 $-- $(112,574)(/3/) $(112,250)
Trade accounts
receivable, net....... 1,637 -- (1,637)(/4/) --
Prepaid expenses and
other................. 23 -- -- 23
------ ---- --------- ---------
Total current
assets.............. 1,984 -- (114,211) (112,227)
Property and equipment,
net.................... 320 -- -- 320
Intangible assets, net.. -- -- 113,657 (/5/) 113,657
Other assets............ -- -- (1,750)(/3/) (1,750)
------ ---- --------- ---------
Total assets......... $2,304 $-- $ (2,304) $ --
====== ==== ========= =========
LIABILITIES AND
STATION EQUITY
Current Liabilities:
Accounts payable and
accrued expenses...... $ 385 $-- $ (385)(/6/) $ --
Current portion of
long-term debt........ 169 -- (169)(/6/) --
------ ---- --------- ---------
Total current
liabilities......... 554 -- (554) --
Station equity ......... 1,750 -- (1,750)(/7/) --
------ ---- --------- ---------
Total liabilities and
station equity ..... $2,304 $-- $ (2,304) $ --
====== ==== ========= =========
</TABLE>
- --------
(/1/) This column represents the historical balance sheet of WPLY as of
September 30, 1999.
(/2/) All broadcast revenues, expenses, assets and liabilities, except for the
stations' FCC licenses of Richmond III, subsequent to June 1, 1999 are
recorded in the financial statements of Radio One as that is the date
Radio One started an LMA arrangement with respect to Richmond III.
(/3/) To reflect the cash paid by Radio One of $34,000 for the Richmond III
acquisition and $80,000 for the WPLY acquisition less the deposit
previously paid of $1,750. Radio One will not receive the historical cash
of WPLY.
(/4/) To eliminate the trade accounts receivable not purchased in the WPLY
acquisition.
(/5/) To record intangible assets booked as a result of the acquisitions,
calculated as follows:
<TABLE>
<CAPTION>
Net Tangible
Purchase Assets Intangibles
Price Acquired Acquired
-------- ------------ -----------
<S> <C> <C> <C>
Total......................................... $114,000 $343 $113,657
</TABLE>
(/6/) To eliminate accounts payable, accrued expenses and debt that will not be
assumed by Radio One.
(/7/) To eliminate the station equity acquired from WPLY.
(d) To reflect the net proceeds of this offering assuming the sale of
5,000,000 shares of class A common stock at a public offering price of
$85.75 per share less underwriting discounts, commissions and offering
expenses of $18,150, and retirement of borrowings under the bank credit
facility.
(e) To reflect the retirement of debt.
(f) To reflect the net proceeds of this offering assuming the sale of
5,000,000 shares of class A common stock at a public offering price of
$85.75 per share, less underwriting discounts, commissions and offering
costs of $18,150 for this offering.
26
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table contains selected historical consolidated financial data
with respect to Radio One. The selected historical consolidated financial data
have been derived from the Consolidated Financial Statements of Radio One for
each of the fiscal years for the five year period ended December 31, 1998,
which have been audited by Arthur Andersen LLP, independent public accountants.
The selected historical consolidated financial data for the nine months ended
September 30, 1998, and 1999 have been derived from the unaudited consolidated
financial statements included elsewhere in this prospectus. The selected
historical consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of Radio One included
elsewhere in this prospectus.
The following table includes information regarding broadcast cash flow,
EBITDA, and after-tax cash flow. Broadcast cash flow consists of operating
income before depreciation, amortization, local marketing agreement fees and
corporate expenses. EBITDA consists of operating income before depreciation,
amortization, and local marketing agreement fees. After-tax cash flow consists
of income before income tax expense (benefit) and extraordinary items, minus
net gain on sale of assets (net of tax) and the current income tax provision,
plus non-cash compensation expense and 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.
27
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September
Fiscal Year Ended December 31,(/1/) 30,(/1/)
-------------------------------------- ------------------
Dec.
25,
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue....... $15,541 $ 21,455 $ 23,702 $ 32,367 $ 46,109 $ 33,304 $ 56,975
Station operating expenses.. 8,506 11,736 13,927 18,848 24,501 17,550 31,211
Corporate expenses.......... 1,128 1,995 1,793 2,155 2,800 2,051 3,301
Depreciation and
amortization............... 2,027 3,912 4,262 5,828 8,445 6,042 12,209
------- -------- -------- -------- -------- -------- --------
Operating income........... 3,880 3,812 3,720 5,536 10,363 7,661 10,254
Interest expense(/2/)....... 2,665 5,289 7,252 8,910 11,455 7,996 11,479
Other income (expense),
net........................ 38 89 (77) 415 358 267 199
Income tax expense
(benefit)(/3/)............. 30 -- -- -- (1,575) -- 731
------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item........ 1,223 (1,388) (3,609) (2,959) 841 (68) (1,757)
Extraordinary loss.......... -- 468 -- 1,985 -- -- --
------- -------- -------- -------- -------- -------- --------
Net income (loss).......... $ 1,223 $ (1,856) $ (3,609) $ (4,944) $ 841 $ (68) $ (1,757)
======= ======== ======== ======== ======== ======== ========
Net income (loss) applicable
to common stockholders..... $ 1,223 $ (1,856) $ (3,609) $ (6,981) $ (2,875) $ (2,794) $ (3,233)
======= ======== ======== ======== ======== ======== ========
Earnings per common share:
Basic and diluted......... $ 0.16 $ (0.22) $ (0.38) $ (0.74) $ (0.31) $ (0.30) $ (0.22)
======= ======== ======== ======== ======== ======== ========
Weighted average common
shares
outstanding:
Basic and diluted......... 7,435 8,413 9,392 9,392 9,392 9,392 14,547
Other Data:
Broadcast cash flow......... $ 7,035 $ 9,719 $ 9,775 $ 13,519 $ 21,608 $ 15,754 $ 25,764
Broadcast cash flow
margin(/4/)................ 45.3% 45.3% 41.2% 41.8% 46.9% 47.3% 45.2%
EBITDA (before non-cash
compensation).............. 5,907 7,724 7,982 11,364 18,808 13,703 23,620
After-tax cash flow......... 2,763 2,524 806 2,869 7,248 5,974 10,452
Cash interest expense(/5/).. 2,356 5,103 4,815 4,413 7,192 3,495 6,340
Accreted preferred stock
dividends.................. -- -- -- 2,037 3,716 2,726 1,476
Capital expenditures........ 639 224 252 2,035 2,236 1,357 2,580
Balance Sheet Data (at
period end):
Cash and cash equivalents... $ 1,417 $ 2,703 $ 1,708 $ 8,500 $ 4,455 $ 7,863 $ 4,428
Intangible assets, net...... 11,705 43,455 39,358 54,942 127,639 87,234 212,363
Total assets................ 20,566 55,894 51,777 79,225 153,856 114,293 257,826
Total debt (including
current portion
and deferred interest)..... 23,049 64,585 64,939 74,954 131,739 106,765 107,585
Preferred stock............. -- -- -- 22,968 26,684 25,694 --
Total stockholders' equity
(deficit) ................. (4,367) (11,394) (15,003) (21,984) (24,859) 24,778 $124,854
</TABLE>
- --------
(/1/) Year-to-year comparisons are significantly affected by Radio One's
acquisition of various radio stations during the periods covered. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations." Prior to the fiscal year ended December 31, 1996, Radio
One's accounting reporting period was based on a fifty-two/fifty-three
week period ending on the last Sunday of the calendar year. During 1996,
we changed our fiscal year end to December 31.
(/2/) Interest expense includes non-cash interest, such as the accretion of
principal, the amortization of discounts on debt and the amortization of
deferred financing costs.
(/3/) From January 1, 1996 to May 19, 1997, Radio One elected to be treated as
an S corporation for U.S. federal and state income tax purposes and,
therefore, generally was not subject to income tax at the corporate level
during that period.
(/4/) Broadcast cash flow margin is defined as broadcast cash flow divided by
net broadcast revenue.
(/5/) Cash interest expense is calculated as interest expense less non-cash
interest, including the accretion of principal, the amortization of
discounts on debt and the amortization of deferred financing costs, for
the indicated period.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with "Selected
Historical Consolidated Financial Data" and the Financial Statements and the
notes thereto included elsewhere in this prospectus.
Introduction
The net broadcast revenue of Radio One is derived from local and national
advertisers and, to a much lesser extent, ticket and other revenue related to
special events sponsored by Radio One throughout the year. Our significant
broadcast expenses are employee salaries and commissions, programming expenses,
advertising and promotion expenses, rental of premises for studios and rental
of transmission tower space and music license royalty fees. We strive to
control these expenses by centralizing certain functions such as finance,
accounting, legal, human resources and management information systems and the
overall programming management function, as well as using our multiple
stations, market presence and purchasing power to negotiate favorable rates
with certain vendors and national representative selling agencies. Depreciation
and amortization of costs associated with the acquisition of the stations and
interest carrying charges are significant factors in determining Radio One's
overall profitability.
Radio One's net broadcast revenue is affected primarily by the advertising
rates our radio stations are able to charge as well as the overall demand for
radio advertising time in a market. Advertising rates are based primarily on
(1) a radio station's audience share in the demographic groups targeted by
advertisers, as measured principally by quarterly reports developed by
Arbitron, (2) the number of radio stations in the market competing for the same
demographic groups, and (3) the supply of and demand for radio advertising
time. Advertising rates are generally highest during morning and afternoon
commuting hours. In 1998, approximately 67.4% of Radio One's revenue was
generated from local advertising and 30.3% was generated from national spot
advertising. The balance of 1998 revenue was generated primarily from network
advertising, tower rental income and ticket and other revenue related to Radio
One sponsored events.
The performance of an individual radio station or group of radio stations in
a particular market is customarily measured by its ability to generate net
broadcast revenue and broadcast cash flow, although broadcast cash flow is not
a measure utilized under GAAP. Broadcast cash flow should not be considered in
isolation from, nor as a substitute for, operating income, net income, cash
flow, or other consolidated income or cash flow statement data computed in
accordance with GAAP, nor as a measure of Radio One's profitability or
liquidity. Despite its limitations, broadcast cash flow is widely used in the
broadcasting industry as a measure of a company's operating performance because
it provides a meaningful measure of comparative radio station performance,
without regard to items such as depreciation and amortization, which can vary
depending upon accounting methods and the book value of assets, particularly in
the case of acquisitions, and corporate expenses.
Radio One's operating results in any period may be affected by advertising
and promotion expenses that do not produce commensurate net broadcast revenue
in the period in which such expenses are incurred. We generally incur
advertising and promotion expenses in order to increase listenership and
Arbitron ratings. Increased advertising revenue may wholly or partially lag
behind the incurrence of such advertising and promotion expenses because
Arbitron only reports complete ratings information on a quarterly basis.
In the broadcasting industry, radio stations often utilize trade or barter
agreements to reduce expenses by exchanging advertising time for goods or
services. In order to maximize cash revenue from our spot inventory, we
minimize the use of trade agreements and have reduced trade revenue to
approximately 1.2% of our gross revenue in 1998, down from approximately 4.2%
in 1996.
Radio One calculates same station growth over a particular period by
comparing performance of stations owned or operated under an LMA during the
current period with the performance of the same stations for the
29
<PAGE>
corresponding period in the prior year. However, no station will be included in
such a comparison unless it has been owned or operated under an LMA for at
least one month of every quarter included in each of the current and
corresponding prior-year periods.
From January 1, 1996, through September 30, 1999, Radio One acquired 14
radio stations. On May 19, 1997, Radio One acquired WPHI-FM, in Philadelphia,
for approximately $20.0 million, after having operated the station under an LMA
since February 8, 1997. On March 16, 1998, Radio One, through an Unrestricted
Subsidiary, acquired BHI, owner and operator of WYCB-AM, in Washington, D.C.,
for approximately $3.8 million. On June 30, 1998, Radio One acquired Bell
Broadcasting, owner and operator of WDTJ-FM and WCHB-AM in Detroit, and WJZZ-AM
in Kingsley, Michigan, for approximately $34.2 million. On December 28, 1998,
Radio One acquired Allur-Detroit, owner and operator of WDMK-FM, in Detroit,
for approximately $26.5 million. On March 30, 1999, Radio One acquired its
affiliate, ROA, for approximately 3.3 million shares of Radio One common stock,
and ROA acquired the 67% of Dogwood it did not own for approximately $3.6
million. On April 30, 1999, Radio One acquired WENZ-FM and WERE-AM for
approximately $20.0 million. On June 4, 1999, Radio One acquired the assets of
WFUN-FM for approximately $13.6 million. On July 1, 1999, Radio One acquired
WKJS-FM and WARV-FM for approximately $12.0 million. On July 15, 1999, Radio
One acquired WDYL-FM for approximately $4.6 million.
The consolidated financial statements of Radio One for fiscal years 1996,
1997 and 1998 included elsewhere in this prospectus set forth the results of
operations of: WPHI-FM for approximately 11 months of fiscal year 1997,
including the LMA period, and for fiscal year 1998; WYCB-AM from March 16,
1998, through the end of fiscal year 1998; Bell Broadcasting from July 1, 1998,
through the end of fiscal year 1998; and Allur-Detroit from December 29, 1998,
through the end of fiscal year 1998. The consolidated financial statements of
Radio One for nine months ended September 30, 1999, included elsewhere in this
prospectus set forth the results of operations of: ROA and Dogwood from March
30, 1999, through September 30, 1999; WENZ-FM and WERE-AM from April 30, 1999
through September 30, 1999; WFUN-FM from June 4, 1999, through September 30,
1999; WKJS-FM and WARV-FM from July 1, 1999, through September 30, 1999; and
WDYL-FM from July 15, 1999, through September 30, 1999. The discussion below
concerning results of operations reflects the operations of radio stations
Radio One owned and/or managed during the periods presented. As a result of the
acquisition of WPHI-FM in May 1997, WYCB-AM in March 1998, Bell Broadcasting in
June 1998, Allur-Detroit in December 1998, ROA and Dogwood in March 1999, WENZ-
FM and WERE-AM in April 1999, and WFUN-FM in June 1999, Radio One's historical
financial data prior to such times are not directly comparable to Radio One's
historical financial data for subsequent periods. Additionally, due to recent
acquisition activity, our pro forma results for fiscal year 1998 and the nine
months ended September 30, 1999, differ materially from our actual results for
the same periods. For the year ended December 31, 1998, pro forma for completed
and pending transactions, net broadcast revenue and broadcast cash flow were
approximately $79.9 million and $32.0 million, respectively, compared to actual
net broadcast revenue and broadcast cash flow of $46.1 million and $21.6
million, respectively. For the nine months ended September 30, 1999, pro forma
for completed transactions, net broadcast revenue and broadcast cash flow were
approximately $70.4 million and $31.5 million, respectively, compared to actual
net broadcast revenue and broadcast cash flow of $57.0 million and $25.8
million, respectively.
30
<PAGE>
Results of Operations
The following table summarizes Radio One's historical consolidated results
of operations.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
Year Ended December 31, September 30, September 30,
------------------------- ---------------- ----------------
1996 1997 1998 1998 1999 1998 1999
------- ------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue... $23,702 $32,367 $46,109 $13,776 $24,121 $33,304 $56,975
Station operating
expenses............... 13,927 18,848 24,501 7,040 12,128 17,550 31,211
Corporate expenses...... 1,793 2,155 2,800 732 1,148 2,051 3,076
Stock-based
compensation........... -- -- -- -- -- -- 225
Depreciation and
amortization........... 4,262 5,828 8,445 2,410 4,734 6,042 12,209
------- ------- ------- ------- ------- ------- -------
Operating income....... 3,720 5,536 10,363 3,594 6,111 7,661 10,254
Interest expense........ 7,252 8,910 11,455 3,071 3,990 7,996 11,479
Other income (expense),
net.................... (77) 415 358 (19) 58 267 199
------- ------- ------- ------- ------- ------- -------
Income (loss) before
benefit for income
taxes and extraordinary
item................... (3,609) (2,959) (734) 504 2,179 (68) (1,026)
------- ------- ------- ------- ------- ------- -------
Income tax expense
(benefit).............. -- -- (1,575) -- 255 -- 731
Income (loss) before
extraordinary item.... (3,609) (2,959) 841 504 1,924 (68) (1,757)
------- ------- ------- ------- ------- ------- -------
Extraordinary loss...... -- 1,985 -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss).... $(3,609) $(4,944) $ 841 $ 504 $ 1,924 $ (68) $(1,757)
======= ======= ======= ======= ======= ======= =======
Broadcast cash flow..... $ 9,775 $13,519 $21,608 $ 6,736 $11,993 $15,754 $25,764
Broadcast cash flow
margin................. 41.2% 41.8% 46.9% 48.9% 49.7% 47.3% 45.2%
EBITDA.................. $ 7,982 $11,364 $18,808 $ 6,004 $10,845 $13,703 $23,620
After-tax cash flow..... 806 2,869 7,248 2,914 6,713 5,974 10,452
</TABLE>
Three Months and Nine Months Ended September 30, 1999, Compared to Three Months
and Nine Months Ended September 30, 1998
Net Broadcast Revenue. Net broadcast revenue increased to approximately
$24.1 million for the quarter ended September 30, 1999 from approximately $13.8
million for the quarter ended September 30, 1998 or 74.6%. Net broadcast
revenue increased to approximately $57.0 million for the nine months ended
September 30, 1999 from approximately $33.3 million for the nine months ended
September 30, 1998 or 71.2%. This increase in net broadcast revenue was the
result of continuing broadcast revenue growth in our Washington, Baltimore and
Philadelphia markets as we benefitted from historical ratings increases at
certain of our radio stations, improved power ratios at these stations as well
as industry growth in each of these markets. Additional revenue gains were
derived from our recent acquisitions in Detroit and Cleveland and from the
radio stations being operated under a time brokerage agreement in Richmond, as
well as the March 1999 acquisition of our former affiliate, Radio One of
Atlanta, Inc.
Station Operating Expenses. Station operating expenses increased to
approximately $12.1 million for the quarter ended September 30, 1999 from
approximately $7.0 million for the quarter ended September 30, 1998 or 72.9%.
Approximately $5.3 million of the increase was attributable to stations
acquired or operated under a time brokerage agreement since June 30, 1998.
Station operating expenses increased to approximately $31.2 million for the
nine months ended September 30, 1999 from approximately $17.6 million for the
nine months ended September 30, 1998 or 77.3%. Approximately $12.8 million of
the increase was attributable to stations acquired or operated under a time
brokerage agreement since June 30, 1998. On a same station basis, station
operating expenses increased to approximately $6.3 million and to approximately
$19.5 million for the quarter and nine months ended September 30, 1999,
respectively. These increases were the result of significant increases in
revenue, higher spending on marketing and promotions, additional costs
associated with higher ratings and the overall growth of our business.
31
<PAGE>
Corporate Expenses. Corporate expenses excluding non-cash compensation
increased to approximately $1.1 million from approximately $0.7 million for the
quarter ended September 30, 1999 or 57.1%. Corporate expenses excluding non-
cash compensation increased to approximately $3.1 million from approximately
$2.1 million for the nine months ended September 30, 1999 or 47.6%. These
increases were due primarily to growth in our corporate staff consistent with
our overall expansion as well as increases in the compensation of certain
executives and other costs associated with operating as a public company.
Depreciation and Amortization. Depreciation and amortization increased to
approximately $4.7 million from approximately $2.4 million for the quarter
ended September 30, 1999 or 95.8%. Depreciation and amortization increased to
approximately $12.2 million from approximately $6.0 million for the nine months
ended September 30, 1999 or 103.3%. These increases were due to our asset
growth as well as our acquisitions during 1998 and 1999.
Operating Income. Operating income increased to approximately $6.1 million
for the quarter ended September 30, 1999 from approximately $3.6 million for
the quarter ended September 30, 1998 or 69.4%. Operating income increased to
approximately $10.3 million for the nine months ended September 30, 1999 from
approximately $7.7 million for the nine months ended September 30, 1998 or
33.8%. These increases for the quarter and for the nine month period were
attributable to higher depreciation and amortization expenses associated with
our several acquisitions made within the last year offset by proportionately
higher revenue as described above.
Interest Expense. Interest expense increased to approximately $4.0 million
for the quarter ended September 30, 1999 from approximately $3.1 million for
the quarter ended September 30, 1998 or 29.0%. Interest expense increased to
approximately $11.5 million for the nine months ended September 30, 1999 from
approximately $8.0 million for the nine months ended September 30, 1998 or
43.8%. These increases relate primarily to interest incurred on borrowings
under our bank credit facility, particularly prior to our May 5, 1999 initial
public offering, to help fund the several acquisitions made by us within the
past year.
Other Income (expense). Other income (expense) increased to $58,000 for the
quarter ended September 30, 1999 from a loss of $19,000 for the quarter ended
September 30, 1998. Other income decreased to $199,000 for the nine months
ended September 30, 1999 from $267,000 for the nine months ended September 30,
1998 or 25.5%. This increase for the quarter was due to somewhat higher
interest income for the third quarter of 1998 offset by an investment loss
while the decrease for the nine month period was primarily attributable to
lower interest income due to lower average cash balances as we partially used
our free cash balances to help fund acquisitions made during the period as well
as to help reduce our outstanding senior debt, which stood at $26.0 million as
of September 30, 1999 as compared to approximately $29.2 million as of
September 30, 1998.
Income (loss) before Benefit from Income Taxes. Income before provision for
income taxes increased to approximately $2.2 million for the quarter ended
September 30, 1999 from approximately $0.5 million for the quarter ended
September 30, 1998 or 340.0%. Loss before provision for income taxes increased
to approximately $1.0 million for the nine months ended September 30, 1999 from
approximately $0.1 million for the nine months ended September 30, 1998 or
900.0%. This increase in income for the quarter and increase in the loss for
the nine month period were primarily due to higher operating income, interest
and depreciation and amortization expenses as described above, partially offset
by higher revenue.
Net Income (Loss). Net income increased to approximately $1.9 million for
the quarter ended September 30, 1999 from approximately $0.5 million for the
quarter ended September 30, 1998 or 280.0%. Net loss increased to approximately
$1.8 million for the nine months ended September 30, 1999 from approximately
$0.1 million for the nine months ended September 30, 1998 or 1,700.0%. This
increase in income for the quarter and increase in the loss for the nine month
period was due to the factors described above as well as a tax provision for
each of the second quarter and first nine month periods of 1999 associated with
an estimate of our effective tax rate for all of 1999. In 1998, we used our
remaining net operating losses and did not incur a tax liability during the
first nine months of 1998.
32
<PAGE>
Broadcast Cash Flow. Broadcast cash flow increased to approximately $12.0
million for the quarter ended September 30, 1999 from approximately $6.7
million for the quarter ended September 30, 1998 or 79.1%. Broadcast cash flow
increased to approximately $25.8 million for the nine months ended September
30, 1999 from approximately $15.8 million for the nine months ended September
30, 1998 or 63.3%. These increases were attributable to the increases in
broadcast revenue partially offset by higher operating expenses as described
above.
EBITDA. EBITDA, excluding stock-based compensation expense, increased to
approximately $10.8 million for the quarter ended September 30, 1999 from
approximately $6.0 million for the quarter ended September 30, 1998 or 80.0%.
EBITDA, excluding stock-based compensation expense, increased to approximately
$23.6 million for the nine months ended September 30, 1999 from approximately
$13.7 million for the nine months ended September 30, 1998 or 72.3%. These
increases were attributable to the increase in broadcast revenue partially
offset by higher operating expenses and higher corporate expenses partially
associated with the costs of operating as a public company.
After-Tax Cash Flow. After-tax cash flow increased to approximately $6.7
million for the quarter ended September 30, 1999 from approximately $2.9
million for the quarter ended September 30, 1998 or 131.0%. After-tax cash flow
increased to approximately $10.5 million for the nine months ended September
30, 1999 from approximately $6.0 million for the nine months ended September
30, 1998 or 75.0%. These increases were attributable to the increase in
operating income partially offset by higher interest charges associated with
the financings of various acquisitions as well as the provision for income
taxes for 1999, as described above.
Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended December 31,
1997
Net Broadcast Revenue. Net broadcast revenue increased to approximately
$46.1 million for the fiscal year ended December 31, 1998, from approximately
$32.4 million for the fiscal year ended December 31, 1997, or 42.3%.
Approximately $3.8 million of the increase was attributable to stations
acquired during 1998. On a same station basis, net revenue for the period
increased approximately 30.6% to approximately $42.3 million in 1998 from
approximately $32.4 million in 1997. This increase was the result of continuing
broadcast revenue growth in Radio One's Washington, D.C., Baltimore, and
Philadelphia markets as we benefitted from ratings increases at certain of our
radio stations, improved power ratios at these stations and radio market
growth.
Station Operating Expenses. Station operating expenses increased to
approximately $24.5 million for the fiscal year ended December 31, 1998, from
approximately $18.8 million for the fiscal year ended December 31, 1997, or
30.3%. Approximately $2.5 million of the increase was attributable to stations
acquired during 1998. On a same station basis, station operating expenses for
the period increased approximately 17.0% to approximately $22.0 million in 1998
from approximately $18.8 million in 1997. This increase was primarily related
to increases in sales commissions and license fees due to significant revenue
growth, as well as additional programming costs related to ratings gains at
some of our larger radio stations.
Corporate Expenses. Corporate expenses increased to approximately $2.8
million for the fiscal year ended December 31, 1998, from approximately $2.2
million for the fiscal year ended December 31, 1997, or 27.3%. This increase
was due primarily to growth in the corporate staff consistent with our overall
expansion, annual costs associated with the 12% notes due 2004 and costs
associated with our public reporting requirements.
Depreciation and Amortization. Depreciation and amortization increased to
approximately $8.4 million for the fiscal year ended December 31, 1998, from
approximately $5.8 million for the fiscal year ended December 31, 1997, or
44.8%. This increase was due primarily to our asset growth as well as our
acquisitions in 1998.
Operating Income. Operating income increased to approximately $10.4 million
for the fiscal year ended December 31, 1998, from approximately $5.5 million
for the fiscal year ended December 31, 1997, or 89.1%. This increase was
attributable to the increases in broadcast revenues partially offset by higher
operating expenses and higher depreciation and amortization expenses as
described above.
33
<PAGE>
Interest Expense. Interest expense increased to approximately $11.5 million
for the fiscal year ended December 31, 1998, from approximately $8.9 million
for the fiscal year ended December 31, 1997, or 29.2%. This increase was
primarily due to the 12% notes offering, the retirement of our approximately
$45.6 million bank credit facility and borrowings under our bank credit
facility associated with the Bell Broadcasting acquisition.
Other Income. Other income decreased to $358,000 for the fiscal year ended
December 31, 1998, from $415,000 for the fiscal year ended December 31, 1997,
or 13.7%. This decrease was primarily attributable to lower interest income due
to lower cash balances as we used a portion of our cash balances to help fund
the Bell Broadcasting acquisition.
Loss before Benefit from Income Taxes. Loss before benefit from income taxes
decreased to $734,000 for the fiscal year ended December 31, 1998, from
approximately $3.0 million for the fiscal year ended December 31, 1997, or
75.5%. This decrease was due to higher operating income partially offset by
higher interest expense and lower other income. The income tax benefit of
approximately $1.6 million for the year ended December 31, 1998, was the result
of reversing our valuation allowance recorded in prior years related to our net
operating loss carryforward and other deferred tax assets, offset by an income
tax provision of $483,000 as we had net income for tax reporting purposes as a
result of non-deductible amortization expense for income tax purposes. Certain
intangible assets acquired as a result of the Bell Broadcasting acquisition
maintained their old income tax basis because the Bell Broadcasting acquisition
was a stock purchase.
Net Income (Loss). Net income increased to $841,000 for the fiscal year
ended December 31, 1998, from a net loss of approximately $4.9 million for the
fiscal year ended December 31, 1997. The increase was due to higher operating
income and an income tax benefit, partially offset by higher interest expense
as described above and an approximate $2.0 million extraordinary loss related
to the refinancing of debt.
Broadcast Cash Flow. Broadcast cash flow increased to approximately $21.6
million for the fiscal year ended December 31, 1998, from approximately $13.5
million for the fiscal year ended December 31, 1997, or 60.0%. Approximately
$1.3 million of the increase was attributable to stations acquired during 1998.
On a same station basis, broadcast cash flow for the period increased
approximately 50.4% to approximately $20.3 million in 1998 from approximately
$13.5 million in 1997. This increase was attributable to the increase in net
broadcast revenue partially offset by higher station operating expenses as
described above.
Our broadcast cash flow margin increased to approximately 46.9% for the
fiscal year ended December 31, 1998, from 41.8% for the fiscal year ended
December 31, 1997. On a same station basis, broadcast cash flow margin for the
period increased to approximately 48.0% in 1998 from approximately 41.8% in
1997. This increase was the result of strong revenue gains in our more mature
markets partially offset by slower expense growth in those markets. The lower
actual broadcast cash flow margin versus that reported on a same station basis
for 1998 was the result of our recent entrance into the Detroit market where we
acquired underperforming stations with profit margins lower than those of many
of the radio stations we own in markets in which we have operated for a longer
period of time.
EBITDA. EBITDA increased to approximately $18.8 million for the fiscal year
ended December 31, 1998, from approximately $11.4 million for the fiscal year
ended December 31, 1997, or 64.9%. This increase was attributable to the
increase in net broadcast revenue partially offset by higher station operating
and corporate expenses as described above.
After-Tax Cash Flow. After-tax cash flow increased to approximately $7.2
million for the fiscal year ended December 31, 1998, from approximately $2.9
million for the fiscal year ended December 31, 1997, or 148.3%. This increase
was attributable to higher net income and depreciation and amortization as
described above.
34
<PAGE>
Fiscal Year Ended December 31, 1997 Compared to Fiscal Year Ended December 31,
1996
Net Broadcast Revenue. Net broadcast revenue increased to approximately
$32.4 million for the fiscal year ended December 31, 1997, from approximately
$23.7 million for the fiscal year ended December 31, 1996, or 36.7%.
Approximately $2.6 million of the increase was attributable to the station
acquired during 1997. On a same station basis, net revenue for the period
increased approximately 25.7% to approximately $29.8 million in 1997 from
approximately $23.7 million in 1996. This increase was primarily the result of
significant net broadcast revenue growth in our Washington, D.C. and Baltimore
markets as we benefitted from ratings increases at our larger radio stations as
well as radio market growth.
Station Operating Expenses. Station operating expenses excluding
depreciation and amortization increased to approximately $18.8 million for the
fiscal year ended December 31, 1997, from approximately $13.9 million for the
fiscal year ended December 31, 1996, or 35.3%. Approximately $2.4 million of
the increase was attributable to stations acquired during 1997. On a same
station basis, station operating expenses for the period increased
approximately 18.0% to approximately $16.4 million in 1997 from approximately
$13.9 million in 1996. This increase was due to higher sales, programming and
administrative costs associated with the significant net broadcast revenue
growth and ratings gains at our radio stations.
Corporate Expenses. Corporate expenses increased to approximately $2.2
million for the fiscal year ended December 31, 1997, from approximately $1.8
million for the fiscal year ended December 31, 1996, or 22.2%. This increase
was due primarily to growth in the corporate staff consistent with our overall
expansion, annual costs associated with the 12% notes due 2004 and the costs
associated with our public reporting requirements.
Depreciation and Amortization. Depreciation and amortization increased to
approximately $5.8 million for the fiscal year ended December 31, 1997, from
approximately $4.3 million for the fiscal year ended December 31, 1996, or
34.9%. This increase was due primarily to our acquisition of WPHI-FM (formerly
WDRE-FM) in 1997.
Operating Income. Operating income increased to approximately $5.5 million
for the fiscal year ended December 31, 1997, from approximately $3.7 million
for the fiscal year ended December 31, 1996, or 48.6%. This increase was
attributable to the increases in net broadcast revenue partially offset by
higher operating expenses, higher depreciation and amortization expenses and
start-up losses incurred earlier in 1997 related to the acquisition of WPHI-FM.
Interest Expense. Interest expense increased to approximately $8.9 million
for the fiscal year ended December 31, 1997, from approximately $7.3 million
for the fiscal year ended December 31, 1996, or 21.9%. This increase related
primarily to the 12% notes offering and the associated retirement of our $45.6
million bank credit facility at that time.
Other Income (Loss). Other income increased to approximately $415,000 for
the fiscal year ended December 31, 1997, from a loss of approximately $77,000
for the fiscal year ended December 31, 1996. This increase was primarily
attributable to higher interest income due to higher cash balances associated
with our cash flow growth and capital raised in the 12% notes offering.
Loss before Benefit for Income Taxes. Loss before provision for income taxes
and extraordinary item decreased to approximately $3.0 million for the fiscal
year ended December 31, 1997, from approximately $3.6 million for the fiscal
year ended December 31, 1996, or 16.7%. The decrease was due to higher
operating and other income partially offset by higher interest expense
associated with the 12% notes offering.
Net Loss. Net loss increased to approximately $4.9 million for the fiscal
year ended December 31, 1997, from approximately $3.6 million for the fiscal
year ended December 31, 1996, or 36.1%. This increase was due to a loss of
approximately $2.0 million on the early retirement of the indebtedness under a
former bank credit facility with the proceeds from the 12% notes offering, as
well as the exchange of our 15% subordinated promissory notes due 2004 for
preferred stock.
35
<PAGE>
Broadcast Cash Flow. Broadcast cash flow increased to approximately $13.5
million for the fiscal year ended December 31, 1997, from approximately $9.8
million for the fiscal year ended December 31, 1996, or 37.8%. Approximately
$0.2 million of the increase was attributable to stations acquired during 1997.
On a same station basis, broadcast cash flow for the period increased
approximately 35.7% to approximately $13.3 million in 1997 from approximately
$9.8 million in 1996. This increase was attributable to the increases in net
broadcast revenue partially offset by higher station operating expenses.
Our broadcast cash flow margin increased to approximately 41.8% for the
fiscal year ended December 31, 1997 from 41.2% for the fiscal year ended
December 31, 1996. On a same station basis, broadcast cash flow margin for the
period increased to approximately 44.6% in 1997 from approximately 41.2% in
1996. This increase was the result of strong revenue gains in our more mature
markets partially offset by slower expense growth in those markets. The lower
actual broadcast cash flow margin versus that reported on a same station basis
for 1997 is the result of our entry into the Philadelphia market where we
acquired an underperforming station with profit margins lower than those of
many of the radio stations we own in markets in which we have operated for a
longer period of time.
EBITDA. EBITDA increased to approximately $11.4 million for the fiscal year
ended December 31, 1997, from approximately $8.0 million for the fiscal year
ended December 31, 1996, or 42.5%. This increase was attributable to the
increase in net broadcast revenue partially offset by higher operating and
corporate expenses.
After-Tax Cash Flow. After-tax cash flow increased to approximately $2.9
million for the fiscal year ended December 31, 1997, from approximately
$806,000 for the fiscal year ended December 31, 1996, or 259.8%. This increase
was attributable to higher net income and depreciation and amortization as
described above.
Liquidity and Capital Resources
Our primary source of liquidity is cash provided by operations and, to the
extent necessary, undrawn commitments available under the bank credit facility.
Our ability to borrow in excess of the commitments set forth in the credit
agreement is limited by the terms of the indenture. Additionally, such terms
place restrictions on Radio One with respect to the sale of assets, liens,
investments, dividends, debt repayments, capital expenditures, transactions
with affiliates, consolidation and mergers, and the issuance of equity
interests among other things.
We have used a significant portion of our capital resources to consummate
acquisitions. These acquisitions were or will be funded from (1) the bank
credit facility, (2) the proceeds of this and prior offerings, and (3)
internally generated cash flow.
Our capital structure consists of our outstanding long-term debt and
stockholders' equity. The stockholders' equity consists of common stock,
additional paid-in capital and accumulated deficit. Our balance of cash and
cash equivalents was approximately $4.5 million as of December 31, 1998. Our
balance of cash and cash equivalents was approximately $4.4 million as of
September 30, 1999. This decrease resulted primarily from the repayment of debt
and preferred stock and cash paid for various acquisitions during the year,
partially offset by our stronger cash flows from operating activities during
the first nine months of 1999 as well as our initial public offering in May
1999 from which we raised approximately $119.0 million. At September 30, 1999
approximately $74.0 million remained available (based on various covenant
restrictions) to be drawn down from our bank credit facility which was
increased to a $100.0 million facility in February 1999. In general, our
primary source of liquidity is cash provided by operations and, to the extent
necessary, on undrawn commitments available under our bank credit facility.
Net cash flow from operating activities increased to approximately $12.7
million for the nine months ended September 30, 1999 from approximately $9.1
million for the nine months ended September 30, 1998 or
36
<PAGE>
39.6%. This increase was primarily due to a larger income before depreciation
and amortization offset by higher accounts receivable and interest expense for
the period.
Net cash flow used in investing activities increased to approximately $59.0
million for the nine months ended September 30, 1999 compared to approximately
$33.9 million for the nine months ended September 30, 1998 or 74.0%. During the
nine months ended September 30, 1999 we, through our Radio One of Atlanta, Inc.
subsidiary (which we acquired on March 30, 1999) acquired the remaining stock
in Dogwood Communications, Inc. which we did not already own, for approximately
$3.6 million, acquired radio stations WENZ-FM and WERE-AM in Cleveland, Ohio
for approximately $20 million, acquired radio station WFUN-AM in St. Louis,
Missouri for approximately $13.6 million, acquired radio stations WDYL-FM,
WKJS-FM and WARV-FM (formerly, WSOJ-FM) in Richmond, Virginia for approximately
$16.6 million, and entered into a time brokerage agreement to operate radio
stations also located in Richmond, Virginia. We made a $1.0 million investment
in PNE Media, LLC and a combined cash/trade investment of $125,000 in an
internet company. We also made escrow deposits on acquisitions of radio
stations in Richmond, Virginia and Boston, Massachusetts. Also during the nine
months ended September 30, 1999 we made purchases of capital equipment totaling
approximately $2.6 million.
Net cash flow from financing activities was approximately $46.3 million for
the nine months ended September 30, 1999. During the nine months ended
September 30, 1999, we completed our initial public offering of common stock
and raised net proceeds of approximately $119.0 million which was used to
partially repay outstanding balances on our bank credit facility and to repay
all of our outstanding Senior Cumulative Redeemable Preferred Stock.
Additionally, we increased the size of our bank credit facility to $100.0
million. During the nine months ended September 30, 1999, we partially used
this bank credit facility to acquire our former affiliate, Radio One of
Atlanta, Inc. which, in turn, acquired the remaining stock of Dogwood
Communications, Inc. that it did not already own. We also acquired radio
stations located in Cleveland, Ohio, St. Louis, Missouri and Richmond,
Virginia. Net cash flow from financing activities was approximately $24.2
million for the nine months ended September 30, 1998. During the nine months
ended September 30, 1998, we used our bank credit facility to acquire Bell
Broadcasting Company, an owner and operator of radio stations in Detroit and
Kingsley, Michigan, for approximately $34 million.
As a result of the aforementioned, cash and cash equivalents decreased by
$27,000 during the nine months ended September 30, 1999 compared to an
approximate $637,000 decrease during the nine months ended September 30, 1998.
In November 1999, we completed an offering of 5,400,000 shares of class A
common stock at an offering price of $59.25 per share. Of the 5,400,000 shares
sold, we sold 4,700,000 shares and selling stockholders sold 700,000 shares. In
connection with this offering, we granted the underwriters an option to
purchase an additional 470,000 shares of class A common stock to cover over-
allotments. This option was exercised on November 12, 1999. We received net
proceeds from this offering, after payment of underwriting discounts and
commissions and other offering expenses, of approximately $293.5 million.
We continuously review, and are currently reviewing, opportunities to
acquire additional radio stations, primarily in the top 40 African-American
markets. We anticipate that any future radio station acquisitions would be
financed through funds generated from operations, equity financings, permitted
debt financings, debt financings through subsidiaries whose ability to borrow
is unrestricted by the agreements governing our indebtedness, 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.
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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 our 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 2000, we anticipate maintenance capital
expenditures to be between $1.0 million and $2.0 million and total capital
expenditures to be between $3.0 million and $4.0 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 or for the nine months ended September 30, 1999. However, there can be
no assurance that future inflation would not have an adverse impact on our
operating results and financial condition.
Seasonality
Seasonal net broadcast revenue fluctuations are common in the radio
broadcasting industry and are due primarily to fluctuations in advertising
expenditures by local and national advertisers. Radio One's first fiscal
quarter generally produces the lowest net broadcast revenue for the year.
Year 2000 Compliance
We believe that we have successfully rendered our internal management and
other administrative systems and external information systems year 2000
compliant. In addition, we surveyed vendors of third-party technologies we
utilize in our business and applied updates or made arrangements to correct
potential year 2000 compliance problems. Since January 1, 2000, we have
experienced no significant disruptions in our business operations as a result
of year 2000 compliance problems or otherwise, and we have received no reports
of any material year 2000 compliance problems. We are continuing to monitor
third-party vendors of technologies we use for additional recommended year 2000
upgrades, which we will apply as soon as they become available. To date, the
total cost of our efforts to address year 2000 compliance has not been
material.
Nonetheless, some problems related to year 2000 risks may not appear until
several months after January 1, 2000. Year 2000 issues could include problems
with our own systems or with third-party products or technology that we use or
with which our systems exchange data. Any problems that are not identified and
corrected successfully and completely could adversely affect our business.
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<PAGE>
BUSINESS
Radio One was founded in 1980 and is the largest radio broadcasting company
in the United States primarily targeting African-Americans. After we complete
our pending acquisitions we will own 27 radio stations. Twenty-six of these
stations (nineteen FM and seven AM) are in nine of the top 20 African-American
radio markets: Washington, D.C., Baltimore, Atlanta, Philadelphia, Detroit,
Cleveland, St. Louis, Richmond and Boston. Our strategy is to expand within our
existing markets and into new markets that have a significant African-American
presence. We believe radio broadcasting primarily targeting African-Americans
has significant growth potential. We also believe that we have a competitive
advantage in the African-American market and the radio industry in general, due
to our primary focus on urban formats, our skill in programming and marketing
these formats, and our turnaround expertise.
The radio station clusters that we owned or managed as of September 30,
1999, were ranked in the top three in their markets in combined audience and
revenue share among radio stations primarily targeting African-Americans. Our
net broadcast revenue, broadcast cash flow and after-tax cash flow have grown
significantly:
. Same station net broadcast revenue increased 30.6% from year-end 1997 to
year-end 1998 and 27.2% for the nine months ended September 30, 1999,
compared to the same period in 1998.
. Same station broadcast cash flow increased 50.4% from year-end 1997 to
year-end 1998 and 32.9% for the nine months ended September 30, 1999,
compared to the same period in 1998.
. After-tax cash flow increased 152.6% from year-end 1997 to year-end 1998
and 75.0% for the nine months ended September 30, 1999, compared to the
same period in 1988.
Radio One is led by our Chairperson and co-founder, Catherine L. Hughes, and
her son, Alfred C. Liggins, III, our Chief Executive Officer and President, who
together have over 40 years of operating experience in radio broadcasting. Ms.
Hughes, Mr. Liggins and our strong management team have successfully
implemented a strategy of acquiring and turning around underperforming radio
stations. We believe that we are well positioned to apply our proven operating
strategy to our recently or soon to be acquired stations in Cleveland, St.
Louis, Richmond, Boston and Philadelphia, and to other radio stations in
existing and new markets as attractive acquisition opportunities arise.
The African-American Market Opportunity
We believe that operating urban formatted radio stations primarily targeting
African-Americans has significant growth potential for the following reasons:
. Rapid African-American Population Growth. From 1980 to 1995, the
African-American population increased from approximately 26.7 million to
33.1 million, a 24.0% increase, compared to a 16.0% increase in the
population as a whole. (Source: 1998 U.S. Cenus Bureau Current
Population Report) Furthermore, the African-American population is
expected to approach 40 million by 2010, a 20.8% increase from 1995,
compared to an expected increase of 14.1% for the population as a whole.
(Source: U.S. Census Bureau, Population Projection Program, Projection
of the Resident Population Report, January 13, 2000)
. Higher African-American Income Growth. According to the U.S. Census
Bureau, from 1980 to 1995, the rate of increase in median family
household income in 1995 adjusted dollars for African-Americans was
approximately 10.7% compared to 4.3% for the population as a whole.
African-American buying power is estimated to reach $533 billion in
1999, up 73.0% from 1990 compared to a 57.0% increase for all Americans,
and to account for 8.2% of total buying power in 1999, compared to 7.4%
in 1990. (Source: "African-American Buying Power by Place of Residence:
1990-1999," Dr. Jeffrey M. Humphreys). In addition, the African-American
consumer tends to have a different consumption profile than non-African-
Americans. For example, 31% of African-Americans purchased
39
<PAGE>
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 planned
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
expanding their commitment to ethnic advertising.
. Growing Influence of African-American Culture. We believe that there is
an ongoing "urbanization" of many facets of American society as
evidenced by the influence of African-American culture in the areas of
music (for example, hip-hop and rap music), film, fashion, sports and
urban-oriented television shows and networks. We believe that companies
as disparate as the News Corporation's Fox(R) television network, the
sporting goods manufacturer Nike(R), the fast food chain McDonald's(R),
and prominent fashion designers have embraced this urbanization trend in
their products as well as their advertising messages.
. Growing Popularity of Radio Formats Primarily Targeting African-
Americans. We believe that urban programming has been expanded to target
a more diverse urban listener base and has become more popular with
listeners and advertisers over the past ten years. The number of urban
radio stations has increased from 294 in 1990 to an estimated 371 in
1998, or 26%, and is expected to increase an additional 10% to 409 by
2002. In Fall 1997, urban formats were one of the top three formats in
nine of the top ten radio markets nationwide and the top format in five
of these markets. (Source: INTEREP, Research Division, 1998 Regional
Differences in Media Usage Study).
. Concentrated Presence of African-Americans in Urban Markets. In 1997,
approximately 61.8% of the African-American population was located in
the top 40 African-American markets. (Source: BIA 1999, Fourth Edition).
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.
. Strong African-American Listenership and Loyalty. In 1996, African-
Americans in the ten largest markets listened to radio broadcasts an
average of 27.0 hours per week. (Source: INTEREP Research Division, 1998
Urban Radio Study). This compares to 22.0 hours per week for all
Americans. (Source: Forbes, June 1, 1998). In addition, we believe that
African-American radio listeners exhibit greater loyalty to radio
stations that target the African-American community because those radio
stations become a valuable source of entertainment and information
responsive to the community's interests and lifestyles.
Acquisition Strategy
Our acquisition strategy includes acquiring and turning around
underperforming radio stations principally in the top 40 African-American
markets. We will also make acquisitions in existing markets where expanded
coverage is desirable and in new markets where we believe it is advantageous to
establish a presence. In analyzing potential acquisition candidates, we
generally consider:
. the price and terms of the purchase;
. whether the radio station has a signal adequate to reach a large
percentage of the African-American community in a market;
40
<PAGE>
. 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
Historically, we have entered a market by acquiring a station or stations
that have little or negative broadcast cash flow. Additional stations we have
acquired in existing markets have often been, in our opinion, substantially
underperforming. By implementing our operating strategies, we have succeeded in
increasing ratings, net broadcast revenue and broadcast cash flow of all the FM
stations we have owned or managed for at least one year. We have achieved these
improvements while operating against much larger competitors. Some of these
successful turnarounds are described below by market:
. Washington, D.C. In 1995, we acquired WKYS-FM for approximately $34.0
million. At the time, WKYS-FM was ranked number 12 by Arbitron in the
12-plus age demographic. Over a two-year period, we repositioned WKYS-
FM, improved its programming and enhanced the station's community
involvement and image. For the Arbitron Survey four book averages ending
with the Summer 1999 Arbitron Survey, the station was ranked number one
in the 18-34 age demographic (with a 10.1 share) and number three in the
12-plus age demographic (with a 5.4 share).
In 1987, we acquired WMMJ-FM for approximately $7.5 million. At the
time, WMMJ-FM was being programmed in a general market Adult
Contemporary format, and had a 1.2 share of the 12-plus age demographic.
After extensive research we changed the station's format, making WMMJ-FM
the first FM radio station on the East Coast to introduce an Urban Adult
Contemporary programming format. For the Arbitron Survey four book
averages ending with the Summer 1999 Arbitron Survey, the station was
ranked number six in the 25-54 age demographic (with a 4.8 share) and
was ranked number eight in the 12-plus age demographic (with a 4.1
share).
. Baltimore. In 1993, we acquired WERQ-FM and WOLB-AM for approximately
$9.0 million. At the time, these stations had mediocre ratings. We
converted WERQ-FM's programming to a more focused Young Urban
Contemporary format and began aggressively marketing the station. WERQ-
FM is now Baltimore's dominant station, and in the Arbitron Survey four
book averages ending with the Summer 1999 Arbitron Survey, was ranked
number one in the 12-plus and 18-34 age demographics, a position it
first achieved in the Spring 1997 Arbitron Survey, and number two in the
25-54 age demographic behind only Radio One's WWIN-FM.
In 1992, we acquired WWIN-FM and its sister station, WWIN-AM, for
approximately $4.7 million. At the time, WWIN-FM was a distant second in
ratings to its in-format direct competitor, WXYV-FM. We repositioned
WWIN-FM towards the 25-54 age demographic, and for the Arbitron Survey
four book averages ending with the Summer 1999 Arbitron Survey, the
station was ranked number one in that age demographic (with a 7.9
share).
. Atlanta. In 1995, ROA, then an affiliate of Radio One, acquired WHTA-FM,
a Class A radio station located approximately 40 miles from Atlanta, for
approximately $4.5 million. Prior to that acquisition, the previous
owners, together with our management, upgraded and moved the station
approximately 20 miles closer to Atlanta. The result was the
introduction of a new, Young Urban
41
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Contemporary radio station in the Atlanta market. The station's ratings
increased quickly, to an approximate 5.0 share in the 12-plus age
demographic. For the Arbitron Survey four book averages ending with the
Summer 1999 Arbitron Survey, the station was ranked number four in the
18-34 age demographic (with an 8.1 share).
. Philadelphia. In May 1997, we acquired WPHI-FM for approximately $20.0
million. At the time the station was being programmed in a Modern Rock
format and had a 2.7 share in the 12-plus age demographic. We changed
the station's format to Young Urban Contemporary and, for the Arbitron
Survey four book averages ending with the Summer 1999 Arbitron Survey,
the station was ranked number 15 in the 12-plus age demographic (with a
3.0 share) and number 6 in the 18-34 age demographic (with a 5.7 share).
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Top 40 African-American Radio Markets in the United States
In the table below, boxes and bold text indicate markets where we currently
own radio stations. Population estimates are for 1997 and are based upon BIA
Investing in Radio Market Report ("BIA 1999 Fourth Edition").
<TABLE>
<CAPTION>
African-Americans
as a Percentage of
African American the Overall
Population in the Population in the
Rank Market Market Market
---- ----------------------------------- ----------------- -------------------
(in thousands)
<C> <S> <C> <C>
1. New York, NY 3,589 21.3%
2. Chicago, IL 1,670 19.6
- --------------------------------------------------------------------------------
| 3. Washington, DC 1,131 26.5 |
- --------------------------------------------------------------------------------
4. Los Angeles, CA 1,120 9.1
- --------------------------------------------------------------------------------
| 5. Detroit, MI 1,032 22.3 |
| 6. Philadelphia, PA 987 20.2 |
| 7. Atlanta, GA 957 26.0 |
- --------------------------------------------------------------------------------
8. Houston/Galveston, TX 795 18.3
9. Miami/Ft. Lauderdale/Hollywood, FL 713 19.7
- --------------------------------------------------------------------------------
| 10. Baltimore, MD 686 27.6 |
- --------------------------------------------------------------------------------
11. Dallas/Ft. Worth, TX 659 14.2
12. San Francisco, CA 594 8.9
13. Memphis, TN 491 42.0
- --------------------------------------------------------------------------------
| 14. St. Louis, MO 455 17.7 |
- --------------------------------------------------------------------------------
15. Norfolk/Virginia Beach/Newport 455 30.2
News, VA
16. New Orleans, LA 443 35.0
- --------------------------------------------------------------------------------
| 17. Cleveland, OH 408 19.2 |
| 18. Boston, MA 309 7.1 |
| 19. Richmond, VA 284 30.1 |
- --------------------------------------------------------------------------------
20. Charlotte/Gastonia/Rock Hill, NC 280 20.5
21. Birmingham, AL 267 27.4
22. Milwaukee/Racine, WI 261 15.5
23. Raleigh/Durham, NC 256 24.1
24. Jacksonville, FL 241 22.6
25. Tampa/St. Petersburg/Clearwater, FL 239 10.5
26. Kansas City, MO 229 13.5
27. Greensboro/Winston Salem/High 228 19.6
Point, NC
28. Cincinnati, OH 224 11.6
29. Nassau/Suffolk Counties (NY) 224 8.4
30. Pittsburgh, PA 198 8.4
31. Indianapolis, IN 196 14.2
32. Orlando, FL 191 14.6
33. Columbus, OH 190 13.0
34. Jackson, MS 186 43.3
35. Nashville, TN 181 15.8
36. Baton Rouge, LA 181 31.5
37. San Diego, CA 174 6.3
38. Seattle/Tacoma, WA 174 5.1
39. Greenville/Spartanburg, SC 155 17.8
40. Augusta, GA 153 33.1
</TABLE>
43
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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 and
market our stations as stand-alones, in combination with other stations within
a given market and across markets, where appropriate.
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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 Winter in Washington, D.C. and Baltimore, which provides
entertainment, shopping and educational seminars to Radio One's listeners and
others from the communities we serve. In these events, advertisers buy signage,
booth space and broadcast promotions to sell a variety of goods and services to
African-American consumers. As we expand our presence in our existing markets
and into new markets, we plan to increase the number of events and the number
of markets in which we host these major events.
Significant Community Involvement
We believe our active involvement and significant relationships in the
African-American community provides a competitive advantage in targeting
African-American audiences. In this way, we believe our proactive involvement
in the African-American community in each of our markets significantly improves
the marketability of our radio broadcast time to advertisers who are targeting
such communities.
We believe that a radio station's image should reflect the lifestyle and
viewpoints of the target demographic group it serves. Due to our fundamental
understanding of the African-American community, we believe we are able to
identify music and musical styles, as well as political and social trends and
issues, early in their evolution. This understanding is then integrated into
all aspects of our operations and enables us to create enhanced awareness and
name recognition in the marketplace. In addition, we believe our multi-level
approach to community involvement leads to increased effectiveness in
developing and updating our programming formats. We believe our enhanced
awareness and more effective programming formats lead to greater listenership
and higher ratings over the long-term.
We have a history of sponsoring events that demonstrate our commitment to
the African-American community, including:
. heightening the awareness of diseases which disproportionately impact
African-Americans, such as sickle-cell anemia and leukemia, and holding
fundraisers to benefit the search for their cure;
. developing contests specifically designed to assist African-American
single mothers with day care expenses;
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. fundraising for the many African-American churches throughout the
country that have been the target of arsonists; and
. organizing seminars designed to educate African-Americans on personal
issues such as buying a home, starting a business, developing a credit
history, financial planning and health care.
Management Stock Option Plan
On March 10, 1999, we adopted the 1999 Stock Option and Restricted Stock
Grant Plan designed to provide incentives relating to equity ownership to
present and future executive, managerial, and other key employees of Radio One
and our subsidiaries. The option plan affords us latitude in tailoring
incentive compensation for the retention of key personnel, to support corporate
and business objectives, and to anticipate and respond to a changing business
environment and competitive compensation practices. For more information see
"Management--Stock Option Plan."
Our Station Portfolio
After giving effect to our pending acquisitions, we will have acquired 18
radio stations since June 30, 1998. We believe that most of these stations are
underdeveloped and offer the opportunity for substantial growth in revenue and
broadcast cash flow. The eleven stations which we owned or managed prior to
June 30, 1998, operated at a broadcast cash flow margin of 52.0% for the nine
months ended September 30, 1999, compared to a broadcast cash flow margin for
the same period of 33.0% for the 15 stations that we did not previously manage
and which we have acquired or commenced operating during the 15 months
beginning June 30, 1998.
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The following table sets forth selected information about our portfolio of
radio stations, giving effect to our pending acquisitions. Market population
data and revenue rank data are from BIA 1999 Fourth Edition. Audience share and
audience rank data are based on Arbitron Survey four book averages ending with
the Summer 1999 Arbitron Survey. Except as noted, revenue share and revenue
rank data for the Washington, D.C., Baltimore and Detroit markets are based on
the Radio Revenue Reports of Hungerford for the twelve-month period ending
December 31, 1999. For the Philadelphia, Atlanta, Cleveland and Richmond
markets, the revenue share and revenue rank data are from revenue reports for
the twelve-month period ending December 31, 1999, as prepared by Miller,
Kaplan, Arase & Co., Certified Public Accountants. As used in this table, "n/a"
means not applicable or not available and "t" means tied with one or more radio
stations.
<TABLE>
<CAPTION>
1999 Market Rank Four Book Average Four Book Average
------------------ -------------------- --------------------
Audience Audience Audience Audience
Target Share in Rank in Share in Rank in
Age 12+ 12+ Target Target
Metro Radio Year Demo- Demo- Demo- Demo- Demo-
Market(/1/) Population Revenue Acquired Format graphic graphic graphic graphic graphic
----------- ---------- ------- --------- ---------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Washington, DC 9 6
WKYS-FM 1995 Urban 18-34 5.4 3 10.1 1
WMMJ-FM 1987 Urban AC 25-54 4.1 8 4.8 6
WYCB-AM 1998 Gospel 35-64 0.9 22 1.0 22
WOL-AM 1980 Urban Talk 35-64 0.8 24 (t) 0.9 24 (t)
Baltimore 20 20
WERQ-FM 1993 Urban 18-34 9.3 1 16.1 1
WWIN-FM 1992 Urban AC 25-54 6.3 4 7.9 1
WWIN-AM 1993 Gospel 35-64 1.0 16 1.0 15
WOLB-AM 1992 Urban Talk 35-64 0.6 19 0.7 18
Philadelphia 5 9
WPHI-FM 1997 Urban 18-34 3.0 15 5.7 6
WPLY-FM (pending) Alternative Rock 25-54 2.8 17 2.5 15 (t)
Detroit 6 11
WDTJ-FM 1998 Urban 18-34 3.7 10 6.2 4
WDMK-FM 1998 Urban AC 25-54 1.0 24 1.2 23
WCHB-AM 1998 Urban Talk 35-64 0.3 31 0.4 30
Atlanta 12 7
WHTA-FM 1999 Urban 18-34 4.6 10 8.1 4
WAMJ-FM 1999 Urban AC 25-54 2.2 16 2.9 13 (t)
Cleveland 24 23
WENZ-FM 1999 Urban 18-34 3.4 13 6.7 7
WERE-AM 1999 News/Talk 35-64 0.4 20 0.4 19 (t)
Richmond 57 47
WCDX-FM (pending) Urban 18-34 9.0 2 15.5 1
WKJS-FM 1999 Urban AC 25-54 6.1 6 8.1 2 (t)
WPLZ-FM (pending) R&B 35-64 4.5 11 5.0 7
WARV-FM 1999 Country 25-54 3.1 12 2.1 14
WJRV-FM (pending) Country 25-54 2.2 14 2.5 13
WGCV-AM (pending) Gospel 35-64 1.2 18 (t) 1.5 16 (t)
Oldies
WDYL-FM 1999 Modern Rock 25-54 0.7(/4/) 20(t)(/4/) 0.7(/4/) 19(t)(/4/)
Boston 8 10
WBOT-FM(/5/) 1999 Urban 18-34 n/a n/a n/a n/a
<CAPTION>
January-
December
1999
Radio One
Market
Revenue
--------------------
Market(/1/) Share Rank
----------- ---------- ---------
<S> <C> <C>
Washington, DC
WKYS-FM 5.3% 8
WMMJ-FM 3.9% 13
WYCB-AM 0.5% n/a(/2/)
WOL-AM 0.4% 21
Baltimore
WERQ-FM 12.5% n/a(/3/)
WWIN-FM 8.3% n/a(/3/)
WWIN-AM 0.4% n/a(/3/)
WOLB-AM 0.2% n/a(/3/)
Philadelphia
WPHI-FM 2.2% 16
WPLY-FM 3.1% 15
Detroit
WDTJ-FM 2.8% 15
WDMK-FM 0.7% 19
WCHB-AM .2% n/a(/2/)
Atlanta
WHTA-FM 3.5% 12
WAMJ-FM 1.6% 13
Cleveland
WENZ-FM 2.1% 14
WERE-AM 0.9% 17
Richmond
WCDX-FM 11.0% 3
WKJS-FM 7.3% 8
WPLZ-FM 2.4% 11
WARV-FM n/a(/2/) n/a(/2/)
WJRV-FM 1.6% 13
WGCV-AM n/a(/2/) n/a(/2/)
WDYL-FM 0 15
Boston
WBOT-FM(/5/) n/a n/a
</TABLE>
- --------
(1) WJZZ-AM in Kingsley, MI and WFUN-FM in St. Louis, MO are not currently
broadcasting and are not included in the table.
(2) WYCB-AM, WCHB-AM, WARV-FM and WGCV-AM do not report revenues to Hungerford
or Miller Kaplan. Revenue shares for WYCB-AM and WCHB-AM represent those
stations' net broadcast revenue as a percentage of the market radio revenue
reported by Hungerford in their respective markets for the twelve-month
period ending December 31, 1999, as adjusted for WYCB-AM and WCHB-AM
revenue, as appropriate.
(3) The revenues of WERQ-FM and WOLB-AM are reported jointly to Hungerford, as
are the revenues of WWIN-FM and WWIN-AM. The revenue share percentages for
these stations reflect the proportional contribution by each station to the
joint share reported by Hungerford.
(4) Audience share and audience rank data for WDYL-FM are based on Arbitron
Survey four book averages ending with the Spring 1999 Arbitron Survey
because the station was not broadcasting during a portion of Arbitron's
summer survey period and was excluded from the Summer 1999 Arbitron Survey
results.
(5) Prior to resuming broadcasting on December 1, 1999, WBOT-FM in Boston, MA
was not operational. Accordingly, there is no rating or revenue data to be
included in the table.
47
<PAGE>
Advertising Revenue
Substantially all of our net broadcast revenue is generated from the sale of
local and national advertising for broadcast on our radio stations. Additional
net broadcast revenue is generated from network compensation payments and other
miscellaneous transactions. Local sales are made by the sales staffs located in
our markets. National sales are made by firms specializing in radio advertising
sales on the national level, in exchange for a commission from Radio One that
is based on a percentage of our net broadcast revenue from the advertising
obtained. Approximately 68.3% of our net broadcast revenue for the nine-month
period ended September 30, 1999, was generated from the sale of local
advertising and 29.4% from sales to national advertisers. The balance of net
broadcast revenue is derived from network advertising, tower rental income and
ticket and other revenue related to special events hosted by Radio One.
We believe that advertisers can reach the African-American community more
cost effectively through radio broadcasting than through newspapers or
television. Advertising rates charged by radio stations are based primarily on:
. a radio station's audience share within the demographic groups targeted
by the advertisers,
. the number of radio stations in the market competing for the same
demographic groups, and
. the supply and demand for radio advertising time.
Advertising rates are generally highest during the morning and afternoon
commuting hours.
A radio station's listenership is reflected in ratings surveys that estimate
the number of listeners tuned to a radio station and the time they spend
listening to that radio station. Each radio station's ratings are used by its
advertisers to consider advertising with the radio station, and are used by us
to chart audience growth, set advertising rates and adjust programming.
Strategic Diversification
We will continue to evaluate potential radio acquisitions in African-
American markets. We are also exploring opportunities in other forms of media
to apply our expertise in marketing to African-Americans. Such opportunities
could include outdoor advertising in urban environments, an urban-oriented
Internet strategy, an urban-oriented radio network, music production,
publishing and other related businesses.
We have entered into an exclusive programming agreement with XM Satellite
Radio, Inc. to provide African-American oriented programming to be broadcast on
XM Satellite's digital audio radio service, which is expected to be available
in 2001.
We have also invested, together with most other publicly-traded radio
companies, in a 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 invested in PNE Media Holdings, LLC, a privately-held
outdoor advertising company with a presence in several of the markets in which
we own radio stations.
We recently invested a combination of cash and advertising time in aka.com,
LLC, an aggregator of web sites devoted to hip hop culture. In conjunction with
this investment, our Chief Financial Officer, Scott R. Royster, became a
director of aka.com, LLC.
We recently invested a combination of cash and advertising time in NetNoir,
Inc., the owner and operator of an Internet web site targeting African-
Americans.
48
<PAGE>
Properties and Facilities
The types of properties required to support each of our radio stations
include offices, studios and transmitter/antenna sites. We typically lease our
studio and office space with lease terms that are five to ten years. A
station's studios are generally housed with its offices in downtown or business
districts. We generally consider our facilities to be suitable and of adequate
size for our current and intended purposes. We lease a majority of our main
transmitter/antenna sites and when negotiating a lease for such sites we try to
obtain a lengthy lease term with options to renew. In general, we do not
anticipate difficulties in renewing facility or transmitter/antenna site leases
or in leasing additional space or sites if required.
We own substantially all of our other equipment, consisting principally of
transmitting antennae, transmitters, studio equipment and general office
equipment. The towers, antennae and other transmission equipment used by our
stations are generally in good condition, although opportunities to upgrade
facilities are continuously reviewed. Substantially all of the property that we
own secures our borrowings under our credit facility.
Competition
The radio broadcasting industry is highly competitive. Radio One's stations
compete for audiences and advertising revenue with other radio stations and
with other media such as television, newspapers, direct mail and outdoor
advertising. Audience ratings and advertising revenue are subject to change and
any adverse change in a market could adversely affect our net broadcast revenue
in that market. If a competing station converts to a format similar to that of
one of our stations, or if one of our competitors strengthens its operations,
our stations could suffer a reduction in ratings and advertising revenue. Other
radio companies which are larger and have more resources may also enter markets
where we operate. Although we believe our stations are well positioned to
compete, we cannot assure you that our stations will maintain or increase their
current ratings or advertising revenue.
The radio broadcasting industry is also subject to rapid technological
change, evolving industry standards and the emergence of new media
technologies. Several new media technologies are being developed, including the
following:
. audio programming by cable television systems, direct broadcast
satellite systems, Internet content providers and other digital audio
broadcast formats;
. satellite digital audio radio service, which could result in the
introduction of several new satellite radio services with sound quality
equivalent to that of compact discs; and
. in-band on-channel digital radio, which could provide multi-channel,
multi-format digital radio services in the same band width currently
occupied by traditional AM and FM radio services.
We recently entered into a programming agreement with a satellite digital
audio radio service and have also invested in a developer of digital audio
broadcast technology. However, we cannot assure you that these arrangements
will be successful or enable us to adapt effectively to these new media
technologies. We also cannot assure you that we will continue to have the
resources to acquire other new technologies or to introduce new services that
could compete with other new technologies.
Antitrust
An important part of our growth strategy is the acquisition of additional
radio stations. After the passage of the Telecommunications Act of 1996, the
Justice Department has become more aggressive in reviewing proposed
acquisitions of radio stations and radio station networks. The Justice
Department is particularly aggressive when the proposed buyer already owns one
or more radio stations in the market of the station it is seeking to buy. The
Justice Department has challenged a number of radio broadcasting transactions.
Some of those challenges ultimately resulted in consent decrees requiring,
among other things, divestitures of certain stations. In general, the Justice
Department has more closely scrutinized radio broadcasting acquisitions that
result in local market shares in excess of 40% of radio advertising revenue.
Similarly, the FCC staff has adopted procedures to review proposed radio
broadcasting transactions even if the proposed acquisition
49
<PAGE>
otherwise complies with the FCC's ownership limitations. In particular, the FCC
may invite public comment on proposed radio transactions that the FCC believes,
based on its initial analysis, may present ownership concentration concerns in
a particular local radio market.
Federal Regulation of Radio Broadcasting
The radio broadcasting industry is subject to extensive and changing
regulation by the FCC of programming, technical operations, employment and
other business practices. The FCC regulates radio broadcast stations pursuant
to the Communications Act. The Communications Act permits the operation of
radio broadcast stations only in accordance with a license issued by the FCC
upon a finding that the grant of a license would serve the public interest,
convenience and necessity. The Communications Act provides for the FCC to
exercise its licensing authority to provide a fair, efficient and equitable
distribution of broadcast service throughout the United States. Among other
things, the FCC:
. assigns frequency bands for radio broadcasting;
. determines the particular frequencies, locations and operating power of
radio broadcast stations;
. issues, renews, revokes and modifies radio broadcast station licenses;
. establishes technical requirements for certain transmitting equipment
used by radio broadcast stations;
. adopts and implements regulations and policies that directly or
indirectly affect the ownership, operation, program content and
employment and business practices of radio broadcast stations; and
. has the power to impose penalties, including monetary forfeitures, for
violations of its rules and the Communications Act.
The Communications Act prohibits the assignment of an FCC license, or other
transfer of control of an FCC licensee, without the prior approval of the FCC.
In determining whether to grant requests for consents to assignments or
transfers, and in determining whether to grant or renew a radio broadcast
license, the FCC considers a number of factors pertaining to the licensee (and
any proposed licensee), including restrictions on foreign ownership, compliance
with FCC media ownership limits and other FCC rules, licensee "character" and
compliance with the Anti-Drug Abuse Act of 1988.
The following is a brief summary of certain provisions of the Communications
Act and specific FCC rules and policies. This summary does not purport to be
complete and is qualified in its entirety by the text of the Communications
Act, the FCC's rules and regulations, and the rulings of the FCC. You should
refer to the Communications Act and these FCC rules and rulings for further
information concerning the nature and extent of federal regulation of radio
broadcast stations.
A licensee's failure to observe the requirements of the Communications Act
or FCC rules and policies may result in the imposition of various sanctions,
including admonishment, fines, the grant of renewal terms of less than eight
years, the grant of a license with conditions or, for particularly egregious
violations, the denial of a license renewal application, the revocation of an
FCC license or the denial of FCC consent to acquire additional broadcast
properties.
Congress and the FCC have had under consideration or reconsideration, and
may in the future consider and adopt, new laws, regulations and policies
regarding a wide variety of matters that could, directly or indirectly, affect
the operation, ownership and profitability of Radio One's radio stations,
result in the loss of audience share and advertising revenue for our radio
broadcast stations or affect our ability to acquire additional radio broadcast
stations or finance such acquisitions. Such matters may include:
. changes to the license authorization and renewal process;
. proposals to impose spectrum use or other fees on FCC licensees;
. auction of new broadcast licenses;
50
<PAGE>
. changes to the FCC's equal employment opportunity regulations and other
matters relating to involvement of minorities and women in the
broadcasting industry;
. proposals to change rules relating to political broadcasting including
proposals to grant free air time to candidates, and other changes
regarding program content;
. proposals to restrict or prohibit the advertising of beer, wine and
other alcoholic beverages;
. technical and frequency allocation matters, including creation of a new
low power radio broadcast service;
. the implementation of digital audio broadcasting on both a satellite and
terrestrial basis;
. changes in broadcast cross-interest, multiple ownership, foreign
ownership, cross-ownership and ownership attribution policies;
. proposals to allow telephone companies to deliver audio and video
programming to homes in their service areas; and
. proposals to alter provisions of the tax laws affecting broadcast
operations and acquisitions.
We cannot predict what changes, if any, might be adopted, nor can we predict
what other matters might be considered in the future, nor can we judge in
advance what impact, if any, the implementation of any particular proposals or
changes might have on our business.
FCC Licenses
The Communications Act provides that a broadcast station license may be
granted to any applicant if the public interest, convenience and necessity will
be served thereby, subject to certain limitations. In making licensing
determinations, the FCC considers an applicant's legal, technical, financial
and other qualifications. The FCC grants radio broadcast station licenses for
specific periods of time and, upon application, may renew them for additional
terms. Under the Communications Act, radio broadcast station licenses may be
granted for a maximum term of eight years.
Generally, the FCC renews radio broadcast licenses without a hearing upon a
finding that:
. the radio station has served the public interest, convenience and
necessity;
. there have been no serious violations by the licensee of the
Communications Act or FCC rules and regulations; and
. there have been no other violations by the licensee of the
Communications Act or FCC rules and regulations which, taken together,
indicate a pattern of abuse.
After considering these factors, the FCC may grant the license renewal
application with or without conditions, including renewal for a term less than
the maximum otherwise permitted, or hold an evidentiary hearing.
In addition, the Communications Act authorizes the filing of petitions to
deny a license renewal application during specific periods of time after a
renewal application has been filed. Interested parties, including members of
the public, may use such petitions to raise issues concerning a renewal
applicant's qualifications. If a substantial and material question of fact
concerning a renewal application is raised by the FCC or other interested
parties, or if for any reason the FCC cannot determine that grant of the
renewal application would serve the public interest, convenience and necessity,
the FCC will hold an evidentiary hearing on the application. If as a result of
an evidentiary hearing the FCC determines that the licensee has failed to meet
the requirements specified above and that no mitigating factors justify the
imposition of a lesser sanction, then the FCC may deny a license renewal
application. Only after a license renewal application is denied will the FCC
accept and consider competing applications for the vacated frequency. Also,
during certain
51
<PAGE>
periods when a renewal application is pending, the transferability of the
applicant's license may be restricted. Historically, our licenses have been
renewed without any conditions or sanctions imposed. However, there can be no
assurance that the licenses of each of our stations will be renewed or will be
renewed without conditions or sanctions.
The FCC classifies each AM and FM radio station. An AM radio station
operates on either a clear channel, regional channel or local channel. A clear
channel is one on which AM radio stations are assigned to serve wide areas,
particularly at night. Clear channel AM radio stations are classified as
either: (1) Class A radio stations, which operate unlimited time and are
designed to render primary and secondary service over an extended area, or (2)
Class B radio stations, which operate unlimited time and are designed to render
service only over a primary service area. Class D radio stations, which operate
either daytime, or unlimited time with low nighttime power, may operate on the
same frequencies as clear channel radio stations. A regional channel is one on
which Class B and Class D AM radio stations may operate and serve primarily a
principal center of population and the rural areas contiguous to it. A local
channel is one on which AM radio stations operate unlimited time and serve
primarily a community and the suburban and rural areas immediately contiguous
to it. A Class C AM radio station operates on a local channel and is designed
to render service only over a primary service area that may be reduced as a
consequence of interference.
The minimum and maximum facilities requirements for an FM radio station are
determined by its class. Possible FM class designations depend upon the
geographic zone in which the transmitter of the FM radio station is located. In
general, commercial FM radio stations are classified as follows, in order of
increasing power and antenna height: Class A, B1, C3, B, C2, C1 or C radio
stations. The FCC has proposed to divide Class C stations into two subclasses
based on antenna height. Stations not meeting the minimum height requirement
within a three-year transition period would be downgraded automatically to the
new Class C0 category.
In January 2000, the FCC voted to create a class of radio stations designed
to serve very localized communities or underrepresented groups within
communities by authorizing two new classes of noncommercial low power FM radio
stations. There will be two types of LPFM stations, LP100 stations with power
from 50 to 100 watts and a service radius of approximately 3.5 miles and LP10
stations with power from one to 10 watts and a service radius of approximately
1-2 miles. New LPFM stations will have to protect the signals of all other
authorized FM stations and may be authorized on any FM frequency. Eligible
licensees are limited to noncommercial government or private educational
organizations, associations or entities; non-profit entities with educational
purposes; or government or non-profit entities providing local public safety or
transportation services. No existing broadcasters or other media entities may
own an LPFM station. For the first two years of the LPFM service, licensees
will be limited to local entities headquartered within 10 miles of the LPFM
station transmitter. During the first two years, no entity may operate more
than one LPFM station. After two years, the ownership limit will be five LPFM
stations nationwide and after three years, the ownership limit will be 10 LPFM
stations nationwide.
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The following table sets forth information with respect to each of our radio
stations, including the additional radio stations we have agreed to purchase in
Richmond and Philadelphia. A broadcast station's market may be different from
its community of license. "ERP" refers to the effective radiated power of an FM
radio station. "HAAT" refers to the antenna height above average terrain of an
FM radio station. "AI" refers to the above insulator measurement of an AM radio
station. The coverage of an AM radio station is chiefly a function of the power
of the radio station's transmitter, less dissipative power losses and any
directional antenna adjustments. For FM radio stations, signal coverage area is
chiefly a function of the ERP of the radio station's antenna and the HAAT of
the radio station's antenna. The height of an AM radio station's antenna is
measured by reference to AI and the height of an FM radio station's antenna is
measured by reference to HAAT.
<TABLE>
<CAPTION>
ERP (FM) Expiration
Station Power HAAT (FM) Date of
Call Year of FCC (AM) in AI (AM) in Operating FCC
Market Letters Acquisition Class Kilowatts Meters Frequency License
- -------------- ------- ----------- ----- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Washington, DC WOL-AM 1980 C 1.0 52.1 1450 kHz 10/01/2003
WMMJ-FM 1987 A 2.9 146.0 102.3 MHz 10/01/2003
WKYS-FM 1995 B 24.0 215.0 93.9 MHz 10/01/2003
WYCB-AM 1998 C 1.0 50.9 1340 kHz 10/01/2003
Baltimore WWIN-AM 1992 C 1.0 61.0 1400 kHz 10/01/2003
WWIN-FM 1992 A 3.0 91.0 95.9 MHz 10/01/2003
WOLB-AM 1993 D 1.0 85.4 1010 kHz 10/01/2003
WERQ-FM 1993 B 37.0 174.0 92.3 MHz 10/01/2003
Atlanta WHTA-FM 1999 C3 7.9 175.0 97.5 MHz 04/01/2004
WAMJ-FM 1999 C3 25.0 98.0 107.5 MHz 04/01/2004
Philadelphia WPHI-FM 1997 A 0.3(/1/) 305.0 103.9 MHz 08/01/2006
WPLY-FM (pending) B 35.0 183 100.3 MHz 08/01/2006
Detroit WDTJ-FM 1998 B 20.0 221.0 105.9 MHz 10/01/2004
WCHB-AM 1998 B 50.0 49.4 1200 kHz 10/01/2004
WJZZ-AM 1998 D 50.0(/2/) 59.7 1210 kHz 10/01/2004
WDMK-FM 1998 B 50.0 152.0 102.7 MHz 10/01/2004
St. Louis WFUN-FM 1999 A 6.0(/3/) 100.0 95.5 MHz 12/01/2003
Cleveland WERE-AM 1999 B 5.0 128.0 1300 kHz 10/01/2004
WENZ-FM 1999 B 16.0 272.0 107.9 MHz 10/01/2004
Richmond WDYL-FM 1999 A 6.0 100.0 101.1 MHz 10/01/2003
WKJS-FM 1999 C1 100.0 299.0 104.7 MHz 10/01/2003
WARV-FM 1999 A 4.7 113.0 100.3 MHz 10/01/2003
WCDX-FM (pending) B1 4.5 235.0 92.1 MHz 10/01/2003
WPLZ-FM (pending) A 6.0 100.0 99.3 MHz 10/01/2003
WJRV-FM (pending) A 2.3 162.0 105.7 MHz 10/01/2003
WGCV-AM (pending) C 1.0 122.0 1240 kHz 10/01/2003
Boston WBOT-FM 1999 A 2.7 150.0 97.7 MHZ 04/01/2006
</TABLE>
- --------
(/1/) WPHI-FM operates with facilities equivalent to 3 kW at 100 meters.
(/2/) WJZZ-AM ceased broadcast operations on October 12, 1999.
(/3/) WFUN-FM is authorized to upgrade to a Class C3 facility. WFUN-FM ceased
broadcast operations on June 4, 1999.
Ownership Matters. The Communications Act requires prior approval of the FCC
for the assignment of a broadcast license or the transfer of control of a
corporation or other entity holding a license. In determining whether to
approve an assignment of a radio broadcast license or a transfer of control of
a broadcast licensee, the FCC considers, among other things:
. the financial and legal qualifications of the prospective assignee or
transferee, including compliance with FCC restrictions on non-U.S.
citizen or entity ownership and control;
53
<PAGE>
. compliance with FCC rules limiting the common ownership of certain
"attributable" interests in broadcast and newspaper properties;
. the history of compliance with FCC operating rules; and
. the "character" qualifications of the transferee or assignee and the
individuals or entities holding "attributable" interests in them.
To obtain the FCC's prior consent to assign or transfer a broadcast license,
appropriate applications must be filed with the FCC. If the application to
assign or transfer the license involves a substantial change in ownership or
control of the licensee, for example, the transfer or acquisition of more than
50% of the voting stock, the application must be placed on public notice for a
period of 30 days during which petitions to deny the application may be filed
by interested parties, including members of the public. Informal objections may
be filed any time until the FCC acts upon the application. If an assignment
application does not involve new parties, or if a transfer of control
application does not involve a "substantial change" in ownership or control, it
is a pro forma application, which is not subject to the public notice and 30-
day petition to deny procedure. The pro forma application is nevertheless
subject to informal objections that may be filed any time until the FCC acts on
the application. If the FCC grants an assignment or transfer application,
interested parties have 30 days from public notice of the grant to seek
reconsideration of that grant. The FCC usually has an additional ten days to
set aside such grant on its own motion. When ruling on an assignment or
transfer application, the FCC is prohibited from considering whether the public
interest might be served by an assignment or transfer to any party other than
the assignee or transferee specified in the application.
Under the Communications Act, a broadcast license may not be granted to or
held by any corporation that has more than 20% of its capital stock owned or
voted by non-U.S. citizens or entities or their representatives, by foreign
governments or their representatives, or by non-U.S. corporations. Furthermore,
the Communications Act provides that no FCC broadcast license may be granted to
or held by any corporation directly or indirectly controlled by any other
corporation of which more than 25% of its capital stock is owned of record or
voted by non-U.S. citizens or entities or their representatives, or foreign
governments or their representatives or by non-U.S. corporations, if the FCC
finds the public interest will be served by the refusal or revocation of such
license. These restrictions apply in modified form to other forms of business
organizations, including partnerships and limited liability companies. Thus,
the licenses for Radio One's stations could be revoked if more than 25% of
Radio One's outstanding capital stock is issued to or for the benefit of non-
U.S. citizens.
The FCC generally applies its other broadcast ownership limits to
"attributable" interests held by an individual, corporation, partnership or
other association or entity, including limited liability companies. In the case
of a corporation holding broadcast licenses, the interests of officers,
directors and those who, directly or indirectly have the right to vote five
percent or more of the stock of a licensee corporation are generally deemed
attributable interests, as are positions as an officer or director of a
corporate parent of a broadcast licensee. The FCC treats all partnership
interests as attributable, except for those limited partnership interests that
under FCC policies are considered "insulated" from "material involvement" in
the management or operation of the media-related activities of the partnership.
The FCC currently treats limited liability companies like limited partnerships
for purposes of attribution. Stock interests held by insurance companies,
mutual funds, bank trust departments and certain other passive investors that
hold stock for investment purposes only become attributable with the ownership
of 20% or more of the voting stock of the corporation holding broadcast
licenses.
To assess whether a voting stock interest in a direct or an indirect parent
corporation of a broadcast licensee is attributable, the FCC uses a
"multiplier" analysis in which non-controlling voting stock interests are
deemed proportionally reduced at each non-controlling link in a multi-
corporation ownership chain. A time brokerage agreement with another radio
station in the same market creates an attributable interest in the brokered
radio station as well for purposes of the FCC's local radio station ownership
rules, if the agreement affects more than 15% of the brokered radio station's
weekly broadcast hours.
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Debt instruments, non-voting stock, options and warrants for voting stock
that have not yet been exercised, insulated limited partnership interests where
the limited partner is not "materially involved" in the media-related
activities of the partnership, and minority voting stock interests in
corporations where there is a single holder of more than 50% of the outstanding
voting stock whose vote is sufficient to affirmatively direct the affairs of
the corporation, generally do not subject their holders to attribution.
However, the FCC recently adopted a new rule, known as the equity-debt-plus
or EDP rule that causes certain creditors or investors to be attributable
owners of a station, regardless of whether there is a single majority
shareholder or other applicable exception to the FCC's attribution rules. Under
this new rule, a major programming supplier or a same-market media entity will
be an attributable owner of a station if the supplier or same-market media
entity holds debt or equity, or both, in the station that is greater than 33%
of the value of the station's total debt plus equity. For purposes of the EDP
rule, equity includes all stock, whether voting or nonvoting, and equity held
by insulated limited partners in limited partnerships. Debt includes all
liabilities, whether long-term or short-term. A major programming supplier
includes any programming supplier that provides more than 15% of the station's
weekly programming hours. A same-market media entity includes any holder of an
attributable interest in a media company, including broadcast stations, cable
television and newspapers, located in the same market as the station, but only
if the holder's interest is attributable under an FCC attribution rule other
than the EDP rule. The FCC's rules also specify other exceptions to these
general principles for attribution.
Communications Act and FCC rules generally restrict ownership, operation or
control of, or the common holding of attributable interests in:
. radio broadcast stations above certain limits servicing the same local
market;
. radio broadcast stations and television broadcast stations servicing the
same local market; and
. a radio broadcast station and a daily newspaper serving the same local
market.
These rules include specific signal contour overlap standards to determine
compliance, and the FCC defined market will not necessarily be the same market
used by Arbitron, Neilsen or other surveys, or for purposes of the HSR Act.
Under these "cross-ownership" rules, we, absent waivers, would not be permitted
to own a radio broadcast station and acquire an attributable interest in any
daily newspaper in the same market where we then owned any radio broadcast
station. Our stockholders, officers or directors, absent a waiver, may not hold
an attributable interest in a daily newspaper in those same markets.
Under the newly revised radio/television cross-ownership rule, a single
owner may own up to two television stations, consistent with the FCC's rules on
common ownership of television stations, together with one radio station in all
markets. In addition, an owner will be permitted to own additional radio
stations, not to exceed the local ownership limits for the market, as follows:
. In markets where 20 media voices will remain, an owner may own an
additional five radio stations, or, if the owner only has one television
station, an additional six radio stations; and
. In markets where 10 media voices will remain, an owner may own an
additional three radio stations.
A "media voice" includes each independently-owned and operating full power
television and radio station and each daily newspaper that has a circulation
exceeding 5% of the households in the market, plus one voice for all cable
television systems operating in the market.
Although current FCC nationwide radio broadcast ownership rules allow one
entity to own, control or hold attributable interests in an unlimited number of
FM radio stations and AM radio stations nationwide, the Communications Act and
the FCC's rules limit the number of radio broadcast stations in local markets
in which a single entity may own an attributable interest as follows:
. In a radio market with 45 or more commercial radio stations, a party may
own, operate or control up to eight commercial radio stations, not more
than five of which are in the same service (AM or FM).
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. In a radio market with between 30 and 44 (inclusive) commercial radio
stations, a party may own, operate or control up to seven commercial
radio stations, not more than four of which are in the same service (AM
or FM).
. In a radio market with between 15 and 29 (inclusive) commercial radio
stations, a party may own, operate or control up to six commercial radio
stations, not more than four of which are in the same service (AM or
FM).
. In a radio market with 14 or fewer commercial radio stations, a party
may own, operate or control up to five commercial radio stations, not
more than three of which are in the same service (AM or FM), except that
a party may not own, operate, or control more than 50 percent of the
radio stations in such market.
The FCC staff has notified the public of its intention to review
transactions that comply with these numerical ownership limits but that might
involve undue concentration of market share.
Under its "cross-interest" policy, the FCC has considered "meaningful"
relationships among competing media outlets that serve "substantially the same
area" even if the FCC's ownership rules do not specifically prohibit the
relationship. Under this policy the FCC has considered whether to prohibit one
party from holding an attributable interest and a substantial non-attributable
interest (including non-voting stock, limited partnership and limited liability
company interests) in a media outlet in the same market, or from entering into
a joint venture or having common key employees with competitors. The FCC,
however, has determined that the recently adopted EDP rule addresses many of
the competitive concerns previously encompassed by its "cross-interest" policy.
As a result, effective November 16, 1999, the FCC has eliminated its "cross-
interest" policy. Nevertheless, the FCC has retained discretion to review
individual cases that present unusual cross-interest relationships on a case-
by-case basis.
Because of these multiple and cross-ownership rules, if a stockholder,
officer or director of Radio One holds an "attributable" interest in Radio One,
such stockholder, officer or director may violate the FCC's rules if such
person or entity also holds or acquires an attributable interest in other
television, radio stations or daily newspapers, depending on their number and
location. If an attributable stockholder, officer or director of Radio One
violates any of these ownership rules, we may be unable to obtain from the FCC
one or more authorizations needed to conduct our radio station business and may
be unable to obtain FCC consents for certain future acquisitions. As of
December 31, 1999, no single stockholder held more than 50% of the total voting
power of our common stock.
Programming and Operations. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1980s, the FCC has relaxed or
eliminated many of the more formalized procedures it developed to promote the
broadcast of certain types of programming responsive to the needs of a radio
station's community of license. Nevertheless, a broadcast licensee continues to
be required to present programming in response to community problems, needs and
interests and to maintain certain records demonstrating its responsiveness. The
FCC will consider complaints from listeners about a broadcast station's
programming when it evaluates the licensee's renewal application, but
listeners' complaints also may be filed and considered at any time. Stations
also must pay regulatory and application fees, and follow various FCC rules
that regulate, among other things, political advertising, the broadcast of
obscene or indecent programming, sponsorship identification, the broadcast of
contests and lotteries and technical operation.
The FCC has always required that licensees not discriminate in hiring
practices, develop and implement programs designed to promote equal employment
opportunities and submit reports to the FCC on these matters annually and in
connection with each license renewal application. The FCC's employment rules,
as they related to outreach efforts for recruitment of minorities, however,
were struck down as unconstitutional by the U.S. Court of Appeals for the D.C.
Circuit. The FCC recently adopted new rules to address the concern of the U.S.
Court of Appeals.
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The new rules will require us not to discriminate in hiring practices, to
file certain employment reports annually and at other times, to certify
compliance with the rules, and to widely disseminate information regarding job
openings.
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. Attribution for radio time brokerage agreements applies to all
of the FCC's multiple ownership rules applicable to radio stations (daily
newspaper/radio cross-ownership and radio/television cross-ownership) and not
only the local radio ownership rules. Also, as described above, FCC rules
prohibit a radio broadcast station from simulcasting more than 25% of its
programming on another radio broadcast station in the same broadcast service
(that is, AM/AM or FM/FM) where the two radio stations serve substantially the
same geographic area, whether the licensee owns both radio stations or owns one
radio station and programs the other through a time brokerage agreement. Thus
far, the FCC has not considered what relevance, if any, a time brokerage
agreement may have upon its evaluation of a licensee's performance at renewal
time.
Joint Sales Agreements. Over the past few years, a number of radio stations
have entered into cooperative arrangements commonly known as joint sales
agreements or JSAs. While these agreements may take varying forms, under the
typical JSA, a station licensee obtains, for a fee, the right to sell
substantially all 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.
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The FCC has determined that issues of joint advertising sales should be left
to enforcement by antitrust authorities, and therefore does not generally
regulate joint sales practices between stations. Currently, stations for which
another licensee sells time under a JSA are not deemed by the FCC to be an
attributable interest of that licensee.
RF Radiation. In 1985, the FCC adopted rules based on a 1982 American
National Standards Institute ("ANSI") standard regarding human exposure to
levels of radio frequency ("RF") radiation. These rules require applicants for
renewal of broadcast licenses or modification of existing licenses to inform
the FCC at the time of filing such applications whether an existing broadcast
facility would expose people to RF radiation in excess of certain limits. In
1992, ANSI adopted a new standard for RF exposure that, in some respects, was
more restrictive in the amount of environmental RF exposure permitted. The FCC
has since adopted more restrictive radiation limits which became effective
October 15, 1997, and which are based in part on the revised ANSI standard.
Digital Audio Radio Service. The FCC allocated spectrum to a new technology,
digital audio radio service ("DARS"), to deliver satellite-based audio
programming to a national or regional audience and issued regulations for a
DARS service in early 1997. DARS may provide a medium for the delivery by
satellite or terrestrial means of multiple new audio programming formats with
compact disc quality sound to local and national audiences. The nationwide
reach of satellite DARS could allow niche programming aimed at diverse
communities that Radio One is targeting. It is not known at this time whether
this technology also may be used in the future by existing radio broadcast
stations either on existing or alternate broadcasting frequencies. Two
companies that hold licenses for authority to offer multiple channels of
digital, satellite-delivered S-Band aural services could compete with
conventional terrestrial radio broadcasting. The licensees will be permitted to
sell advertising and lease channels in these media. The FCC's rules require
that these licensees launch and begin operating at least one space station by
2001 and be fully operational by 2003.
The FCC has established a new Wireless Communications Service ("WCS") in the
2305-2320 and 2345-2360 MHz bands (the "WCS Spectrum") and awarded licenses.
Licensees are generally permitted to provide any fixed, mobile, radio location
services, or digital satellite radio service using the WCS Spectrum.
Implementation of DARS would provide an additional audio programming service
that could compete with Radio One's radio stations for listeners, but the
effect upon Radio One cannot be predicted.
These satellite radio services use technology that may permit higher sound
quality than is possible with conventional AM and FM terrestrial radio
broadcasting.
Low Power Radio Broadcast Service. In January 2000, the FCC voted to create
a class of radio stations designed to serve very localized communities or
underrepresented groups within communities by authorizing two new classes of
noncommercial low power FM radio stations. There will be two types of LPFM
stations, LP100 stations with power from 50 to 100 watts and a service radius
of approximately 3.5 miles and LP10 stations with power from one to 10 watts
and a service radius of approximately 1-2 miles. New LPFM stations will have to
protect the signals of all other authorized FM stations and may be authorized
on any FM frequency. Eligible licensees are limited to noncommercial government
or private educational organizations, associations or entities; non-profit
entities with educational purposes; or government or non-profit entities
providing local public safety or transportation services. No existing
broadcasters or other media entities may own an LPFM station. For the first two
years of the LPFM service, licensees will be limited to local entities
headquartered within 10 miles of the LPFM station transmitter. During the first
two years, no entity may operate more than one LPFM station. After two years,
the ownership limit will be five LPFM stations nationwide and after three
years, the ownership limit will be 10 LPFM stations nationwide. FCC engineers
have conducted interference testing and have concluded that the new lower power
FM stations will not produce unacceptable levels of interference to existing FM
radio stations, such as those owned by Radio One. Nevertheless, the effect of
this untested newly created low power radio service on Radio One cannot be
predicted.
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Subsidiaries and Related Entities
Radio One has title to most of the assets used in the operations of our
radio stations. The FCC licenses for the radio stations in all cases are or
will be held by direct or indirect wholly-owned subsidiaries of Radio One. In
the case of all of the Baltimore stations, three of the Washington, D.C.
stations, the Philadelphia stations, 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 subsidiary
of Radio One that is subject to the restrictions imposed by the agreements
governing our indebtedness. Radio One Licenses, Inc. holds no other material
assets. WYCB Acquisition Corporation, a Delaware corporation and a wholly-owned
unrestricted subsidiary, holds title to all of the outstanding capital stock of
BHI, a District of Columbia corporation and an unrestricted subsidiary. The FCC
licenses for WYCB-AM are held by BHI which also holds the assets used in the
operation of that station. Bell Broadcasting, a Michigan corporation and a
wholly-owned restricted subsidiary, holds the assets used in the operation of
WCHB-AM, WDTJ-FM and WJZZ-AM. Bell Broadcasting holds title to all of the
outstanding capital stock of Radio One of Detroit, Inc., a Delaware corporation
and a restricted subsidiary. The FCC licenses for WCHB-AM, WDTJ-FM and WJZZ-AM
are held by Radio One of Detroit, Inc. Radio One of Detroit, Inc. holds no
other material assets.
Allur-Detroit, a Delaware corporation and a wholly-owned restricted
subsidiary, holds the assets used in the operation of station WDMK-FM. Allur-
Detroit holds title to all of the outstanding capital stock of Allur Licenses,
Inc., a Delaware corporation and a restricted subsidiary. The FCC licenses for
WDMK-FM are held by Allur Licenses, Inc. Allur Licenses, Inc. holds no other
material assets.
ROA, a Delaware corporation and a wholly-owned restricted subsidiary, holds
the assets used in the operation of station WHTA-FM and some assets used in the
operation of station WAMJ-FM. ROA holds title to all of the outstanding capital
stock of ROA Licenses, Inc., a Delaware corporation and a restricted
subsidiary. The FCC licenses for WHTA-FM are held by ROA Licenses, Inc. ROA
Licenses, Inc. holds no other material assets. Dogwood, a Delaware corporation
and a wholly-owned restricted subsidiary, owns some of the assets used in the
operation of station WAMJ-FM and all of the outstanding capital stock of
Dogwood Licenses, Inc., a Delaware corporation and a restricted subsidiary. The
FCC licenses for WAMJ-FM are held by Dogwood Licenses, Inc. Dogwood Licenses,
Inc., holds no other material assets.
Employees
As of December 31, 1999, we employed approximately 670 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 typically 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 1/31/00 Position
---- --------- --------
<C> <C> <S>
Chairperson of the Board of Directors and
Catherine L. Hughes..... 52 Secretary
Chief Executive Officer, President,
Alfred C. Liggins, III.. 35 Treasurer, and Director
Executive Vice President and Chief
Scott R. Royster........ 35 Financial Officer
Mary Catherine Sneed.... 48 Chief Operating Officer
Linda J. Eckard......... 42 General Counsel and Assistant Secretary
Steve Hegwood........... 38 Vice President of Programming
Leslie J. Hartmann...... 38 Corporate Controller
Terry L. Jones.......... 53 Director
Brian W. McNeill........ 43 Director
Larry D. Marcus......... 51 Director
</TABLE>
Ms. Hughes has been Chairperson of the board of directors and Secretary of
Radio One since 1980, and was Chief Executive Officer of Radio One from 1980 to
1997. She was one of the founders of Radio One's predecessor company in 1980.
Since 1980, Ms. Hughes has worked in various capacities for Radio One including
President, General Manager, General Sales Manager and talk show host. She began
her career in radio as General Sales Manager of WHUR-FM, the Howard University-
owned, urban-contemporary radio station. Ms. Hughes is also the mother of Mr.
Liggins, Radio One's Chief Executive Officer, President, Treasurer and
director.
Mr. Liggins has been Chief Executive Officer since 1997, and President,
Treasurer and a director of Radio One since 1989. Mr. Liggins joined Radio One
in 1985 as an Account Manager at WOL-AM. In 1987, he was promoted to General
Sales Manager and promoted again in 1988 to General Manager overseeing Radio
One's Washington, D.C. operations. After becoming President, Mr. Liggins
engineered Radio One's expansion into other markets. Mr. Liggins is a graduate
of the Wharton School of Business/Executive M.B.A. Program. Mr. Liggins is the
son of Ms. Hughes, Radio One's Chairperson and Secretary.
Mr. Royster has been Executive Vice President of Radio One since 1997 and
Chief Financial Officer of Radio One since 1996. Prior to joining Radio One, he
served as an independent consultant to Radio One. From 1995 to 1996, Mr.
Royster was a principal at TSG Capital Group, LLC, a private equity investment
firm located in Stamford, Connecticut, which has been an investor in Radio One
since 1987. Mr. Royster has also served as an associate and later a principal
at Capital Resource Partners from 1992 to 1995, a private capital investment
firm in Boston, Massachusetts. Mr. Royster is a graduate of Duke University and
Harvard Business School.
Ms. Sneed has been Radio One's Chief Operating Officer since January 1998
and General Manager of ROA since 1995. Prior to joining Radio One, she held
various positions with Summit Broadcasting including Executive Vice President
of the Radio Division, and Vice President of Operations from 1992 to 1995.
Ms. Sneed is a graduate of Auburn University.
Ms. Eckard has been General Counsel of Radio One since January 1998 and
Assistant Secretary of Radio One since April 1999. Prior to joining Radio One
as General Counsel, Ms. Eckard represented Radio One as outside counsel from
July 1995 until assuming her current position. Ms. Eckard was a partner in the
Washington, D.C. office of Davis Wright Tremaine LLP, from August 1997 to
December 1997. Her practice focused on transactions and FCC regulatory matters.
Prior to joining Davis Wright Tremaine LLP, Ms. Eckard
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was a shareholder of Roberts & Eckard, P.C., a firm that she co-founded in
April 1992. Ms. Eckard is a graduate of Gettysburg College, the National Law
Center at George Washington University and the University of Glasgow. Ms.
Eckard is admitted to the District of Columbia Bar and the Bar of the United
States Supreme Court.
Mr. Hegwood has been the Vice President of Programming for Radio One and
Program Director of WKYS-FM since 1995. From 1990 to 1995, Mr. Hegwood was
Program Director of WJLB-FM in Detroit, Michigan.
Ms. Hartmann has been Controller of Radio One since 1997. Prior to joining
Radio One, she served as Vice President and Market Controller for Bonneville
International Corporation in Phoenix, Arizona from 1991 to 1997. Ms. Hartmann
is a graduate of the University of California and has an M.B.A. degree from the
University of Phoenix.
Mr. Jones has been a director of Radio One since 1995. Since 1990, Mr. Jones
has been President of Syndicated Communications, Inc., a communications venture
capital investment company, and its wholly owned subsidiary, Syncom Capital
Corporation. He joined Syndicated Communications, Inc. in 1978 as a Vice
President. Mr. Jones serves in various capacities, including director,
president, general partner and vice president, for various other entities
affiliated with Syndicated Communications, Inc. He also serves on the board of
directors of the National Association of Investment Companies, Delta Capital
Corporation, Sun Delta Capital Access Center, Cyber Digital Inc. and the
Southern African Enterprise Development Fund. Mr. Jones earned his B.S. degree
from Trinity College, his M.S. from George Washington University and his M.B.A.
from Harvard Business School.
Mr. McNeill has been a director of Radio One since 1995. Since 1986, Mr.
McNeill has been a General Partner of Burr, Egan, Deleage & Co., a major
private equity firm which specializes in investments in the communications and
technology industries. He has served as a director in many private radio and
television broadcasting companies such as Tichenor Media Systems, OmniAmerica
Group, Panache Broadcasting and Shockley Communications. From 1979 to 1986, he
worked at the Bank of Boston where he started and managed that institution's
broadcast lending group. Mr. McNeill is a graduate of Holy Cross College and
earned an M.B.A. from the Amos Tuck School at Dartmouth College.
Mr. Marcus became a director of Radio One in April 1999. Mr. Marcus is
currently President of Peak Media L.L.C., which is the sole management member
of Peak Media Holdings L.L.C., the owner of a television station in Johnstown,
Pennsylvania, and the operator under a time brokerage agreement of a television
station in Altoona, Pennsylvania. In 1989, Mr. Marcus became the Chief
Financial Officer of River City Broadcasting, L.P., licensee of ten television
stations and thirty-four radio stations located in medium to large markets.
River City Broadcasting was sold to Sinclair Broadcasting in 1996. Mr. Marcus
is also a director of Citation Computer Systems, Inc., a publicly traded NASDAQ
company. Mr. Marcus is a graduate of City College of New York.
Committees of the Board of Directors
The board of directors has formed an Audit Committee and a Compensation
Committee whose members are Mr. Jones and Mr. McNeill, neither of whom is an
employee of Radio One.
Compensation of Directors and Executive Officers
Compensation of Directors
Our non-officer directors are reimbursed for all out-of-pocket expenses
related to meetings attended. In addition, Mr. Marcus receives an annual
stipend of $24,000. Our other non-officer directors receive no additional
compensation for their services as directors. Our officers who serve as
directors do not receive compensation for their services as directors other
than the compensation they receive as officers of Radio One.
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Compensation of Executive Officers
The following information relates to compensation of our Chief Executive
Officer and each of our most highly compensated executive officers (the "Named
Executives") for the fiscal years ended December 31, 1999, 1998 and 1997 (as
applicable):
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation Awards
---------------------------
Securities
Name and Principal Restricted Stock Underlying All Other
Positions Year Salary Bonus Awards Options Compensation(2)
- ------------------ ---- -------- -------- ---------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Catherine L Hughes...... 1999 $250,000 $150,000 $ -- -- $ 6,667
Chairperson of the 1998 225,000 100,000 -- -- 12,281
Board of Directors and 1997 193,269 50,000 -- -- 3,050
Secretary
Alfred C. Liggins, III.. 1999 300,000 250,000 -- -- 6,230
Chief Executive 1998 225,000 100,000 -- -- 3,567
Officer, President, 1997 193,269 50,000 -- -- 3,125
Treasurer and Director
Scott R. Royster........ 1999 200,000 175,000 225,000(1) 18,646 7,739
Executive Vice 1998 165,000 50,000 -- -- --
President and Chief 1997 148,077 25,000 -- -- --
Financial Officer
Mary Catherine Sneed.... 1999 220,000 50,000 -- -- --
Chief Operating Officer 1998 200,000 -- -- -- --
Linda J. Eckard......... 1999 175,000 90,000 -- 31,077 --
General Counsel 1998 150,000 25,000 -- -- --
</TABLE>
- --------
(1) Represents 51,194 shares of class C common stock with a value as of
December 31, 1999 (based on the last reported sale price for class A common
stock on the Nasdaq National Market on such date of $92) of $4,709,848.
Twenty-five percent of the stock vested on the date of grant; the remaining
stock will vest in equal increments every month beginning February 28, 1999
and ending December 31, 2001.
(2) Represents a vehicle allowance.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Number of % of Total Value at Assumed Annual
Securities Options Rates of Stock
Underlying Granted to Price for Option Term
Options Employees in Exercise -----------------------
Granted Fiscal Year Price Expiration Date 5% 10%
Name ---------- ------------ -------- --------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Scott R. Royster........ 18,646 9.0% $24.00 May 5, 2009 $ 281,433 $ 713,206
Linda J. Eckard......... 31,077 15.0 24.00 May 5, 2009 469,060 1,188,690
</TABLE>
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year- In-the-Money Options at
End Fiscal Year-End
------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
Name ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Scott R. Royster............ 4,662 13,984 $317,016 $ 950,912
Linda J. Eckard............. 7,289 23,788 495,652 1,617,584
</TABLE>
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Employment Agreements
Ms. Catherine L. Hughes Employment Agreement. We anticipate entering into a
three-year employment agreement with Ms. Hughes pursuant to which Ms. Hughes
will continue to serve as Radio One's Chairperson of the board of directors.
Ms. Hughes will receive an annual base salary of $250,000 effective January 1,
1999, subject to an annual increase of not less than 5%, and an annual cash
bonus at the discretion of the board of directors. We could incur severance
obligations under the expected terms of the employment agreement in the event
that Ms. Hughes's employment is terminated.
Mr. Alfred C. Liggins, III Employment Agreement. We anticipate entering into
a three-year employment agreement with Mr. Liggins pursuant to which Mr.
Liggins will continue to serve as Radio One's Chief Executive Officer and
President. Mr. Liggins will receive an annual base salary of $300,000 effective
January 1, 1999, subject to an annual increase of not less than 5%, and an
annual cash bonus at the discretion of the board of directors. Radio One could
incur severance obligations under the expected terms of the employment
agreement in the event that Mr. Liggins' employment is terminated.
Mr. Scott R. Royster Employment Agreement. We are party to a three-year
employment agreement with Mr. Royster pursuant to which Mr. Royster serves as
our Chief Financial Officer and Executive Vice President. Mr. Royster receives
an annual base salary of $300,000 effective January 1, 2000, subject, under the
terms of the employment agreement, 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. Royster's employment is terminated.
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 $200,000 effective
January 1, 2000, 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. Eckard's employment is terminated.
401(k) Plan
We adopted a defined contribution 401(k) savings and retirement plan
effective August 1, 1994. Employees are eligible to participate after
completing 90 days of service and attaining age 21. Participants may contribute
up to 15% of their gross compensation subject to certain limitations.
Stock Option Plan
On March 10, 1999, we adopted an option plan designed to provide incentives
relating to equity ownership to present and future executive, managerial and
other key employees, directors and consultants of Radio One and our
subsidiaries as may be selected in the sole discretion of the board of
directors. The option plan provides for the granting to participants of stock
options and restricted stock grants as the Compensation Committee of the board
of directors, or such other committee of the board of directors as the board of
directors may designate (the "Committee") deems to be consistent with the
purposes of the option plan. An aggregate of 1,408,100 shares of common stock
have been reserved for issuance under the option plan. The option plan affords
Radio One latitude in tailoring incentive compensation for the retention of key
personnel, to support corporate and business objectives, and to anticipate and
respond to a changing business environment and competitive compensation
practices. As of December 31, 1999, we have granted options to purchase 207,208
shares of class A common stock having a weighted average exercise price of
$24.00 per share.
The Committee has exclusive discretion to select the participants, to
determine the type, size and terms of each award, to modify the terms of
awards, to determine when awards will be granted and paid, and to make all
other determinations which it deems necessary or desirable in the
interpretation and administration of the
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option plan. The option plan terminates ten years from the date that the option
plan was approved and adopted by the stockholders of Radio One. Generally, a
participant's rights and interest under the option plan are not transferable
except by will or by the laws of descent and distribution.
Options, which include non-qualified stock options and incentive stock
options, are rights to purchase a specified number of shares of common stock at
a price fixed by the Committee. The option price may be less than, equal to or
greater than the fair market value of the underlying shares of common stock,
but in no event will the exercise price of an incentive stock option be less
than the fair market value on the date of grant. Options will expire not later
than ten years after the date on which they are granted. Options will become
exercisable at such times and in such installments as the Committee shall
determine. Upon termination of a participant's employment with Radio One,
options that are not exercisable will be forfeited immediately and Options that
are exercisable will be forfeited on the ninetieth day following such
termination unless exercised by the participant. Payment of the option price
must be made in full at the time of exercise in such form (including, but not
limited to, cash or common stock of Radio One) as the Committee may determine.
Grants are awards of restricted common stock at no cost to participants and
are generally subject to vesting provisions as determined by the Committee.
Upon termination of a participant's employment with Radio One, grants that are
not vested will be forfeited immediately.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, distribution of assets,
or any other change in the corporate structure or shares of Radio One, the
Committee will make any adjustments it deems appropriate in the number and kind
of shares reserved for issuance upon the exercise of options and vesting of
grants under the option plan and in the exercise price of outstanding options.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mableton Option
Mr. Liggins, the Chief Executive Officer and President of Radio One, has a
right, which he obtained in 1995, (the "Mableton Option") to acquire an
interest in a construction permit for an FM radio station licensed to Mableton,
Georgia (the "Mableton Station") which is in the Atlanta MSA. Mr. Liggins and
Syndicated Communications Venture Partners II, L.P. have reached an agreement
to provide initial funding to satisfy the requirements of the Mableton Option.
Syndicated Communications Venture Partners II, L.P. has provided this funding,
a portion of which will be reimbursed to it by Mr. Liggins. Terry L. Jones, a
general partner of the general partner of Syndicated Communications Venture
Partners II, L.P., is also a member of Radio One's board of directors. Mr.
Liggins has also proposed that Radio One, most likely through ROA, enter into
an LMA with respect to the Mableton Station, or otherwise participate in the
operations and financing of the Mableton Station. Any such arrangement will be
on terms at least as favorable to Radio One as any such transaction with an
unaffiliated third party.
Office Lease
We lease office space located at 100 St. Paul Street, Baltimore, Maryland
from Chalrep Limited Partnership, a limited partnership controlled by Ms.
Hughes and Mr. Liggins. The annual rent for the office space is approximately
$225,000.
Music One, Inc.
Ms. Hughes and Mr. Liggins own a music company called Music One, Inc. We
sometimes engage in promoting the recorded music product of Music One, Inc. We
estimate that the dollar value of such promotion is nominal.
Allur-Detroit
Allur-Detroit leases the transmitter site for WDMK-FM from American
Signalling Corporation for approximately $72,000 per year. American Signalling
Corporation is a wholly-owned subsidiary of Syndicated Communications Venture
Partners II, L.P. Terry L. Jones, a general partner of the general partner of
Syndicated Communications Venture Partners II, L.P., is also a member of Radio
One's board of directors. 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. At the time we entered
into this agreement, Worldspace, Inc. held 20% of the stock of XM Satellite
Radio, Inc. Syndicated Communications Venture Partners II, L.P. owns
approximately 1.25% of the stock of Worldspace, Inc. Terry L. Jones, a director
of Radio One, is also a director of Worldspace, Inc.
Radio One of Atlanta, Inc.
On March 30, 1999, we acquired all of the outstanding capital stock of ROA.
ROA's stockholders included Alta Subordinated Debt Partners III, L.P. ("Alta"),
Syndicated Communications Venture Partners II, L.P., and
Alfred C. Liggins, III. Mr. Brian W. McNeill, a general partner of Alta, is
also a member of Radio One's board of directors. Terry L. Jones, a general
partner of the general partner of Syndicated Communications Venture Partners
II, L.P., is also a member of Radio One's board of directors.
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Radio One issued approximately 3.3 million shares of common stock in
exchange for the outstanding capital stock of ROA. Alta, Syndicated
Communications Venture Partners II, L.P. and Mr. Liggins received a majority of
such shares in exchange for their shares in ROA. In connection with this
transaction, Mr. Liggins was paid a fee of approximately $1.2 million for
arranging the acquisition. Also, as part of this transaction, Radio One assumed
and retired debt and accrued interest of approximately $16.3 million of ROA and
Dogwood. Of this amount, approximately $12.0 million was paid to Allied Capital
Corporation, approximately $1.3 million was paid to Syndicated Communications
Venture Partners II, L.P., and approximately $2.0 million was paid to Alta.
The board of directors authorized the formation of an ad-hoc committee to
oversee the valuation of ROA. The ad-hoc committee members were Catherine L.
Hughes of Radio One, Sanford Anstey of BancBoston Investments, Inc. and Dean
Pickerell of Medallion Capital, Inc. (formerly Capital Dimensions Venture Fund,
Inc.). The committee was comprised of members of the board of directors of, and
investors in, Radio One that did not have an interest in ROA.
The ad-hoc committee recommended approval of the acquisition of ROA based
upon its determination that the acquisition was fair to Radio One and its
stockholders.
PNE Media Holdings, LLC
We have invested in PNE Media Holdings, LLC. Alta owns approximately [ %]
of the equity interest in PNE Media Holdings, LLC. Mr. Brian W. McNeill, a
general partner of Alta, is also a member of Radio One's board of directors.
NetNoir, Inc.
We recently invested a combination of cash and advertising time in NetNoir,
Inc. Syndicated Communications Venture Partners II, L.P. also has an investment
in NetNoir, Inc. Terry L. Jones, a general partner of the general partner of
Syndicated Communications Venture Partners II, L.P., is also a member of Radio
One's board of directors.
Executive Officers' Loans
We have extended an unsecured loan to Mr. Liggins in the amount of $380,000,
which bears interest at an annual rate of 5.56% and is evidenced by a demand
promissory note. As of December 31, 1999, the aggregate outstanding principal
and interest amount on this loan was $411,465. The purpose of the loan was to
repay a loan that Mr. Liggins obtained from NationsBank, Texas, N.A. in 1997 to
purchase an additional interest in Radio One.
ROA has extended an unsecured loan to Mary Catherine Sneed, Chief Operating
Officer of Radio One, in the original amount of $262,539, which bears interest
at an annual rate of 5.56% and is evidenced by two demand promissory notes. As
of December 31, 1999, the aggregate outstanding principal and interest amount
on this loan was $274,291. The purpose of this loan was to pay Ms. Sneed's tax
liability with respect to incentive stock grants of ROA stock received by Ms.
Sneed.
We have extended an unsecured loan to Mr. Royster in the amount of $87,564,
which bears interest at an annual rate of 5.56% and is evidenced by a demand
promissory note. As of December 31, 1999, the aggregate outstanding principal
and interest on this loan was $90,027. The purpose of this loan was to pay
Mr. Royster's tax liability with respect to the restricted stock grant that we
made to Mr. Royster.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of February 10, 2000 and after giving effect
to this offering, but without giving effect to the exercise of the
underwriters' over-allotment option, by: (1) each person (or group of
affiliated persons) known by us to be the beneficial owner of more than five
percent of any class of common stock; (2) each Named Executive; (3) each of our
directors; (4) the selling stockholders; (5) all of our directors and officers
as a group. The number of shares of each class of common stock excludes the
shares of any other class of common stock issuable upon conversion of that
class of common stock. Unless otherwise indicated in the footnotes below, each
stockholder possesses sole voting and investment power with respect to the
shares listed. Information with respect to the beneficial ownership of shares
has been provided by the stockholders.
<TABLE>
<CAPTION>
Percent Percent
of Total of Total
Economic Voting
Common Stock Interest Power
-------------------------------------------------------- -------- --------
Class A Class B Class C(/1/)
------------------ ------------------ ------------------
Number Percent Number Percent Number Percent
Name of Beneficial Owner of Shares of Class of Shares of Class of Shares of Class
- ------------------------ --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Catherine L.
Hughes(/2/)(/3/)....... 1,000 0.004% 851,536 29.7% 3,121,048 99.6% 14.1% 16.7%
c/o Radio One
5900 Princess Garden
Parkway
8th Floor
Lanham, Maryland 20706
Alfred C. Liggins,
III(/2/)(/4/).......... 38,036 0.2 2,010,307 70.1 3,121,048 99.6 18.3 39.5
c/o Radio One
5900 Princess Garden
Parkway
8th Floor
Lanham, Maryland 20706
Scott R. Royster(/5/)... 58,294 0.3 -- -- -- -- 0.2 0.1
c/o Radio One
5900 Princess Garden
Parkway
8th Floor
Lanham, Maryland 20706
Linda J. Eckard(/6/).... 11,683 0.1 -- -- -- -- 0.04 0.02
c/o Radio One
5900 Princess Garden
Parkway
8th Floor
Lanham, Maryland 20706
Mary Catherine Sneed.... 230,922 1.0 -- -- -- -- 0.8 0.5
c/o Radio One
5900 Princess Garden
Parkway,
8th Floor,
Lanham, Maryland 20706
Terry L. Jones(/7/)..... 1,077,318 4.8 -- -- -- -- 3.8 2.1
c/o Syncom Capital
Corporation
8401 Colesville Road
Suite 300
Silver Spring, MD 20910
Brian W. McNeill(/8/)... 492,258 2.2 -- -- -- -- 1.7 1.0
c/o Burr, Egan, Deleage
& Co.
One Post Office Square,
Boston, MA 02109
Larry D. Marcus......... 2,500 * -- -- -- -- * *
248 Gay Avenue
Clayton, MO 63105
Janus Capital
Corporation............ 1,647,315 7.4% -- -- -- -- 5.8 3.2
100 Fillmore Street
Denver, Colorado 80206-
4923
Putnam Investments,
Inc.................... 2,096,619 9.4 -- -- -- -- 7.4 4.1
One Post Office Square
Boston, MA 02109
All Directors and Named
Executives as a group
(8 persons)............ 1,912,010 8.6 2,861,843 99.8 3,121,048 99.6 27.9 59.9
</TABLE>
* Less than 1%
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- --------
(/1/) The shares of class C common stock are held by Hughes-Liggins Family
Partners, L.P., the limited partners of which are the Catherine L. Hughes
Revocable Trust, dated March 2, 1999 (of which Ms. Hughes is the trustee
and sole beneficiary), and the Alfred C. Liggins, III Revocable Trust,
dated March 2, 1999 (of which Mr. Liggins is the trustee and sole
beneficiary), and the general partner of which is Hughes-Liggins &
Company, L.L.C., the members of which are the Catherine L. Hughes
Revocable Trust, dated March 2, 1999, and the Alfred C. Liggins, III
Revocable trust, dated March 2, 1999.
(/2/) Ms. Hughes and Mr. Liggins may be deemed to share beneficial ownership of
shares of capital stock owned by each other by virtue of the fact that
Ms. Hughes is Mr. Liggins' mother. Each of Ms. Hughes and Mr. Liggins
disclaims such beneficial ownership. The shares of class A common stock
and 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.
(/3/) The shares of class B common stock are held by the Catherine L. Hughes
Revocable Trust, dated March 2, 1999.
(/4/) The shares of class B common stock are held by the Alfred C. Liggins, III
Revocable Trust, dated March 2, 1999.
(/5/) Includes 6,410 shares of class A common stock obtainable upon the
exercise of stock options exercisable within 60 days of February 10,
2000.
(/6/) Includes 10,683 shares of class A common stock obtainable upon the
exercise of stock options exercisable within 60 days of February 10,
2000.
(/7/) Includes 49,557 shares of class A common stock held by Mr. Jones, 300
shares of class A common stock held by each of Mr. Jones' three
daughters, and 1,026,861 shares of class A common stock held by Syncom
Capital Corporation. Mr. Jones is the President of Syncom Capital
Corporation and may be deemed to share beneficial ownership of shares of
class A common stock held by Syncom Capital Corporation by virtue of his
affiliation with Syncom Capital Corporation. Mr. Jones disclaims
beneficial ownership in such shares.
(/8/) Includes 14,217 shares of class A common stock held by Mr. McNeill and
478,041 shares of class A common stock held by Alta Subordinated Debt
Partners III, L.P. Mr. McNeill is a general partner of Alta Subordinated
Debt Partners III, L.P. and Mr. McNeill may be deemed to share beneficial
ownership of shares of class A common stock held by Alta Subordinated
Debt Partners III, L.P. by virtue of his affiliation with Alta
Subordinated Debt Partners III, L.P. Mr. McNeill disclaims any beneficial
ownership of such shares.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock gives effect to the
consummation of the transactions contemplated under "Capitalization," which
will occur prior to or simultaneously with the proposed sale of 5,000,000
shares of class A common stock by Radio One in this offering. Our capital stock
consists of (1) 90,000,000 authorized shares of common stock, $0.001 par value
per share, which consists of (a) 30,000,000 shares of class A common stock, of
which 22,272,622 shares are outstanding (22,772,622 shares assuming the
underwriters overallotment option is exercised), (b) 30,000,000 shares of class
B common stock, of which 2,867,463 shares are outstanding, and (c) 30,000,000
shares of class C common stock, of which 3,132,458 shares are outstanding, and
(2) 290,000 authorized shares of preferred stock, par value $0.01 per share,
which consists of 140,000 shares of series A preferred stock, none of which is
outstanding and 150,000 shares of series B preferred stock, none of which is
outstanding. The following is 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.
Class B Common Stock
The holders of class B common stock are entitled to the same rights,
privileges, benefits and notices as the holders of class A common stock, except
that the holders of class B common stock will be entitled to ten votes per
share. All shares of class B common stock may be converted at any time into a
like number of shares of class A common stock at the option of the holder of
such shares. Catherine L. Hughes and Alfred C. Liggins, III may transfer shares
of class B common stock held by them only to "Class B Permitted Transferees,"
and Class B Permitted Transferees may transfer shares of class B common stock
only to other Class B Permitted Transferees. If any shares of class B common
stock are transferred to any person or entity other than a Class B Permitted
Transferee, such shares will automatically be converted into a like number of
shares of class A common stock. "Class B Permitted Transferees" include Ms.
Hughes, Mr. Liggins, their respective estates, spouses, former spouses, parents
or grandparents or lineal descendants thereof, and certain trusts and other
entities for the benefit of, or beneficially owned by, such persons. Ms. Hughes
and Mr. Liggins have agreed to vote their shares of common stock to elect each
other and other mutually agreeable nominees to the board of directors. See
"Risk Factors--Controlling Stockholders."
Class C Common Stock
The holders of class C common stock are entitled to the same rights,
privileges, benefits and notices as the holders of class A common stock and
class B common stock, except that the holders of class C common stock will be
entitled to no votes per share. All shares of class C common stock may be
converted at any time into a like number of shares of class A common stock at
the option of the holder of such shares, except that Class B Permitted
Transferees may convert shares of class C common stock into shares of class A
common stock, or otherwise acquire shares of class A common stock, only in
connection with:
. a merger or consolidation of Radio One with or into, or other
acquisition of, another entity pursuant to which the Class B Permitted
Transferees are to receive shares of class A common stock in exchange
for their interest in such entity;
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<PAGE>
. the transfer of such shares of class A common stock to a person or
entity other than a Class B Permitted Transferee; or
. a registered public offering of such shares of class A common stock.
Foreign Ownership
Radio One's certificate of incorporation restricts the ownership, voting and
transfer of our capital stock, including the class A common stock, in
accordance with the Communications Act and the rules of the FCC, which prohibit
the issuance of more than 25% of our outstanding capital stock (or more than
25% of the voting rights such stock represents) to or for the account of aliens
(as defined by the FCC) or corporations otherwise subject to domination or
control by aliens. Our certificate of incorporation prohibits any transfer of
our capital stock that would cause a violation of this prohibition. In
addition, the certificate of incorporation authorizes the board of directors to
take action to enforce these prohibitions, including restricting the transfer
of shares of capital stock to aliens and placing a legend restricting foreign
ownership on the certificates representing the class A common stock.
Registration Rights
The holders of substantially all of the shares of class A common stock
outstanding prior to our initial public offering, other than Mr. Liggins, are
parties to registration rights agreements with us. These agreements, which
relate to approximately 3.3 million shares of class A common stock, provide
incidental or "piggyback" registration rights that allow such holders, under
certain circumstances, to include their shares of class A common stock in
registration statements initiated by Radio One or other stockholders. Under
these agreements, the holders of class A common stock may require us to
register their shares under the Securities Act for offer and sale to the public
(including by way of an underwritten public offering) on up to four occasions.
These agreements also permit demand registrations on Form S-3 registration
statements provided that we are eligible to register our capital stock on Form
S-3. All such registration rights are subject to conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares to be included in a registration. The holders of these registration
rights have waived their "piggyback" registration rights with respect to the
offering.
Limitations on Directors' and Officers' Liability
Radio One's certificate of incorporation limits the liability of directors
to the maximum extent permitted by Delaware law, which specifies that a
director of a company adopting such a provision will not be personally liable
for monetary damages for breach of fiduciary duty as a director, except for the
liability (1) for any breach of the director's duty of loyalty to Radio One or
its stockholders; (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (3) for unlawful payments
of dividends or unlawful stock repurchases or redemptions as provided in
Section 174 of the Delaware General Corporation Law; or (4) for any transaction
from which the director derived an improper personal benefit.
Radio One's certificate of incorporation provides for mandatory
indemnification of directors and officers and authorizes indemnification for
employees and agents in such manner, under such circumstances and to the
fullest extent permitted by the Delaware General Corporation Law, which
generally authorizes indemnification as to all expenses incurred or imposed as
a result of actions, suits or proceedings if the indemnified parties act in
good faith and in a manner they reasonably believe to be in or not opposed to
the best interests of Radio One. We believe these provisions are necessary or
useful to attract and retain qualified persons as directors. Radio One
maintains directors and officers insurance for the benefit of its directors and
officers.
There is no pending litigation or proceeding involving a director or officer
as to which indemnification is being sought.
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<PAGE>
Transfer Agent and Registrar
American Stock Transfer & Trust Company is our transfer agent and registrar.
DESCRIPTION OF INDEBTEDNESS
Bank Credit Facility
On February 26, 1999, we entered into an amended and restated credit
agreement providing for a bank credit facility under which we may borrow up to
$100 million on a revolving basis from a group of banking institutions. Draw
downs under the bank credit facility are currently available, subject to
compliance with provisions of the credit agreement, including but not limited
to the financial covenants. Specifically, borrowings under the bank credit
facility may be entirely of Eurodollar Loans, Alternate Base Rate ("ABR") Loans
or a combination thereof. The bank credit facility will be fully available
until a maturity date of December 31, 2003. No commitment reductions under the
bank credit facility will occur until the final maturity date, provided that
Radio One does not acquire or issue additional indebtedness or Disqualified
Stock (as such term is defined in the credit agreement).
The bank credit facility terminates on December 31, 2003, at which time any
outstanding principal together with all accrued and unpaid interest thereon
would become due and payable. All amounts under the bank credit facility are
guaranteed by each of Radio One's direct and indirect subsidiaries other than
WYCB Acquisition Corporation and Broadcast Holdings, Inc.
The bank credit facility is secured by a perfected first priority secured
interest in: (1) substantially all of the tangible and intangible assets of
Radio One and our direct and indirect subsidiaries including, without
limitation, any and all FCC licenses to the maximum extent permitted by law and
(2) all of the common stock of our direct and indirect restricted subsidiaries,
including all warrants or options and other similar securities to purchase such
securities. Radio One also granted a security interest in all money (including
interest), instruments and securities at any time held or acquired in
connection with a cash collateral account established pursuant to the credit
agreement, together with all proceeds thereof.
The interest rates on the borrowings under the bank credit facility are
based on the ratio of total debt to EBITDA, with a maximum margin above ABR of
1.625% with respect to ABR Loans, and a maximum margin above Eurodollar rate
2.625% with respect to Eurodollar Loans. Interest on Eurodollar Loans is based
on a 360-day period for actual days elapsed, and interest on ABR Loans is based
on a 365-day period for actual days elapsed. In addition, Radio One will pay a
commitment fee equal to an amount based on the average daily amount of the
available commitment computed at a rate per year tied to a leverage ratio in
effect for the fiscal quarter preceding the date of payment of such fee. The
commitment fee is fully earned and non-refundable and is payable quarterly in
arrears on the last business day of each March, June, September and December
and on the maturity date.
The credit agreement contains customary and appropriate affirmative and
negative covenants including, but not limited to, financing covenants and other
covenants including limitations on other indebtedness, liens, investments,
guarantees, restricted payments (dividends, redemptions and payments on
subordinated debt), prepayment or repurchase of other indebtedness, mergers and
acquisitions, sales of assets, capital expenditures, losses, transactions with
affiliates and other provisions customary and appropriate for financing of this
type, including mutually agreed upon exceptions and baskets. The financial
covenants include:
. a maximum ratio of total debt to EBITDA of 7.0x;
. a maximum ratio of senior debt to EBITDA of 3.75x;
. a minimum interest coverage ratio; and
. a minimum fixed charge coverage ratio.
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The credit agreement contains the following customary events of default:
. failure to make payments when due;
. defaults under any other agreements or instruments of indebtedness;
. noncompliance with covenants;
. breaches of representations and warranties;
. voluntary or involuntary bankruptcy or liquidation proceedings;
. entrance of judgments;
. impairment of security interests in collateral; and
. changes of control.
12% Notes Due 2004
On May 15, 1997, we entered into an approximate $85.0 million aggregate
principal amount offering (the "12% notes offering") of our 12% Senior
Subordinated Notes (the "12% notes due 2004"). The 12% notes offering has an
aggregate initial accreted value of approximately $75.0 million, as of Maturity
Date May 15, 2004.
The 12% notes due 2004 were issued pursuant to an indenture, dated as of May
15, 1997 among Radio One, Radio One Licenses, Inc. and United States Trust
Company of New York (the "12% notes indenture"). The 12% notes due 2004 are
generally unsecured obligations of Radio One and are subordinated in rights of
payment to all Senior Indebtedness (as defined in the 12% notes indenture). All
of our Restricted Subsidiaries are Subsidiary Guarantors of the 12% notes due
2004.
The 12% notes due 2004 were issued at a substantial discount from their
principal amount. The issue price to investors per note was $877.42, which
represents a yield to maturity on the 12% notes due 2004 of 12.0% calculated
from May 19, 1997 (computed on a semi-annual bond equivalent basis).
Cash interest on the 12% notes due 2004 accrues at a rate of 7.0% per annum
on the principal amount of the 12% notes due 2004 through and including May 15,
2000, and at a rate of 12.0% per annum on the principal amount of the 12% notes
due 2004 after such date. Cash interest on the 12% notes due 2004 is currently
payable semi-annually on May 15 and November 15 of each year.
The 12% notes due 2004 are redeemable at any time and from time to time at
the option of Radio One, in whole or in part, on or after May 15, 2001 at the
redemption prices set forth in the 12% notes due 2004, plus accrued and unpaid
interest to the date of redemption. In addition, on or prior to May 15, 2000,
Radio One may redeem, at our option, up to 25.0% of the aggregate original
principal amount of the 12% notes due 2004 with the net proceeds of one or more
Public Equity Offerings at 112% of the Accreted Value thereof, together with
accrued and unpaid interest, if any, to the date of redemption, as long as at
least approximately $64.1 million of the aggregate principal amount of the 12%
notes due 2004 remains outstanding after each such redemption. Upon a Change of
Control (as defined in the 12% notes indenture), we must commence an offer to
repurchase the 12% notes due 2004 at 101% of the Accreted Value thereof, plus
accrued and unpaid interest, if any, to the date of repurchase.
The 12% notes indenture contains certain restrictive covenants with respect
to Radio One and our Restricted Subsidiaries, including limitations on: (a) the
sale of assets, including the equity interests of our Restricted Subsidiaries,
(b) asset swaps, (c) the payment of Restricted Payments (as defined in the 12%
notes indenture), (d) the incurrence of indebtedness and issuance of preferred
stock by us or our Restricted Subsidiaries, (e) the issuance of Equity
Interests (as defined in the 12% notes indenture) by a Restricted Subsidiary,
(f) the payment of dividends on our capital stock and the purchase, redemption
or retirement of our
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capital stock or subordinated indebtedness, (g) certain transactions with
affiliates, (h) the incurrence of senior subordinated debt and (i) certain
consolidations and mergers. The 12% notes indenture also prohibits certain
restrictions on distributions from Restricted Subsidiaries. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications.
The 12% notes indenture includes various events of default customary for
such type of agreements, such as failure to pay principal and interest when due
on the 12% notes due 2004, cross defaults on other indebtedness and certain
events of bankruptcy, insolvency and reorganization.
SHARES ELIGIBLE FOR FUTURE SALE
The market price of our class A common stock could decline as a result of
future sales of substantial amounts of class A common stock, or the perception
that such sales could occur. Furthermore, certain of our existing stockholders
have the right to require us to register their shares, which may facilitate
their sale of shares in the public market.
Upon completion of this offering, we will have 22,272,622 shares of class A
common stock, 2,867,463 shares of class B common stock and 3,132,458 shares of
class C common stock issued and outstanding, assuming no exercise of the
underwriters' over-allotment option. Of these shares, the 5,000,000 shares of
class A common stock being sold in this offering (plus any shares issued upon
exercise of the underwriters' over-allotment option), the 7,150,000 shares of
class A common stock sold in our initial public offering in May 1999, the
5,870,000 shares of class A common stock sold in our November 1999 public
offering and approximately 2,293,000 shares of unrestricted class A common
stock will be freely transferable without restriction in the public market,
except to the extent these shares have been acquired by our affiliates, whose
sale of such shares is restricted by Rule 144 under the Securities Act. The
remaining shares of our common stock are "restricted" securities under Rule 144
which, among other things, limits the number of such shares available for sale
in the public market. However, many of the restrictions of Rule 144 do not
apply to persons who are not our affiliates.
The holders of substantially all of the shares of class A common stock
outstanding prior to our initial public offering, other than Mr. Liggins, are
parties to registration rights agreements with us. These agreements, which
relate to approximately 3.3 million shares of class A common stock, provide
incidental or "piggyback" registration rights that allow such holders, under
certain circumstances, to include their shares of class A common stock in
registration statements initiated by Radio One or other stockholders. Such
registration rights agreements also permit demand registrations. The number of
shares sold in the public market could increase if such rights are exercised.
See "Description of Capital Stock--Registration Rights."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares
of common stock that have been outstanding and not held by any "affiliate" of
Radio One for a period of one year is entitled to sell within any three-month
period a number of shares that does not exceed the greater of one percent of
the then outstanding shares of class A common stock (approximately 223,000
shares immediately after completion of this offering assuming no exercise of
the underwriters' over-allotment option) or the average weekly reported trading
volume of the class A common stock during the four calendar weeks preceding the
date on which notice of such sale is given, provided certain manner of sale and
notice requirements and requirements as to the availability of current public
information are satisfied (such information requirements have been satisfied by
Radio One's filing of reports under the Securities Exchange Act of 1934, as
amended since August 1997). Affiliates of Radio One must comply with the
restrictions and requirements of Rule 144, other than the two-year holding
period requirement, in order to sell shares of common stock that are not
"restricted securities" (such as shares acquired by affiliates in this
offering). Under Rule 144(k), a person who is not deemed an "affiliate" of
Radio One at any time during the three months preceding a sale by him, and who
has beneficially owned shares of common stock that were not acquired from Radio
One or an "affiliate" of Radio One within the previous two years, would be
entitled to sell such shares without regard to volume limitations, manner of
sale provisions,
73
<PAGE>
notification requirements or the availability of current public information
concerning Radio One. As defined in Rule 144, an "affiliate" of an issuer is a
person that directly or indirectly through the use of one or more
intermediaries controls, or is controlled by, or is under common control with,
such issuer.
Radio One, Catherine L. Hughes, Alfred C. Liggins, III, and certain other
holders of common stock of Radio One have entered into contractual "lock-up"
agreements providing that they will not offer, sell, contract to sell or grant
any option to purchase or otherwise dispose of the shares of common stock owned
by them or that could be purchased by them through the exercise of options to
purchase common stock of Radio One for a period of 60 days after the date of
this prospectus without the prior written consent of Credit Suisse First Boston
Corporation on behalf of the underwriters.
Radio One has on file with the SEC an effective Registration Statement under
the Securities Act covering shares of class A common stock reserved for
issuance under Radio One's option plan. Such Registration Statement covers
approximately 1.4 million shares. Shares registered under such Registration
Statement will be, subject to Rule 144 volume limitations applicable to
affiliates, available for sale in the open market, unless such shares are
subject to vesting restrictions or the lock-up agreements described above.
74
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated, , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Deutsche Bank
Securities Inc. and are acting as representatives, the following
respective number of shares of class A common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Deutsche Bank Securities Inc.......................................
---------
Total............................................................ 5,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of class A common stock in the offering if any are
purchased other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an
underwriter defaults, the purchase commitments of non-defaulting underwriters
may be increased or the offering of class A common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase up to
500,000 additional shares from us at the public offering price less the
underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of class A common stock.
The underwriters propose to offer the shares of class A common stock
initially at the public offering price on the cover page of this prospectus,
and to selling group members at that price less a concession of $ per share.
The underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts
and
Commissions paid by us
........................ $ $ $ $
Expenses payable by us.. $ $ $ $
</TABLE>
We are currently in compliance in all material respects with the terms of
our credit agreement with lenders including Credit Suisse First Boston, New
York branch, an affiliate of Credit Suisse First Boston Corporation. The
decision of Credit Suisse First Boston Corporation to distribute the class A
common stock was made in
75
<PAGE>
accordance with its customary procedures. Credit Suisse First Boston
Corporation will not receive any benefit from this offering other than its
respective portion of the underwriting discounts as set forth on the cover page
of this prospectus.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our class A common stock or securities convertible into or
exchangeable or exercisable for any shares of our class A common stock, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 60 days after the date of this prospectus,
except issuances pursuant to the exercise of employee stock options outstanding
on the date hereof.
Our officers and directors and certain other holders of our class A common
stock have agreed that they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, any shares of our class A common
stock or securities convertible into or exchangeable or exercisable for any
shares of our class A common stock, enter into a transaction which would have
the same effect, or enter into any swap, hedge or other arrangement that
transfers, in whole or in part, any of the economic consequences of ownership
of our class A common stock, whether any such aforementioned transaction is to
be settled by delivery of our class A common stock or such other securities, in
cash or otherwise, or publicly disclose the intention to make any such offer,
sale, pledge or disposition, or to enter into any such transaction, swap, hedge
or other arrangement, without, in each case, the prior written consent of
Credit Suisse First Boston Corporation for a period of 60 days after the date
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 that respect.
Credit Suisse First Boston Corporation has provided customary financial
advisory services to Radio One, for which it has received customary
compensation and indemnification, and in the future may provide such services.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and passive market making in
accordance with Regulation M under the Securities Exchange Act of 1934, as
amended.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the class A common
stock in the open market after the distribution has been completed in
order to cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the class A common stock originally sold by
such syndicate member are purchased in a syndicate covering transaction
to cover syndicate short positions.
. In passive market making, market makers in the class A common stock who
are underwriters or prospective underwriters may, subject to
limitations, make bids for or purchases of the class A common stock
until the time, if any, at which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the class A common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
76
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the class A common stock in Canada is being made only on
a private placement basis exempt from the requirement that we and the selling
stockholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of the class A common stock are
effected. Accordingly, any resale of the class A common stock in Canada must be
made in accordance with applicable securities laws which will vary depending on
the relevant jurisdiction, and which may require resales to be made in
accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the class A
common stock.
Representations of Purchasers
Each purchaser of the class A common stock in Canada who receives a purchase
confirmation will be deemed to represent to us, the selling stockholders and
the dealer from whom such purchase confirmation is received that (1) such
purchaser is entitled under applicable provincial securities laws to purchase
such class A common stock without the benefit of a prospectus qualified under
such securities laws, (2) where required by law, that such purchaser is
purchasing as principal and not as agent, and (3) such purchaser has reviewed
the text above under "Resale Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein and the selling stockholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of the class A common stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any class A common stock acquired by such purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from Radio
One. Only one report must be filed in respect of the class A common stock
acquired on the same date and under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of the class A common stock should consult their own
legal and tax advisors with respect to the tax consequences of an investment in
the class A common stock in their particular circumstances and with respect to
the eligibility of the class A common stock for investment by the purchaser
under relevant Canadian legislation.
77
<PAGE>
LEGAL MATTERS
Kirkland & Ellis will pass upon the legality of the common stock offered by
this prospectus and other matters specified in the underwriting agreement for
Radio One. Davis Wright Tremaine LLP will pass upon legal matters regarding FCC
issues for Radio One. Skadden, Arps, Slate, Meagher & Flom LLP will pass upon
matters specified in the underwriting agreement for the underwriters.
EXPERTS
The audited consolidated financial statements of Radio One, Inc. and
subsidiaries as of December 31, 1997 and 1998, and for each of the years in the
three-year period ended December 31, 1998, included in the prospectus and
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
The audited consolidated financial statements of Radio One of Atlanta, Inc.
and subsidiary as of December 31, 1997 and 1998, and for each of the years in
the three-year period ended December 31, 1998, included in the prospectus and
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
The audited financial statements of Bell Broadcasting Company as of December
31, 1997 and for each of the years in the two-year period ended December 31,
1997, included in the prospectus and registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The audited financial statements of Allur-Detroit, Inc., as of December 31,
1997, and for the year then ended, included in the prospectus and registration
statement have been audited by Mitchell & Titus, LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
The audited financial statements of the Richmond Operations of Sinclair
Telecable, Inc. as of December 31, 1997 and 1998, and for each of the years in
the two-year period ended December 31, 1998, included in the prospectus and
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
The audited financial statements of stations WKJS-FM and WARV-FM of FM 100,
Inc. as of December 31, 1998, and for the year then ended, included in the
prospectus and registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto and are included herein in reliance upon the authority of said firm as
experts in giving said report.
The audited financial statements of Greater Media Company as of December
31,1998, and for the year then ended, included in the prospectus and
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended, and, in accordance therewith, file reports, proxy
statements and other information with the SEC. Such reports, proxy statements
and other information may be inspected and copied at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the SEC's regional offices located at the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661 and Seven World
Trade Center, 13th Floor, New York, NY 10048. Copies of such material can be
obtained from the Public Reference
78
<PAGE>
Section of the SEC upon payment of certain fees prescribed by the SEC. The
SEC's Web site contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of that site is http://www.sec.gov.
We have filed a registration statement on Form S-1 with the SEC under the
Securities Act of 1933, as amended in respect of the class A common stock
offered pursuant to this prospectus. This prospectus, which is a part of the
registration statement, omits certain information contained in the registration
statement as permitted by the SEC's rules and regulations. For further
information with respect to Radio One and the class A common stock offered
hereby, please reference the registration statement, including its exhibits.
Statements in this prospectus concerning the contents of any contract or other
document filed with the SEC as an exhibit to the registration statement are
summaries of the material provisions of those documents and we recommend that
you also refer to those exhibits in evaluating Radio One. Copies of the
registration statement, including all related exhibits and schedules, may be
inspected without charge at the public reference facilities maintained by the
SEC, or obtained at prescribed rates from the Public Reference Section of the
SEC at the address set forth above.
79
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Radio One, Inc. and Subsidiaries
Report of Independent Public Accountants................................. F-3
Consolidated Balance Sheets as of December 31, 1997 and 1998 and
September 30, 1999 (unaudited).......................................... F-4
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998 and the nine months ended September 30, 1998 and
1999 (unaudited)........................................................ F-5
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
the years ended December 31, 1996, 1997 and 1998 and the nine months
ended September 30, 1999 (unaudited).................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and the nine months ended September 30, 1998 and
1999 (unaudited)........................................................ F-7
Notes to Consolidated Financial Statements............................... F-8
Radio One of Atlanta, Inc.
Report of Independent Public Accountants................................. F-18
Consolidated Balance Sheets as of December 31, 1997 and 1998 and March
31, 1999 (unaudited).................................................... F-19
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998 and the three months ended March 31, 1998 and 1999
(unaudited)............................................................. F-20
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
the years ended December 31, 1996, 1997 and 1998 and the three months
ended March 31, 1999 (unaudited)........................................ F-21
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and the three months ended March 31, 1998 and 1999
(unaudited)............................................................. F-22
Notes to Consolidated Financial Statements............................... F-23
Bell Broadcasting Company
Report of Independent Public Accountants................................. F-30
Balance Sheets as of December 31, 1997 and June 30, 1998 (unaudited)..... F-31
Statements of Operations for the years ended December 31, 1996 and 1997
and the six months ended June 30, 1997 and 1998 (unaudited)............. F-32
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-33
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-34
Notes to Financial Statements............................................ F-35
Allur-Detroit, Inc.
Report of Independent Public Accountants................................. F-40
Balance Sheets as of December 31, 1997 and September 30, 1998
(unaudited)............................................................. F-41
Statements of Operations for the year ended December 31, 1997 and the
nine months ended September 30, 1997 and 1998 (unaudited)............... F-42
Statements of Changes in Stockholders' Equity for the year ended December
31, 1997 and the nine months ended September 30, 1998 (unaudited)....... F-43
Statements of Cash Flows for the year ended December 31, 1997 and the
nine months ended September 30, 1997 and 1998 (unaudited)............... F-44
Notes to Financial Statements............................................ F-45
Richmond Operations of Sinclair Telecable, Inc.
Report of Independent Public Accountants................................. F-50
Combined Balance Sheets as of December 31, 1997 and 1998 and March 31,
1999 (unaudited)........................................................ F-51
Combined Statements of Operations and Changes in Station Equity for the
years ended December 31, 1997 and 1998 and the three months ended March
31, 1998 and 1999 (unaudited)........................................... F-52
Combined Statements of Cash Flows for the years ended December 31, 1997
and 1998 and the three months ended March 31, 1998 and 1999
(unaudited)............................................................. F-53
Notes to Combined Financial Statements................................... F-54
Stations WKJS-FM and WSOJ-FM of FM 100, Inc.
Report of Independent Public Accountants................................. F-58
Combined Balance Sheet as of December 31, 1998 and June 30, 1999
(unaudited)............................................................. F-59
Combined Statement of Operations and Changes in Station Equity (Deficit)
for the year ended December 31, 1998 and the six months ended June 30,
1998 and 1999 (unaudited)............................................... F-60
Combined Statement of Cash Flows for the year ended December 31, 1998 and
the six months ended June 30, 1998 and 1999 (unaudited)................. F-61
Notes to Financial Statements............................................ F-62
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Greater Media Radio Company (WPLY-FM)
Report of Independent Public Accountants.................................. F-65
Balance Sheets as of December 31, 1998 and September 30, 1999
(unaudited).............................................................. F-66
Statements of Operations for the year ended December 31, 1998 and the nine
months ended September 30, 1998 and 1999 (unaudited)..................... F-67
Statements of Changes in Stockholders' Equity for the year ended December
31, 1998 and the nine months ended September 30, 1999 (unaudited)........ F-68
Statements of Cash Flows for the year ended December 31, 1998 and the nine
months ended September 30, 1998 and 1999 (unaudited)..................... F-69
Notes to Financial Statements............................................. F-70
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Radio One, Inc.:
We have audited the accompanying consolidated balance sheets of Radio One,
Inc. (a Delaware corporation) and subsidiaries (the Company) as of December 31,
1997 and 1998, and the related consolidated statements of operations, changes
in stockholders' equity (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Radio One,
Inc. and subsidiaries as of December 31, 1997 and 1998 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Baltimore, Maryland,
May 6, 1999
F-3
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and 1998 and September 30, 1999
<TABLE>
<CAPTION>
September
30,
1997 1998 1999
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 8,500,000 $ 4,455,000 $ 4,428,000
Trade accounts receivable, net of
allowance for doubtful accounts of
$904,000, $1,243,000 and
$2,320,000, respectively.......... 8,722,000 12,026,000 19,689,000
Prepaid expenses and other......... 315,000 334,000 613,000
Deferred taxes..................... -- 826,000 991,000
------------ ------------ ------------
Total current assets............. 17,537,000 17,641,000 25,721,000
PROPERTY AND EQUIPMENT, net.......... 4,432,000 6,717,000 15,536,000
INTANGIBLE ASSETS, net............... 54,942,000 127,639,000 212,363,000
OTHER ASSETS......................... 2,314,000 1,859,000 4,206,000
------------ ------------ ------------
Total assets..................... $ 79,225,000 $153,856,000 $257,826,000
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable................... $ 258,000 $ 1,190,000 $ 2,148,000
Accrued expenses................... 3,029,000 3,708,000 7,470,000
Income taxes payable............... -- 143,000 826,000
------------ ------------ ------------
Total current liabilities........ 3,287,000 5,041,000 10,444,000
LONG-TERM DEBT AND DEFERRED INTEREST,
net of current portion.............. 74,954,000 131,739,000 107,585,000
DEFERRED TAX LIABILITY............... -- 15,251,000 14,943,000
------------ ------------ ------------
Total liabilities................ 78,241,000 152,031,000 132,972,000
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
SENIOR CUMULATIVE REDEEMABLE
PREFERRED STOCK:
Series A, $.01 par value, 140,000
shares authorized,
84,843 shares issued and
outstanding....................... 9,310,000 10,816,000 --
Series B, $.01 par value, 150,000
shares authorized,
124,467 shares issued and
outstanding....................... 13,658,000 15,868,000 --
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock--class A, $.001 par
value, 30,000,000 shares
authorized, 0, 0 and 12,034,000
shares issued and outstanding,
respectively...................... -- -- 12,000
Common stock--class B, $.001 par
value, 30,000,000 shares
authorized, 1,572,000, 1,572,000
and 2,873,000 shares issued and
outstanding, respectively......... 2,000 2,000 3,000
Common stock--class C, $.001 par
value, 30,000,000 shares
authorized, 3,146,000, 3,146,000
and 3,195,000 shares issued and
outstanding, respectively......... 3,000 3,000 3,000
Additional paid-in capital......... -- -- 152,933,000
Accumulated deficit................ (21,989,000) (24,864,000) (28,097,000)
------------ ------------ ------------
Total stockholders' equity
(deficit)....................... (21,984,000) (24,859,000) 124,854,000
------------ ------------ ------------
Total liabilities and
stockholders' equity (deficit).. $ 79,225,000 $153,856,000 $257,826,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1997 and 1998
and for the Nine Months Ended September 30, 1998 and 1999
<TABLE>
<CAPTION>
December 31, September 30,
---------------------------------------- ------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE:
Broadcast revenue,
including barter
revenue of
$1,122,000,
$1,010,000 and
$644,000,
respectively......... $ 27,027,000 $ 36,955,000 $ 52,696,000 $38,057,000 $65,062,000
Less: Agency
commissions.......... 3,325,000 4,588,000 6,587,000 4,753,000 8,087,000
------------ ------------ ------------ ----------- -----------
Net broadcast
revenue............ 23,702,000 32,367,000 46,109,000 33,304,000 56,975,000
------------ ------------ ------------ ----------- -----------
OPERATING EXPENSES:
Program and
technical............ 4,157,000 5,934,000 8,015,000 5,827,000 9,741,000
Selling, general and
administrative....... 9,770,000 12,914,000 16,486,000 11,723,000 21,470,000
Corporate expenses.... 1,793,000 2,155,000 2,800,000 2,051,000 3,076,000
Stock based
compensation......... -- -- -- -- 225,000
Depreciation and
amortization......... 4,262,000 5,828,000 8,445,000 6,042,000 12,209,000
------------ ------------ ------------ ----------- -----------
Total operating
expenses........... 19,982,000 26,831,000 35,746,000 25,643,000 46,721,000
------------ ------------ ------------ ----------- -----------
Operating income.... 3,720,000 5,536,000 10,363,000 7,661,000 10,254,000
INTEREST EXPENSE,
including amortization
of deferred financing
costs.................. 7,252,000 8,910,000 11,455,000 7,996,000 11,479,000
OTHER (EXPENSE) INCOME,
net.................... (77,000) 415,000 358,000 267,000 199,000
------------ ------------ ------------ ----------- -----------
Loss before benefit
from income
taxes and
extraordinary item... (3,609,000) (2,959,000) (734,000) (68,000) (1,026,000)
PROVISION (BENEFIT) FOR
INCOME TAXES........... -- -- (1,575,000) -- 731,000
------------ ------------ ------------ ----------- -----------
(Loss) income before
extraordinary item... (3,609,000) (2,959,000) 841,000 (68,000) (1,757,000)
EXTRAORDINARY ITEM:
Loss on early
retirement of debt... -- 1,985,000 -- -- --
------------ ------------ ------------ ----------- -----------
Net (loss) income... $ (3,609,000) $ (4,944,000) $ 841,000 $ (68,000) $(1,757,000)
============ ============ ============ =========== ===========
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS.... $ (3,609,000) $ (6,981,000) $ (2,875,000) $(2,794,000) $(3,233,000)
============ ============ ============ =========== ===========
BASIC AND DILUTED
EARNINGS PER COMMON
SHARE:
Loss before
extraordinary item... $ (.38) $ (.53) $ (.31) $ (.30) $ (0.22)
============ ============ ============ =========== ===========
Net loss.............. $ (.38) $ (.74) $ (.31) $ (.30) $ (0.22)
============ ============ ============ =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic and diluted..... 9,392,000 9,392,000 9,392,000 9,392,000 14,547,000
============ ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1996, 1997 and 1998
and the Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Total
Common Common Common Additional Stockholders'
Stock Stock Stock Paid-In Accumulated Equity
Class A Class B Class C Capital Deficit (Deficit)
------- ------- ------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, as of December
31, 1995............... $ -- $2,000 $3,000 $ 1,158,000 $(12,557,000) $(11,394,000)
Net loss.............. -- -- -- -- (3,609,000) (3,609,000)
------- ------ ------ ------------ ------------ ------------
BALANCE, as of December
31, 1996............... -- 2,000 3,000 1,158,000 (16,166,000) (15,003,000)
Net loss.............. -- -- -- -- (4,944,000) (4,944,000)
Effect of conversion
to C corporation..... -- -- -- (1,158,000) 1,158,000 --
Preferred stock
dividends............ -- -- -- -- (2,037,000) (2,037,000)
------- ------ ------ ------------ ------------ ------------
BALANCE, as of December
31, 1997............... -- 2,000 3,000 -- (21,989,000) (21,984,000)
Net income............ -- -- -- -- 841,000 841,000
Preferred stock
dividends............ -- -- -- -- (3,716,000) (3,716,000)
------- ------ ------ ------------ ------------ ------------
BALANCE, as of December
31, 1998............... -- 2,000 3,000 -- (24,864,000) (24,859,000)
Net loss.............. -- -- -- -- (1,757,000) (1,757,000)
Preferred stock
dividends earned..... -- -- -- -- (1,476,000) (1,476,000)
Issuance of stock for
acquisition.......... 2,000 1,000 -- 34,191,000 -- 34,194,000
Stock issued to an
employee............. -- -- -- 225,000 -- 225,000
Conversion of
warrants............. 5,000 -- -- (5,000) -- --
Issuance of common
stock................ 5,000 -- -- 118,522,000 -- 118,527,000
------- ------ ------ ------------ ------------ ------------
BALANCE, as of September
30, 1999 (unaudited)... $12,000 $3,000 $3,000 $152,933,000 $(28,097,000) $124,854,000
======= ====== ====== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
and for the Nine Months Ended September 30, 1998 and 1999
<TABLE>
<CAPTION>
December 31, September 30,
--------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net (loss) income..... $(3,609,000) $ (4,944,000) $ 841,000 $ (68,000) $(1,757,000)
Adjustments to
reconcile net (loss)
income to net cash
from operating
activities:
Depreciation and
amortization......... 4,262,000 5,828,000 8,445,000 6,042,000 12,209,000
Amortization of debt
financing costs,
unamortized
discount and deferred
interest............. 3,005,000 3,270,000 4,110,000 2,733,000 3,368,000
Loss on disposals..... 153,000 -- -- -- --
Loss on extinguishment
of debt.............. -- 1,985,000 -- -- --
Deferred income taxes
and reduction in
valuation
reserve on deferred
taxes................ -- -- (2,038,000) -- --
Noncash compensation
to officer........... -- -- -- -- 225,000
Effect of change in
operating assets and
liabilities--
Trade accounts
receivable.......... (656,000) (2,302,000) (1,933,000) (2,276,000) (5,275,000)
Prepaid expenses and
other............... 114,000 (198,000) (4,000) 12,000 (171,000)
Other assets......... (71,000) (147,000) (1,391,000) (461,000) (118,000)
Accounts payable..... (818,000) (131,000) 830,000 311,000 854,000
Accrued expenses..... 234,000 1,576,000 296,000 2,758,000 3,333,000
Income tax payable... -- -- 143,000 --
----------- ------------ ------------ ----------- -----------
Net cash flows from
operating
activities......... 2,614,000 4,937,000 9,299,000 9,051,000 12,668,000
----------- ------------ ------------ ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment........ (252,000) (2,035,000) (2,236,000) (1,357,000) (2,580,000)
Proceeds from disposal
of property and
equipment............ -- -- 150,000 -- --
Purchase of
Investments.......... -- -- -- -- (1,125,000)
Deposits and payments
for station
purchases............ (1,000,000) (21,164,000) (59,085,000) (32,529,000) (55,325,000)
----------- ------------ ------------ ----------- -----------
Net cash flows from
investing
activities......... (1,252,000) (23,199,000) (61,171,000) (33,886,000) (59,030,000)
----------- ------------ ------------ ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayment of debt..... (2,408,000) (45,599,000) (485,000) (459,000) (69,483,000)
Proceeds from new
debt................. 51,000 72,750,000 49,350,000 25,350,000 26,000,000
Deferred debt
financing costs...... -- (2,148,000) (1,038,000) (693,000) (549,000)
Repayment of Senior
Cumulative Redeemable
Preferred Stock...... -- -- -- -- (28,160,000)
Proceeds from issuance
of common stock, net
of issuance costs.... -- -- -- -- 118,527,000
Financed equipment
purchases............ -- 51,000 -- -- --
----------- ------------ ------------ ----------- -----------
Net cash flows from
financing
activities......... (2,357,000) 25,054,000 47,827,000 24,198,000 46,335,000
----------- ------------ ------------ ----------- -----------
(DECREASE) INCREASE IN
CASH AND CASH
EQUIVALENTS........... (995,000) 6,792,000 (4,045,000) (637,000) (27,000)
CASH AND CASH
EQUIVALENTS, beginning
of year............... 2,703,000 1,708,000 8,500,000 8,500,000 4,455,000
----------- ------------ ------------ ----------- -----------
CASH AND CASH
EQUIVALENTS, end of
year.................. $ 1,708,000 $ 8,500,000 $ 4,455,000 $ 7,863,000 $ 4,428,000
=========== ============ ============ =========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid for--
Interest.............. $ 4,815,000 $ 4,413,000 $ 7,192,000 $ 3,495,000 $ 6,340,000
=========== ============ ============ =========== ===========
Income taxes.......... $ 50,000 $ -- $ 338,000 $ -- $ 374,000
=========== ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1997 and 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
Radio One, Inc. (a Delaware corporation referred to as Radio One) and its
subsidiaries, Radio One Licenses, Inc. and WYCB Acquisition Corporation
(Delaware corporations), Broadcast Holdings, Inc. (a Washington, D.C.
corporation), Bell Broadcasting Company (a Michigan corporation), Radio One of
Detroit, Inc., Allur-Detroit, Inc. and Allur Licenses, Inc. (Delaware
corporations) (collectively referred to as the Company) were organized to
acquire, operate and maintain radio broadcasting stations. The Company owns and
operates radio stations in Washington, D.C.; Baltimore, Maryland; Philadelphia,
Pennsylvania; Detroit, Michigan; and Kingsley, Michigan markets. The Company is
highly leveraged, which requires substantial semi-annual and other periodic
interest payments and may impair the Company's ability to obtain additional
working capital financing. The Company's operating results are significantly
affected by its share of the audience in markets where it has stations.
Radio One intends to offer Common A shares to the public in an initial
public offering (IPO). The proceeds of the IPO will be used to repay certain
outstanding debt, to finance pending and future acquisitions, to redeem all of
the Senior Cumulative Redeemable Preferred Stock and for other general
corporate purposes.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Radio One, Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The
accompanying consolidated financial statements are presented on the accrual
basis of accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Statements (unaudited)
The interim consolidated financial statements included herein for Radio One,
Inc. and subsidiaries have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. In management's opinion, the interim financial data presented
herein include all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. Results for interim periods are
not necessarily indicative of results to be expected for the full year.
Subsequent to year end, the Company completed the acquisition of Radio One
of Atlanta, Inc. for approximately 3.3 million shares of its stock and the
assumption of approximately $16.0 million in debt (see Note 6). The Company
also consummated certain of the acquisitions addressed in Note 8 and acquired
the assets of a station in Boston for approximately $10 million.
During May 1999, the Company sold approximately 5,430,000 shares of Class A
common stock in an initial public offering at $24 per share. The net proceeds
from this offering of approximately $119,000,000 was used to fund acquisitions
and retire certain debt. During November 1999, the Company completed a public
offering of 5,170,000 shares at $59.25 per share. The net proceeds from this
offering of approximately $293,500,000 was used to retire debt and provide
funds for additional acquisitions.
In October 1999, the Company completed the acquisition of the assets of a
station located in the Boston, Massachusetts metropolitan area for
approximately $10 million. In December 1999, the Company entered into an
agreement to purchase certain assets of Greater Media Company (WPLY-FM) for
approximately $80 million.
F-8
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
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.
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.
F-9
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 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.
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-10
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
Segment Reporting
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" as of December 31, 1998, and has determined
that the Company has only one segment, radio broadcasting. The Company came to
this conclusion because the Company has one product or service, has the same
type of customer and operating strategy in each market, operates in one
regulatory environment, has only one management group that manages the entire
Company and provides information on the Company's results as one segment to the
key decision-maker to make decisions. All of the Company's revenue is derived
from the eastern half of the United States.
Earnings Available for Common Stockholders
The Company has certain senior cumulative redeemable preferred stock
outstanding which pays dividends at 15% per annum (see Note 3). The Company
accretes dividends on this preferred stock, which is payable when the preferred
stock is redeemed. The earnings available for common stockholders for the years
ended December 31, 1997 and 1998, is the net loss or income for each of the
years, less the accreted dividend of $2,037,000 and $3,716,000 during 1997 and
1998, respectively on the preferred stock.
Earnings Per Share
Earnings per share are based on the weighted average number of common and
diluted common equivalent shares for stock options and warrants outstanding
during the period the calculation is made, divided into the earnings available
for common stockholders. Diluted common equivalent shares consist of shares
issuable upon the exercise of stock options and warrants, using the treasury
stock method at the estimated IPO price. All warrants outstanding to acquire
common stock as of December 31, 1996, 1997 and 1998, will be exercised
concurrent with the closing of the IPO and have been reflected in the
calculation of earnings per share as if the stock granted from the exercise was
outstanding for all periods presented. The Company also issued stock to an
employee subsequent to year-end at a price below market value. The stock issued
has been reflected in the earnings per share calculation as if it was
outstanding for all periods presented (see Note 8). The weighted average shares
outstanding is calculated as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Common stock outstanding..................... 4,716,000 4,716,000 4,716,000
Common stock issued from exercise of
warrants.................................... 4,625,000 4,625,000 4,625,000
Stock issued subsequent to year end.......... 51,000 51,000 51,000
--------- --------- ---------
Weighted average shares outstanding for both
basic and diluted earnings per share........ 9,392,000 9,392,000 9,392,000
========= ========= =========
</TABLE>
The Company effected a 34,061 for one stock split, effective May 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-11
<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-12
<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.
Our bank credit facility and the agreements governing our other outstanding
debt contain covenants that restrict, among other things, our ability to incur
additional debt, pay cash dividends, purchase our capital stock, make capital
expenditures, make investments or other restricted payments, swap or sell
assets, engage in transactions with related parties, secure non-senior debt
with our assets, or merge, consolidate or sell all or substantially all of our
assets.
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.
F-13
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
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.
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.
F-14
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
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.
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-15
<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-16
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
7. PROFIT SHARING:
Radio One has a 401(k) profit sharing plan for its employees. Radio One can
contribute to the plan at the discretion of its board of directors. Radio One
made no contribution to the plan during fiscal year 1996, 1997 or 1998.
8. SUBSEQUENT EVENTS:
In January 1999, the Company granted shares of common stock of the Company
to an officer of the Company. These shares will vest over three years. The
Company recognized compensation expense of approximately $200,000 during 1999,
which is the difference between the fair value of the stock on the grant date
and the exercise price of stock.
On February 26, 1999, Radio One signed an asset purchase agreement for the
broadcasting assets of two radio stations located in Richmond, Virginia, for
approximately $12,000,000. The Company expects to complete this transaction
during the second quarter of 1999.
On February 10, 1999, Radio One signed an agreement to purchase the assets
of a radio station located in the Richmond, Virginia, area for approximately
$4,600,000. Radio One made a deposit of $200,000 related to this purchase.
In February 1999, Radio One signed a letter of intent to purchase the
broadcasting assets of two radio stations located in Cleveland, Ohio, for
approximately $20,000,000. The Company expects to complete this transaction
during the first half of 1999.
In March 1999, Radio One signed a letter of intent to purchase the
broadcasting assets of four radio stations located in Richmond, Virginia for
approximately $34,000,000. The Company expects to complete this transaction
during 2000.
In March 1999, the Company adopted a stock option and grant plan which
provides for the issuance of qualified and nonqualified stock options and
grants to full-time key employees. The Plan allows the issuance of common stock
at the discretion of the Company's board of directors. There are no options
currently outstanding under this plan. In May 1999, the Company granted 207,208
options to certain employees at $24 per share.
During 1999, the Company made a $1,000,000 investment in PNE Media Holdings,
LLC, a privately-held outdoor advertising company.
F-17
<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 (deficit) 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-18
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and 1998, and March 31, 1999
<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1997 1998 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ 1,117,000 $ 1,711,000 $ 2,133,000
Trade accounts receivable, net of
allowance for doubtful accounts of
$112,000 and $312,000 as of December
31, 1997 and 1998, respectively...... 1,259,000 2,479,000 1,694,000
Prepaid expenses and other............ 59,000 82,000 937,000
Due from Mableton..................... 77,000 120,000 --
Income tax receivable................. -- 164,000 --
----------- ----------- -----------
Total current assets................ 2,512,000 4,556,000 4,764,000
PROPERTY AND EQUIPMENT, net............. 585,000 1,758,000 2,097,000
INTANGIBLE ASSETS, net.................. 10,994,000 10,867,000 11,187,000
OTHER ASSETS............................ 112,000 40,000 52,000
DEFERRED TAXES.......................... -- 60,000 117,000
----------- ----------- -----------
Total assets........................ $14,203,000 $17,281,000 $18,217,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable...................... $ 108,000 $ 276,000 $ 339,000
Accrued expenses...................... 782,000 909,000 1,168,000
Current portion of long-term debt..... 568,000 327,000 269,000
Due to affiliate...................... 68,000 4,000 304,000
----------- ----------- -----------
Total current liabilities........... 1,526,000 1,516,000 2,080,000
LONG-TERM DEBT AND DEFERRED INTEREST,
net of current portion................. 13,398,000 15,525,000 15,727,000
----------- ----------- -----------
Total liabilities................... 14,924,000 17,041,000 17,807,000
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par value, 14,670
shares authorized, 10,000 shares
issued and outstanding............... 10,000 10,000 10,000
Additional paid-in capital............ 978,000 1,390,000 1,390,000
Accumulated deficit................... (1,709,000) (1,160,000) (990,000)
----------- ----------- -----------
Total stockholders' equity (deficit)
................................... (721,000) 240,000 410,000
----------- ----------- -----------
Total liabilities and stockholders'
equity............................. $14,203,000 $17,281,000 $18,217,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-19
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1997 and 1998
And for the Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
December 31, March 31,
----------------------------------- ----------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE:
Broadcast revenue,
including barter
revenue of $112,000,
$86,000 and $51,000,
respectively......... $4,257,000 $6,525,000 $11,577,000 $1,684,000 $2,803,000
Less: Agency
commissions.......... 497,000 794,000 1,437,000 195,000 356,000
---------- ---------- ----------- ---------- ----------
Net broadcast
revenue............ 3,760,000 5,731,000 10,140,000 1,489,000 2,447,000
---------- ---------- ----------- ---------- ----------
OPERATING EXPENSES:
Program and
technical............ 1,017,000 1,432,000 1,418,000 303,000 478,000
Selling, general and
administrative....... 1,426,000 1,994,000 4,111,000 673,000 910,000
Corporate expenses.... 241,000 637,000 667,000 80,000 96,000
Depreciation and
amortization......... 429,000 577,000 896,000 129,000 202,000
---------- ---------- ----------- ---------- ----------
Total operating
expenses........... 3,113,000 4,640,000 7,092,000 1,185,000 1,686,000
---------- ---------- ----------- ---------- ----------
Operating income.... 647,000 1,091,000 3,048,000 304,000 761,000
INTEREST EXPENSE,
including amortization
of deferred financing
costs.................. 839,000 1,663,000 2,007,000 471,000 491,000
OTHER EXPENSES (INCOME),
net.................... -- 111,000 (7,000) (9,000) --
---------- ---------- ----------- ---------- ----------
(Loss) income before
provision for
income taxes....... (192,000) (683,000) 1,048,000 (158,000) 270,000
PROVISION (BENEFIT) FOR
INCOME TAXES........... -- -- 499,000 (74,000) 100,000
---------- ---------- ----------- ---------- ----------
Net (loss) income... $ (192,000) $ (683,000) $ 549,000 $ (84,000) $ 170,000
========== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-20
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1996, 1997 and 1998
And for the Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
Total
Additional Stockholders'
Common Paid-In Accumulated Equity
Stock Capital Deficit (Deficit)
------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995....... $ -- $ -- $ (834,000) $ (834,000)
Net loss....................... -- -- (192,000) (192,000)
------- ---------- ----------- -----------
BALANCE, December 31, 1996....... -- -- (1,026,000) (1,026,000)
Net loss....................... -- -- (683,000) (683,000)
Issuance of stock options below
market........................ -- 264,000 -- 264,000
Tax benefit of issuance of
stock options below market.... -- 106,000 -- 106,000
Allocation for stock issued in
conjunction with debt......... -- 608,000 -- 608,000
Issuance of common stock....... 10,000 -- -- 10,000
------- ---------- ----------- -----------
BALANCE, December 31, 1997....... 10,000 978,000 (1,709,000) (721,000)
Net income..................... -- -- 549,000 549,000
Issuance of stock options below
market........................ -- 294,000 -- 294,000
Tax benefit of issuance of
stock options below market.... -- 118,000 -- 118,000
------- ---------- ----------- -----------
BALANCE, December 31, 1998....... 10,000 1,390,000 (1,160,000) 240,000
Net income..................... -- -- 170,000 170,000
------- ---------- ----------- -----------
BALANCE, March 31, 1999
(unaudited)..................... $10,000 $1,390,000 $ (990,000) $ 410,000
======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-21
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
And for the Three Months Ended March 31, 1998 and 1999
<TABLE>
<CAPTION>
December 31, March 31,
--------------------------------- ----------------------
1996 1997 1998 1998 1999
--------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss).... $(192,000) $ (683,000) $ 549,000 $ (84,000) $ 170,000
Adjustments to
reconcile net income
(loss) to net cash
from operating
activities:
Depreciation and
amortization...... 429,000 577,000 896,000 129,000 202,000
Amortization of
debt financing
costs and
unamortized
discount.......... 399,000 172,000 630,000 276,000 424,000
Compensation
expense from stock
options granted... -- 264,000 294,000 -- --
Loss on disposals.. -- 157,000 -- -- --
Deferred tax
liability......... -- -- 58,000 -- (57,000)
Effect of change in
operating assets
and liabilities--
Trade accounts
receivable...... (774,000) (243,000) (1,220,000) 322,000 785,000
Prepaid expenses
and other....... (16,000) (4,000) (23,000) (35,000) (855,000)
Due from
Mableton........ -- (77,000) (43,000) -- 120,000
Income tax
receivable...... -- -- (164,000) -- 164,000
Other assets..... -- (112,000) 72,000 -- (12,000)
Accounts
payable......... (22,000) 97,000 168,000 -- 63,000
Accrued
expenses........ 423,000 386,000 127,000 (419,000) 259,000
Due to
affiliate....... (19,000) (10,000) (64,000) 25,000 300,000
--------- ---------- ---------- ---------- ----------
Net cash flows
from operating
activities.... 228,000 524,000 1,280,000 214,000 1,563,000
--------- ---------- ---------- ---------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment....... (235,000) (385,000) (1,242,000) (179,000) (421,000)
Acquisition of
Dogwood............. -- (6,792,000) -- --
Acquisition of
intangibles......... -- -- (678,000) (100,000) (440,000)
--------- ---------- ---------- ---------- ----------
Net cash flows
from investing
activities.... (235,000) (7,177,000) (1,920,000) (279,000) (861,000)
--------- ---------- ---------- ---------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from debt
issuance............ -- 7,577,000 2,000,000 -- --
Repayment of debt.... -- -- (744,000) (198,000) (280,000)
Deferred debt
financing costs..... -- (60,000) (22,000) -- --
Issuance of common
stock............... -- 10,000 -- -- --
--------- ---------- ---------- ---------- ----------
Net cash flows
from financing
activities.... -- 7,527,000 1,234,000 (198,000) (280,000)
--------- ---------- ---------- ---------- ----------
(DECREASE) INCREASE IN
CASH AND
CASH EQUIVALENTS...... (7,000) 874,000 594,000 (263,000) 422,000
CASH AND CASH
EQUIVALENTS, beginning
of period............. 250,000 243,000 1,117,000 1,117,000 1,711,000
--------- ---------- ---------- ---------- ----------
CASH AND CASH
EQUIVALENTS, end of
period................ $ 243,000 $1,117,000 $1,711,000 $ 854,000 $2,133,000
========= ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid for --
Interest............. $ 441,000 $1,305,000 $1,616,000 $ 400,000 $ 400,000
========= ========== ========== ========== ==========
Income taxes......... $ -- $ -- $ 499,000 $ -- $ 100,000
========= ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-22
<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-23
<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-24
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Interim Financial Statements (unaudited)
The interim consolidated financial statements included herein for the
Company have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. In management's
opinion, the interim financial data presented herein include all adjustments
(which include only normal recurring adjustments) necessary for a fair
presentation. Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. Results for interim periods are not necessarily indicative of
results to be expected for the full year.
On March 30, 1999, Radio One, Inc. acquired the Company for approximately
3.3 million shares of Radio One's common stock and the assumption of
indebtedness of the Company and Dogwood. Also, on March 30, 1999, the Company
acquired the remaining approximate 67% of Dogwood for $3.6 million. Upon the
completion of these acquisitions, the Company became a wholly owned subsidiary
of Radio One, and Dogwood became a wholly owned subsidiary of the Company. (See
Notes 2 and 8)
2. DOGWOOD COMMUNICATIONS, INC.:
In April 1997, the Company's founder and stockholder transferred his 33 1/3%
ownership interest in Dogwood to the Company in return for the Company assuming
responsibility for certain liabilities of Dogwood. Concurrent with the transfer
of ownership, the Company contributed approximately $6 million to Dogwood to
retire Dogwood's outstanding debt. This stockholder also assigned to the
Company his option to purchase the portion of Dogwood owned by others. The
Company exercised the option to purchase up to 80% of Dogwood during 1998, for
$100,000. The Company intends to exercise its option to purchase the remaining
20% for $3.5 million during 1999.
The Company owns 33 1/3% of Dogwood, it has the ability to acquire an
additional 46 2/3% for $100,000, it has 45 1/2% of the voting control of
Dogwood, and it programs the station owned by Dogwood through a local marketing
agreement (LMA). During the years ended December 31, 1997 and 1998, Dogwood's
primary activity was an LMA of the station to the Company (the station went on
the air on December 16, 1997). As the Company controls Dogwood's operations,
Dogwood has been consolidated with the Company in the accompanying financial
statements.
3. INTANGIBLE ASSETS:
Intangible assets are being amortized on a straight-line basis over various
periods. The intangible asset balances and periods of amortization as of
December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------- Period of
1997 1998 Amortization
----------- ----------- ------------
<S> <C> <C> <C>
Debt financing costs.................... $ 313,000 $ 335,000 Life of debt
FCC broadcast license and other......... 11,602,000 12,280,000 15 Years
Organizational costs.................... 203,000 -- 5 Years
----------- -----------
Total................................. 12,118,000 12,615,000
Less: Accumulated amortization.......... 1,124,000 1,748,000
----------- -----------
Net intangible assets................. $10,994,000 $10,867,000
=========== ===========
</TABLE>
Amortization expense for the years ended December 31, 1996, 1997 and 1998,
was $391,000, $513,000 and $827,000, respectively. The amortization of the debt
financing costs was charged to interest expense.
F-25
<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-26
<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-27
<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-28
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes reflect the net tax effect of temporary differences
between the financial statement and tax basis of assets and liabilities. The
significant components of the Company's deferred tax assets and liabilities as
of December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets--
Reserve for bad debts................................ $ 44,000 $118,000
NOL carryforward..................................... 79,000 --
-------- --------
Total deferred tax assets.......................... 123,000 118,000
Deferred tax liabilities--
Depreciation and amortization........................ (59,000) (58,000)
-------- --------
Net deferred tax asset................................. 64,000 60,000
Less: Valuation reserve................................ (64,000) --
-------- --------
Net deferred taxes included in the accompanying
consolidated balance sheets........................... $ -- $ 60,000
======== ========
</TABLE>
A 100% valuation reserve was applied against the net deferred tax asset as
of December 31, 1997, as its realization was not more likely than not to be
realized. During 1998, this valuation allowance was reversed as the deferred
tax assets would likely be realized. During 1998, the Company utilized its
entire net operating loss carryforward.
8. RELATED PARTY TRANSACTIONS:
The Company is affiliated with Radio One, Inc., as a stockholder of the
Company is also a stockholder of Radio One, Inc. The Company has a due to
affiliate of $68,000 and $4,000 as of December 31, 1997 and 1998, respectively,
for expenses paid by Radio One, Inc. on behalf of the Company and for
administrative services. During the years ended December 31, 1996, 1997 and
1998, the Company incurred expenses of $100,000, $100,000 and $300,000,
respectively, for administrative services which Radio One, Inc. performed for
the Company.
The Company has $77,000 and $120,000 recorded as a receivable from Mableton
Investment Group (Mableton) as of December 31, 1997 and 1998, respectively.
These balances represent costs incurred by the Company for research and
feasibility studies on behalf of a new radio station to be owned by Mableton, a
company owned by a stockholder of the Company.
The stockholders of the Company agreed in principle to sell their shares of
the Company to Radio One, Inc. in exchange for shares of Radio One, Inc.'s
common stock. A stockholder of the Company will receive a $1.2 million fee
related to this acquisition.
Subsequent to year end, the Company made a $263,000 unsecured loan to an
employee. The loan bears interest at 5.56% and is payable on demand.
9. PROFIT SHARING:
The Company's employees participate in a 401K profit sharing plan sponsored
by Radio One, Inc., an affiliate of the Company (see Note 8). The Company's
contribution is at the direction of its board of directors. The Company made no
contributions to the plan during fiscal years 1996, 1997 or 1998.
F-29
<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-30
<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-31
<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
provision (benefit) for
income taxes............. (343,000) 56,000 (217,000) (204,000)
PROVISION (BENEFIT) 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-32
<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-33
<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:
Cash paid for --
Interest....................... $ 73,000 $ 81,000 $ 38,000 $ 55,000
========= ========= ========= =========
Income taxes................... $ 117,000 $ -- $ -- $ 7,000
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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 CASH FLOW
INFORMATION:
Cash paid for --
Interest............................... $ 81,000 $ -- $ --
=========== =========== =========
Income taxes........................... $ -- $ -- $ --
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
COMBINED BALANCE SHEETS
As of December 31, 1997 and 1998
and March 31, 1999
<TABLE>
<CAPTION>
March 31,
1997 1998 1999
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 55,000 $ 142,000 $ 36,000
Trade accounts receivable, net of allowance
for doubtful accounts of $39,000, $50,000,
44,000 respectively....................... 1,282,000 1,400,000 1,447,000
Prepaid expenses and other................. 47,000 31,000 18,000
---------- ---------- ----------
Total current assets..................... 1,384,000 1,573,000 1,501,000
PROPERTY AND EQUIPMENT, net.................. 922,000 1,202,000 1,192,000
INTANGIBLE ASSETS, net....................... 4,065,000 3,692,000 3,599,000
---------- ---------- ----------
Total assets............................. $6,371,000 $6,467,000 $6,292,000
========== ========== ==========
LIABILITIES AND STATION EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses...... $ 423,000 $ 566,000 $ 200,000
COMMITMENTS
STATION EQUITY............................... 5,948,000 5,901,000 6,092,000
---------- ---------- ----------
Total liabilities and station equity..... $6,371,000 $6,467,000 $6,292,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-51
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN STATION EQUITY
For the Years Ended December 31, 1997 and 1998
and the Three Months Ended March 31, 1998 and 1999
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1997 1998 1998 1999
----------- ----------- -------------- --------------
(unaudited)
<S> <C> <C> <C> <C>
REVENUE:
Broadcast revenue,
including barter
revenue of $249,000,
$304,000, 79,495 and
37,440 respectively.. $ 8,330,000 $ 8,509,000 $ 1,785,000 $ 1,625,000
Less: Agency
commissions.......... 1,041,000 1,051,000 299,000 227,000
----------- ----------- -------------- --------------
Net broadcast
revenue............ 7,289,000 7,458,000 1,486,000 1,398,000
----------- ----------- -------------- --------------
OPERATING EXPENSES:
Program and
technical............ 1,313,000 1,498,000 273,000 354,000
Selling, general and
administrative....... 3,025,000 3,170,000 587,000 589,000
Corporate
allocations.......... 311,000 413,000 90,000 122,000
Depreciation and
amortization......... 569,000 648,000 142,000 162,000
----------- ----------- -------------- --------------
Total operating
expenses........... 5,218,000 5,729,000 1,092,000 1,227,000
----------- ----------- -------------- --------------
Net income.......... 2,071,000 1,729,000 394,000 171,000
STATION EQUITY,
beginning of year...... 6,548,000 5,948,000 5,948,000 5,901,000
NET TRANSFER (TO) FROM
PARENT................. (2,671,000) (1,776,000) (516,000) 20,000
----------- ----------- -------------- --------------
STATION EQUITY, end of
year................... $ 5,948,000 $ 5,901,000 $ 5,826,000 $ 6,092,000
=========== =========== ============== ==============
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-52
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997 and 1998
and the Three Months Ended March 31, 1998 and 1999
<TABLE>
<CAPTION>
December 31, March 31,
------------------------ --------------------
1997 1998 1998 1999
----------- ----------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income................... $ 2,071,000 $ 1,729,000 $ 394,000 $ 171,000
Adjustments to reconcile net
income to net cash from
operating activities--
Depreciation and
amortization.............. 569,000 648,000 142,000 162,000
Effect of change in
operating assets and
liabilities--
Trade accounts
receivable.............. 109,000 (118,000) 161,000 (47,000)
Prepaid expenses and
other................... (33,000) 16,000 27,000 13,000
Accounts payable and
accrued expenses........ (63,000) 143,000 (180,000) (366,000)
----------- ----------- --------- ---------
Net cash flows from
operating activities.. 2,653,000 2,418,000 544,000 (67,000)
----------- ----------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment................... (49,000) (555,000) (59,000) (59,000)
----------- ----------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net transfer (to) from
parent...................... (2,671,000) (1,776,000) (516,000) 20,000
----------- ----------- --------- ---------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS.............. (67,000) 87,000 (31,000) (106,000)
CASH AND CASH EQUIVALENTS,
beginning of year............. 122,000 55,000 55,000 142,000
----------- ----------- --------- ---------
CASH AND CASH EQUIVALENTS, end
of year....................... $ 55,000 $ 142,000 $ 24,000 $ 36,000
=========== =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-53
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1997 and 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
The radio stations, WCDX-FM, WPLZ-FM, WJRV-FM and WGCV-AM (Stations) are
broadcast in the Richmond area. WCDX-FM, WPLZ-FM and WGCV-AM are owned by
Sinclair Telecable, Inc. (Sinclair). WJRV-FM is owned by Commonwealth
Broadcasting LLC (Commonwealth), a related party. Sinclair owns 25% of
Commonwealth. The remaining 75% of Commonwealth is owned by some of the
shareholders of Sinclair. Commonwealth has been fully consolidated into the
combined financial statements of Sinclair Telecable, Inc. and Affiliates
(combined, Sinclair).
In March 1999, Sinclair entered into a letter of intent with Radio One, Inc.
to sell ultimately all of the tangible and intangible assets of these Richmond
operations for approximately $34 million. Sinclair and Radio One, Inc. intend
to enter into a local marketing agreement under which Radio One, Inc. will
operate these Richmond operations prior to completing its acquisition of these
operations. Accordingly, these combined financial statements of the Richmond
operations include the stations to be purchased by Radio One, Inc. All inter-
station transactions have been eliminated in consolidation.
Basis of Presentation
The accompanying combined financial statements are presented on the accrual
basis of accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Statements (unaudited)
The interim combined financial statements included herein for the Richmond
operations of Sinclair Telecable, Inc. have been prepared by management,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In management's opinion, the interim financial data
presented herein include all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation. Certain information and
footnote disclosure normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. Results for interim periods are
not necessarily indicative of results to be expected for the full year.
Corporate Expenses
The Stations are allocated certain corporate expenses for services provided
by Sinclair based upon the percentage of revenue of each station to total
revenue of all stations operated by Sinclair. Though management is of the
opinion that all allocations used are reasonable and appropriate, other
allocations might be used that could produce results substantially different
from those reflected herein and these cost allocations might not be indicative
of amounts which might be paid to unrelated parties for similar services or if
Stations had been operated on a stand-alone basis.
Sinclair corporate departmental expenses of $311,000 and $413,000 have been
allocated to the Stations during 1997 and 1998, respectively, for management
salaries and benefits, legal services, corporate office, and other
miscellaneous expenses.
F-54
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998
The acquisition of station WJRV-FM was partially financed with debt which
was allocated to the Stations. This debt and related accrued interest expense
was eliminated through cash transfers to the parent. Cash transfers in excess
of amounts required to repay debt and secured interest reduces the Stations
equity and is recorded as net transfer to parent.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market accounts at
various commercial banks. All cash equivalents have original maturities of 90
days or less. For cash and cash equivalents, cost approximates market value.
Property and Equipment
Property and equipment are recorded at cost and are being depreciated on a
straight-line basis over various periods. The components of the Stations'
property and equipment as of December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
Period of
1997 1998 Depreciation
--------- ---------- --------------
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT:
Land.................................. $ 57,000 $ 57,000 --
Building and leasehold improvements... 140,000 147,000 31 or 10 years
Furniture and fixtures................ 179,000 241,000 7 or 10 years
Broadcasting equipment................ 2,145,000 2,611,000 5 to 7 years
Vehicles.............................. 55,000 75,000 5 years
--------- ----------
2,576,000 3,131,000
Less: Accumulated depreciation........ 1,654,000 1,929,000
--------- ----------
Property and equipment, net........ $ 922,000 $1,202,000
========= ==========
</TABLE>
Depreciation expenses for the fiscal years ended December 31, 1997 and 1998,
were $263,000 and $275,000, respectively.
Revenue Recognition
In accordance with industry practice, revenue for broadcast advertising is
recognized when the commercial is broadcast.
Barter Arrangements
Certain program contracts provide for the exchange of advertising air time
in lieu of cash payments for the rights to such programming. These contracts
are recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights.
Financial Instruments
Financial instruments as of December 31, 1997 and 1998, consist of cash and
cash equivalents, trade accounts receivables, accounts payable and accrued
expenses, all of which the carrying amounts approximate fair value except.
F-55
<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-56
<PAGE>
6. SUBSEQUENT EVENT (unaudited):
Effective June 1, 1999, Sinclair entered into a local marketing agreement
with Radio One, Inc. As a result of the local marketing agreement, Sinclair's
only operations, subsequent to the local marketing agreement, was the
maintenance of the assets used by Radio One, Inc. in the local marketing
agreement. As such, the three-month period ending March 31, 1999 was the last
full quarter that Sinclair had operating results from operating the stations.
As of June 30, 1999 the broadcast revenues and receivables from these stations
were included in the financial statements of Radio One, Inc.
F-57
<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 equity (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-58
<PAGE>
STATIONS WKJS-FM AND WSOJ-FM OF FM 100 INC.
COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1998 AND JUNE 30, 1999
ASSETS
<TABLE>
<CAPTION>
December June 30,
31, 1998 1999
---------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 34,000 $ 87,000
Trade accounts receivable, net of allowance for
doubtful
accounts of $28,000 and $61,000 respectively 326,000 773,000
Prepaids and other -- 10,000
---------- ----------
Total current assets 360,000 870,000
PROPERTY AND EQUIPMENT, net 1,079,000 1,041,000
INTANGIBLE ASSETS, net 3,343,000 3,282,000
---------- ----------
Total assets $4,782,000 $5,193,000
========== ==========
LIABILITIES AND STATION EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 168,000 $ 102,000
Capital lease obligations 13,000 16,000
---------- ----------
Total current liabilities 181,000 118,000
LONG-TERM LIABILITIES:
Allocation of long-term debt 5,000,000 5,006,000
Capital lease obligations 49,000 48,000
---------- ----------
Total liabilities 5,230,000 5,172,000
COMMITMENTS AND CONTINGENCIES
STATION EQUITY (DEFICIT) (448,000) 21,000
---------- ----------
Total liabilities and station equity (deficit) $4,782,000 $5,193,000
========== ==========
</TABLE>
The accompanying notes are an integral part of this combined balance sheet.
F-59
<PAGE>
STATIONS WKJS-FM AND WSOJ-FM OF FM 100 INC.
COMBINED STATEMENT OF OPERATIONS AND CHANGES IN STATION EQUITY (DEFICIT)
For the Year Ended December 31, 1998
and the Six Months Ended
June 30, 1998 and 1999
<TABLE>
<CAPTION>
December June 30,
31, ---------------------
1998 1998 1999
---------- --------- ----------
(unaudited)
<S> <C> <C> <C>
REVENUE:
Broadcast revenue, including barter
revenue of $169,000 $1,187,000 $ 320,000 $1,420,000
Less: Agency commissions 125,000 -- --
---------- --------- ----------
Net broadcast revenue 1,062,000 320,000 1,420,000
---------- --------- ----------
OPERATING EXPENSES:
Program and technical 192,000 86,000 131,000
Selling, general and administrative 810,000 383,000 528,000
Corporate allocations 15,000 9,000 8,000
Depreciation and amortization 416,000 172,000 182,000
---------- --------- ----------
Total operating expenses 1,433,000 650,000 849,000
---------- --------- ----------
Operating loss (371,000) (330,000) 571,000
---------- --------- ----------
OTHER INCOME (EXPENSE):
Interest expense (500,000) (240,000) (231,000)
Other income 21,000 3,000 8,000
---------- --------- ----------
Total other income (expense), net (479,000) (237,000) (223,000)
---------- --------- ----------
Net (loss) income (850,000) (567,000) 348,000
STATION EQUITY (DEFICIT), beginning of
year 177,000 177,000 (448,000)
NET TRANSFER FROM PARENT 225,000 -- 121,000
---------- --------- ----------
STATION EQUITY (DEFICIT), end of year $ (448,000) $(390,000) $ 21,000
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of this combined balance sheet.
F-60
<PAGE>
STATIONS WKJS-FM AND WSOJ-FM OF FM 100 INC.
COMBINED STATEMENT OF CASH FLOWS
For The Year Ended December 31, 1998
and the Six Months Ended June 30, 1998 and 1999
<TABLE>
<CAPTION>
December 31, June 30,
------------ -------------------
1998 1998 1999
------------ --------- --------
(unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(850,000) $(567,000) $348,000
Adjustments to reconcile net loss to net
cash used in
operating activities-
Depreciation and amortization 416,000 172,000 182,000
Effect of change in operating assets and
liabilities-
Trade accounts receivable (257,000) (350,000) (447,000)
Prepaid expenses and other 3,000 (2,000) (10,000)
Accounts payable and accrued expenses 99,000 (50,000) (66,000)
--------- --------- --------
Net cash flows (used in) provided by
operating activities (589,000) (797,000) 7,000
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (58,000) (40,000) (81,000)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net transfer from parent 225,000 339,000 121,000
Proceeds from parent debt 427,000 500,000 6,000
--------- --------- --------
Net cash flows from financing activities 652,000 839,000 127,000
--------- --------- --------
INCREASE IN CASH 5,000 2,000 53,000
CASH AND CASH EQUIVALENTS, beginning of year 29,000 29,000 34,000
--------- --------- --------
CASH AND CASH EQUIVALENTS, end of year $ 34,000 $ 31,000 $ 87,000
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 477,000 $ 217,000 $254,000
========= ========= ========
</TABLE>
The accompanying notes are an integral part of this combined balance sheet.
F-61
<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 (the Stations), WKJS-FM and WSOJ-FM, (currently WARV-FM) are
broadcast in the Richmond area. The combined financial statements of the
Stations were formed effective January 4, 1998, when FM 100, Inc. purchased
station WKJS-FM for $4,500,000. Station WSOJ-FM was owned by FM 100, Inc. since
1994.
In February 1999, FM 100, Inc. signed an agreement with Radio One, Inc. to sell
all tangible and intangible assets for approximately $12,000,000, subject to
certain earn-out adjustments. The sale is expected to close during 1999. The
accompanying combined financial statements include the assets, liabilities and
results of operations of those stations to be acquired by Radio One, Inc. and
were prepared from the financial statements of FM 100, Inc. All inter-station
transactions have been eliminated in consolidation.
The Stations have incurred an operating loss of $371,000 and a net loss of
$850,000 for the year ended December 31, 1998. Also, as of December 31, 1998,
the Stations had a station deficit of $448,000. These factors, along with
others could negatively impact future operations of the Stations.
Basis of Presentation
The accompanying combined financial statements are presented on the accrual
basis of accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Statements
The interim combined financial statements included herein for the Stations have
been prepared by management without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In management's opinion,
the interim financial data presented herein include all adjustments (which
include only normal recurring adjustments) necessary for a fair presentation.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. Results
for interim periods are not necessarily indicative of results to be expected
for the full year.
On July 1, 1999, Radio One purchased the assets of the Stations.
Certain Corporate Expenses
The Stations are allocated certain corporate expenses for services provided by
FM 100, Inc. based upon the percentage of revenue of each station to total
revenue of all stations operated by FM 100, Inc. Though management is of the
opinion that all allocations used are reasonable and appropriate, other
allocations might be used that could produce results substantially different
from those reflected herein and these cost allocations might not be indicative
of amounts which might be paid to unrelated parties for similar services if the
Stations had been operated on a stand-alone basis.
FM 100, Inc. corporate departmental expenses of $15,000 have been allocated to
the Stations during 1998 for accounting services and other miscellaneous
expenses.
F-62
<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-63
<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-64
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Radio One, Inc.:
We have audited the accompanying balance sheet of Greater Media Radio
Company (a Pennsylvania Corporation) as of December 31, 1998, 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 the
Company'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 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.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Greater Media Radio Company
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
Baltimore, Maryland,
February 11, 2000
/s/ Arthur Andersen LLP
F-65
<PAGE>
GREATER MEDIA RADIO COMPANY
BALANCE SHEETS
AS OF DECEMBER 31, 1998, AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 357,000 $ 324,000
Trade accounts receivable, net of allowance for
doubtful accounts of $60,000 and $137,000,
respectively...................................... 1,023,000 1,637,000
Prepaid expenses and other......................... 152,000 23,000
Advance to officer................................. 102,000 --
---------- -----------
Total current assets ........................... 1,634,000 1,984,000
PROPERTY AND EQUIPMENT, net......................... 371,000 320,000
---------- -----------
Total assets.................................... $2,005,000 $ 2,304,000
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable .................................. $ 189,000 $ 128,000
Accrued liabilities................................ 122,000 257,000
Related party advance.............................. 169,000 169,000
---------- -----------
Total current liabilities....................... 480,000 554,000
---------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock--$.10 par value; 1,000 shares
authorized, issued and outstanding................ -- --
Additional paid-in capital ........................ 62,000 62,000
Retained earnings.................................. 1,463,000 1,688,000
---------- -----------
Total stockholders' equity...................... 1,525,000 1,750,000
---------- -----------
Total liabilities and stockholders' equity...... $2,005,000 $ 2,304,000
========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-66
<PAGE>
GREATER MEDIA RADIO COMPANY
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1998
and for the Nine Months Ended September 30, 1998 and 1999
<TABLE>
<CAPTION>
September 30,
December 31, -----------------------
1998 1998 1999
------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUE:
Broadcast revenue, including barter
revenue of $250,000, 150,000 and
$100,000, respectively................. $ 7,663,000 $ 5,651,000 $ 6,562,000
Less: Agency commissions................ 824,000 641,000 644,000
----------- ----------- -----------
Net broadcast revenues................ 6,839,000 5,010,000 5,918,000
----------- ----------- -----------
OPERATING EXPENSES:
Programming and technical............... 1,840,000 1,418,000 1,265,000
Selling, general and administrative..... 3,938,000 2,622,000 3,112,000
Corporate expenses...................... 584,000 403,000 448,000
Depreciation............................ 95,000 70,000 70,000
----------- ----------- -----------
Total operating expenses.............. 6,457,000 4,513,000 4,895,000
----------- ----------- -----------
Operating income...................... 382,000 497,000 1,023,000
OTHER INCOME, net........................ 102,000 14,000 64,000
----------- ----------- -----------
Net income............................ $ 484,000 $ 511,000 $ 1,087,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-67
<PAGE>
GREATER MEDIA RADIO COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For The Year Ended December 31, 1998
and the Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Common
Stock Additional Total
Class Paid-In Retained Stockholders'
A Capital Earnings Equity
------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1997......... $ -- $62,000 $1,156,000 $1,218,000
Net income........................ -- -- 484,000 484,000
Capital contribution for imputed
expenses......................... -- -- 50,000 50,000
Distribution to shareholders...... -- -- (227,000) (227,000)
----- ------- ---------- ----------
BALANCE, December 31, 1998......... -- 62,000 1,463,000 1,525,000
Net income........................ -- -- 1,087,000 1,087,000
Capital contribution for imputed
expenses......................... -- -- 38,000 38,000
Distribution to shareholders...... -- -- (900,000) (900,000)
----- ------- ---------- ----------
BALANCE, September 30, 1999
(unaudited) $ -- $62,000 $1,688,000 $1,750,000
===== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-68
<PAGE>
GREATER MEDIA RADIO COMPANY
STATEMENTS OF CASH FLOWS
For The Year Ended December 31, 1998
and for the Nine Months Ended September 30, 1998 and 1999
<TABLE>
<CAPTION>
September 30
-----------------------
December 31,
1998 1998 1999
------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $484,000 $511,000 $1,087,000
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization........... 95,000 70,000 70,000
Gain on disposal of assets.............. (4,000) -- --
Noncash expense......................... 50,000 38,000 38,000
Effect of change in operating assets and
liabilities-
Trade accounts receivable.............. 310,000 (65,000) (614,000)
Prepaid expenses and other............. (72,000) (64,000) 129,000
Accounts payable....................... 91,000 69,000 (61,000)
Accrued liabilities.................... (648,000) (627,000) 135,000
-------- -------- ----------
Net cash flows from operating
activities........................... 306,000 (68,000) (784,000)
-------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets............. 36,000 -- --
Acquisition of property and equipment.... (144,000) (89,000) (19,000)
Advance to officer....................... (102,000) (100,000) --
-------- -------- ----------
Net cash flows from investing
activities........................... (210,000) (189,000) (19,000)
-------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt........................ (317,000) (270,000) --
Distribution to shareholders............. (227,000) -- (798,000)
-------- -------- ----------
Net cash flows from financing
activities........................... (544,000) (270,000) (798,000)
-------- -------- ----------
NET DECREASE IN CASH...................... (448,000) (527,000) (33,000)
CASH AND CASH EQUIVALENTS, beginning of
period................................... 805,000 805,000 357,000
-------- -------- ----------
CASH AND CASH EQUIVALENTS, end of period.. $357,000 $278,000 $ 324,000
======== ======== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest................... $ 5,000 $ 5,000 $ --
======== ======== ==========
Noncash repayment of advance to officer.. $ -- $ -- $ 102,000
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-69
<PAGE>
GREATER MEDIA RADIO COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Organization
Greater Media Radio Company (the Company), a Pennsylvania corporation, is a
radio broadcaster, broadcasting on station WPLY-FM located in the Philadelphia
metropolitan area.
In December 1999, the Company entered into an agreement to sell the assets
of the Company to Radio One, Inc. for approximately $80 million.
Basis of Presentation
The accompanying financial statements are presented on the accrual basis of
accounting in accordance with generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Interim Financial Statements (unaudited)
The interim financial statements included herein for the Company have been
prepared by management, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. In management's opinion, the interim
financial data presented herein include all adjustments (which include only
normal recurring adjustments) necessary for a fair presentation. Results for
interim periods are not necessarily indicative of results to be expected for
the full year.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and overnight investments.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related assets.
The components of the Company's property and equipment as of December 31,
1998, and September 30, 1999, are as follows:
<TABLE>
<CAPTION>
December 31, September 30, Period of
1998 1999 Depreciation
------------ ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Equipment $1,118,000 $1,137,000 3-5 Years
Leasehold improvements 202,000 202,000 Life of Lease
---------- ----------
Total property and equipment.............. 1,320,000 1,339,000
Less: Accumulated depreciation.............. 949,000 1,019,000
---------- ----------
Property and equipment, net................. $ 371,000 $ 320,000
========== ==========
</TABLE>
F-70
<PAGE>
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 revenues. The deferred barter costs are expensed or capitalized as they
are used, consumed or received. Deferred barter revenues are recognized as the
related advertising is aired.
Financial Instruments
Financial instruments as of December 31, 1998, and September 30, 1999,
consist of cash, trade accounts receivables, accounts payable, accrued expenses
and related party debt, all of which the carrying amounts approximate fair
value.
Segment Reporting
The Company believes it has only one operating segment--radio broadcasting.
2. Debt:
The Company has an unsecured noninterest-bearing note from Greater Media
Tower Company, a related party, which is payable on demand. For the year ended
December 31, 1998, and for the nine months ended September 30, 1998 and 1999,
the Company has imputed an interest charge of $10,000, $8,000 and $8,000,
respectively, using an assumed rate of 6% which is recorded in other income,
net.
3. Commitments:
The Company leases office space for its office and broadcast studios and a
tower site under operating leases which expire through August 31, 2005. Rent
expense for the year ended December 31, 1998, and for the nine months ended
September 30, 1998 and 1999, was $76,000, $53,000 and $61,000, respectively.
The future minimum rental payments for the next five years are as follows:
Year
<TABLE>
<S> <C>
1999 (remaining).................................................... $ 21,000
2000................................................................ 79,000
2001................................................................ 71,000
2002................................................................ 65,000
2003................................................................ 61,000
2004................................................................ 61,000
Thereafter.......................................................... 38,000
---------
$ 396,000
=========
</TABLE>
4. Income Taxes:
As the Company is an S corporation, no provision for income taxes has been
included in the accompanying statements of operations. The Company makes
distributions to its shareholders to cover taxes on the Company's earnings.
F-71
<PAGE>
GREATER MEDIA RADIO COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5.Related Party Transactions:
In addition to the note to Greater Media Tower Company described in Note 2,
the Company has a tower lease agreement with a partnership in which an officer
of the Company is a member. No rent was charged by the partnership for the year
ended December 31, 1998, and the nine months ended September 30, 1999.
The Company also leases office space from a partnership in which an officer
of the Company is a member. No rent was charged to the partnership for the year
ended December 31, 1998, and for the nine months ended September 30, 1999.
The Company estimates that the fair market value of the office space and
tower rent not charged was $40,000, $30,000 and $30,000 for the year ended
December 31, 1998, and for the nine months ended September 30, 1998 and 1999,
respectively. These amounts have been recorded in selling, general and
administrative expense, along with the imputed interest on a related party note
(see Note 2) in the accompanying financial statements. The offset to these
expenses is a capital contribution.
As of December 31, 1998, the Company had a receivable from an officer of the
Company. This receivable was repaid in 1999 through an offset of distributions
to this stockholder.
During the year ended December 31, 1998, and the nine months ended September
30, 1998 and 1999, the Company paid management fees to related parties of
$78,000, $53,000 and $25,000, respectively, which has been recorded in
corporate expenses.
6.Profit sharing Plan:
The Company has a 401(k) and discretionary profit sharing plan covering
substantially all of its employees. There were no contributions to the plan
during the year ended December 31, 1998, and the nine months ended September
30, 1999.
F-72
<PAGE>
[LOGO OF RADIO ONE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimates
except the registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
Amount
to be
Paid
------
<S> <C>
Registration fee......................................................... $
NASD filing fee..........................................................
Nasdaq National Market listing fee.......................................
Printing and engraving expenses..........................................
Legal fees and expenses..................................................
Accounting fees and expenses.............................................
Transfer agent & registrar fees..........................................
Miscellaneous............................................................
----
Total.................................................................. $
====
</TABLE>
- --------
Item 14. Indemnification of Directors and Officers.
Radio One's Amended and Restated By-Laws incorporate substantially the
provisions of the General Corporation Law of the State of Delaware (the "DGCL")
in providing for indemnification of directors and officers against expenses,
judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason of the fact that
such person is or was an officer or director of Radio One. In addition, Radio
One is authorized to indemnify employees and agents of Radio One and may enter
into indemnification agreements with its directors and officers providing
mandatory indemnification to them to the maximum extent permissible under
Delaware law.
Radio One's Amended and Restated Certificate of Incorporation provides that
Radio One shall indemnify (including indemnification for expenses incurred in
defending or otherwise participating in any proceeding) its directors and
officers to the fullest extent authorized or permitted by the DGCL, as it may
be amended, and that such right to indemnification shall continue as to a
person who has ceased to be a director or officer of Radio One and shall inure
to the benefit of his or her heirs, executors and administrators except that
such right shall not apply to proceedings initiated by such indemnified person
unless it is a successful proceeding to enforce indemnification or such
proceeding was authorized or consented to by the board of directors. Radio
One's certificate of incorporation also specifically provides for the
elimination of the personal liability of a director to the corporation and its
stockholders for monetary damages for breach of fiduciary duty as director. The
provision is limited to monetary damages, applies only to a director's actions
while acting within his or her capacity as a director, and does not entitle
Radio One to limit director liability for any judgment resulting from (a) any
breach of the director's duty of loyalty to Radio One or its stockholders;
(b) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of the law; (c) paying an illegal dividend or approving
an illegal stock repurchase; or (d) any transaction from which the director
derived an improper benefit.
Section 145 of the DGCL provides generally that a person sued (other than in
a derivative suit) as a director, officer, employee or agent of a corporation
may be indemnified by the corporation for reasonable expenses, including
counsel fees, if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that the person's conduct was unlawful. In the case
of a derivative suit, a director, officer, employee or agent of the corporation
may be indemnified by the corporation for reasonable expenses, including
attorneys' fees, if the person has acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in the case of a
derivative suit in respect of any claim as to, which such director, officer,
II-1
<PAGE>
for reasonable expenses, including attorneys' fees, if the person has acted in
good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation, except that no
indemnification shall be made in the case of a derivative suit in respect of
any claim as to, which such director, officer, employee or agent has been
adjudged to be liable to the corporation unless the Delaware Court of Chancery
or the court in which such action or suit was brought shall determine that such
person is fairly and reasonably entitled to indemnity for proper expenses.
Indemnification is mandatory under section 145 of the DGCL in the case of a
director or officer who is successful on the merits in defense of a suit
against him.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify Radio One, the directors, certain
officers and controlling persons of Radio One, Inc. against certain
liabilities, including liabilities under the Securities Act. Reference is made
to the form of Underwriting Agreement filed as Exhibit 1.1 hereto.
Radio One maintains directors and officers liability insurance for the
benefit of its directors and certain of its officers.
Item 15. Recent Sales of Unregistered Securities.
On May 19, 1997, Radio One issued approximately $85.5 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>
<C> <S>
1.1 Form of Underwriting Agreement (to be filed by Amendment to this
Registration Statement on Form S-1).
3.1 Certificate of Incorporation of Radio One, Inc. (incorporated by
reference to Radio One's Amendment to its Registration Statement on
Form S-1 filed on May 4, 1999 (File No. 333-74351; Film No. 99610524)).
3.2 Amended and Restated By-laws of Radio One, Inc. (incorporated by
reference to Radio One's Quarterly Report on Form 10-Q for the period
ended June 30, 1999 (File No. 000-25969; Film No. 99686684)).
4.1 Indenture dated as of May 15, 1997 among Radio One, Inc., Radio One
Licenses, Inc. and United States Trust Company of New York
(incorporated by reference to Radio One's Annual Report on Form 10-K
for the period ended December 31, 1997 (File No. 333-30795; Film No.
98581327)).
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
4.2 First Supplemental Indenture dated as of June 30, 1998, to
Indenture dated as of May 15, 1997, by and among Radio One, Inc.,
as Issuer and United States Trust Company of New York, as Trustee,
by and among Radio One, Inc., Bell Broadcasting Company, Radio One
of Detroit, Inc., and United States Trust Company of New York, as
Trustee (incorporated by reference to Radio One's Current Report on
Form 8-K filed July 13, 1998 (File No. 333-30795; Film
No. 98665139)).
4.3 Second Supplemental Indenture dated as of December 23, 1998, to
Indenture dated as of May 15, 1997, by and among Radio One, Inc.,
as Issuer and United States Trust Company of New York, as Trustee,
by and among Radio One, Inc., Allur-Detroit, Allur Licenses, Inc.,
and United States Trust Company of New York, as Trustee
(incorporated by reference to Radio One's Current Report on Form 8-
K filed January 12, 1999 (File No. 333-30795; Film No. 99504706)).
4.7 Standstill Agreement dated as of June 30, 1998 among Radio One,
Inc., the subsidiaries of Radio One, Inc., United States Trust
Company of New York and the other parties thereto (incorporated by
reference to Radio One's Quarterly Report on Form 10-Q for the
period ended June 30, 1998 (File No. 333-30795; Film No.
98688998)).
4.9 Stockholders Agreement dated as of March 2, 1999 among Catherine L.
Hughes and Alfred C. Liggins, III (incorporated by reference to
Radio One's Quarterly Report on Form 10-Q for the period ended June
30, 1999 (File No. 000-25969; Film No. 99686684)).
5.1 Form of Opinion and consent of Kirkland & Ellis (to be filed by
Amendment to this Registration Statement on Form S-1).
10.1 Office Lease dated February 3, 1997 between National Life Insurance
Company and Radio One, Inc. for premises located at 5900 Princess
Garden Parkway, Lanham, Maryland, as amended on February 24, 1997
(incorporated by reference to Radio One's Annual Report on Form 10-
K for the period ended December 31, 1997 (File No. 333-30795; Film
No. 98581327)).
10.1(a) Amendment to Office Lease dated January 22, 1999 between National
Life Insurance Company and Radio One, Inc. for premises located at
5900 Princess Garden Parkway, Lanham, Maryland (incorporated by
reference to Radio One's Quarterly Report on Form 10-Q for the
period ended June 30, 1999 (File No. 000-25969; Film No.
99686684)).
10.3 Office Lease commencing November 1, 1993 between Chalrep Limited
Partnership and Radio One, Inc., with respect to the property
located at 100 St. Paul Street, Baltimore, Maryland (incorporated
by reference to Radio One's Annual Report on Form 10-K for the
period ended December 31, 1997 (File No. 333-30795; Film No.
98581327)).
10.6 Warrantholders' Agreement dated as of June 6, 1995, as amended by
the First Amendment to Warrantholders' Agreement dated as of May
19, 1997, among Radio One, Inc., Radio One Licenses, Inc. and the
other parties thereto (incorporated by reference to Radio One's
Annual Report on Form 10-K for the period ended December 31, 1997
(File No. 333-30795; Film No. 98581327)).
10.7(a) Second Amendment to the Warrantholders' Agreement dated as of May
3, 1999, among Radio One, Inc., Radio One Licenses, Inc. and the
other parties thereto (incorporated by reference to Radio One's
Quarterly Report on Form 10-Q for the period ended June 30, 1999
(File No. 000-25969; Film No. 99686684)).
10.17 Credit agreement dated June 30, 1998 among Radio One, Inc., as the
borrower and NationsBank, N.A., as Documentation Agent and Credit
Suisse First Boston as the Agent (incorporated by reference to
Radio One's Quarterly Report on Form 10-Q for the period ended June
30, 1998 (File No. 333-30795; Film No. 98688998)).
10.21 Time Management and Services Agreement dated March 17, 1998, among
WYCB Acquisition Corporation, Broadcast Holdings, Inc., and Radio
One, Inc. (incorporated by reference to Radio One's Annual Report
on Form 10-K for the period ended December 31, 1997
(File No. 333-30795; Film No. 98581327)).
10.30 Agreement dated February 20, 1998 between WUSQ License Limited
Partnership and Radio One, Inc. (incorporated by reference to Radio
One's Annual Report on Form 10-K for the period ended December 31,
1997 (File No. 333-30795; Film No. 98581327)).
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.40 Merger Agreement dated as of March 30, 1999 relating to the
acquisition of Radio One of Atlanta, Inc. (incorporated by
reference to Radio One's Quarterly Report on Form 10-Q for the
period ended June 30, 1998 (File No. 333-30795; Film No.
98688998)).
10.41 Asset Purchase Agreement dated as of November 23, 1998 (as amended
on December 4, 1998) relating to the acquisition of WFUN-FM,
licensed to Bethalto, Illinois (incorporated by reference to Radio
One's Amendment No. 3 to its registration statement on Form S-1
filed on April 14, 1999 (File No. 333-74351; Film No. 99593769)).
10.42 Asset Purchase Agreement relating to the Acquisition of WENZ-FM
and WERE-AM, both licensed to Cleveland, Ohio (incorporated by
reference to Radio One's Amendment No. 3 to its registration
statement on Form S-1 filed on April 14, 1999 (File No. 333-74351;
Film No. 99593769)).
10.43 Asset Purchase Agreement dated as of February 10, 1999 relating to
the acquisition of WDYL-FM, licensed to Chester, Virginia
(incorporated by reference to Radio One's Amendment No. 3 to its
registration statement on Form S-1 filed on April 14, 1999 (File
No. 333-74351; Film No. 99593769)).
10.44 Asset Purchase Agreement dated as of February 26, 1999 relating to
the acquisition of WJKS-FM, licensed to Crewe Virginia, and WARV-
FM, licensed Petersburg, Virginia (incorporated by reference to
Radio One's Amendment No. 3 to its registration statement on Form
S-1 filed on April 14, 1999 (File No. 333-74351; Film No.
99593769)).
10.45 Asset Purchase Agreement dated as of May 6, 1999 relating to the
acquisition of WCDX-FM, licensed to Mechanicsville, Virginia,
WPLZ-FM, licensed to Petersburg, Virginia, WJRV-FM licensed to
Richmond, Virginia, and WGCV-AM licensed to Petersburg, Virginia
(incorporated by reference to Radio One's Registration Statement
on Form S-1 filed on October 25, 1999 (File No. 333-89607; Film
No. 99732728)).
10.45(a) Time Brokerage Agreement dated May 5, 1999 among Radio One, Inc.
and Sinclair Telecable, Inc. Commonwealth Broadcasting, L.L.C. and
Radio One, Inc. (incorporated by reference to Radio One's
Quarterly Report on Form 10-Q for the period ended June 30, 1999
(File No. 000-25969; Film No. 99686684)).
10.46 Stock Purchase Agreement dated as of October 26, 1998, by and
between Radio One and Syndicated Communications Venture Partners,
II, L.P. (incorporated by reference to Radio One's Annual Report
on Form 10-K for the period ended December 31, 1998
(File No. 333-30795; Film No. 99581532)).
10.50 Amended and Restated Credit Agreement dated as of February 26,
1999, among Radio One, Inc., as the borrower, and Nations Bank,
N.A., as Administrative Agent, and Credit Suisse First Boston, as
the Documentation Agent (incorporated by reference to Radio One's
Amendment No. 3 to its registration statement on Form S-1 filed on
April 14, 1999 (File No. 333-74351; Film No. 99593769)).
10.52 Asset Purchase Agreement dated as of May 24, 1999 relating to the
acquisition of WBOT-FM, licensed to Brockton, Massachusetts
(incorporated by reference to Radio One's Quarterly Report on Form
10-Q for the period ended June 30, 1999 (File No. 000-25969; Film
No. 99686684)).
10.53 Time Brokerage Agreement dated May 24, 1999 among Radio One, Inc.
and Radio Station WBOT-FM, Brockton, Massachusetts (incorporated
by reference to Radio One's Quarterly Report on Form 10-Q for the
period ended June 30, 1999 (File No. 000-25969; Film
No. 99686684)).
10.54 Agreement and Plan of Warrant Recapitalization dated as of
February 25, 1999, among Radio One, Inc., Radio One Licenses, Inc.
and the other parties thereto (incorporated by reference to Radio
One's Quarterly Report on Form 10-Q for the period ended June 30,
1999 (File No. 000-25969; Film No. 99686684)).
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.55 Employment Agreement between Radio One, Inc. and Scott R. Royster
dated effective as of January 1, 1999 (incorporated by reference to
Radio One's Registration Statement on Form S-1 filed on October 25,
1999 (File No. 333-89607; Film No. 99732728)).
10.57 Asset Purchase Agreement dated as of December 1, 1999 relating to the
acquisition of WPLY-FM, licensed to Philadelphia, Pennsylvania.
21.1 Subsidiaries of Radio One, Inc. (incorporated by reference to Radio
One's Registration Statement on Form S-1 filed on March 12, 1999
(File No. 333-74351; Film No. 99564316)).
23.1 Consent of Arthur Andersen, L.L.P.
23.2 Consent of Mitchell & Titus, L.L.P.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
27.1 Financial Data Schedule.
</TABLE>
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 424 (b) (1) or (4)
or 497 (h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-5
<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
February 14, 2000.
Radio One, Inc.
/s/ Scott R. Royster
By: _________________________________
Name: Scott R. Royster
Title:Executive Vice President and
Chief Financial Officer
II-6
<PAGE>
POWER OF ATTORNEY AND SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons on the date
indicated.
We, the undersigned officers and directors of Radio One, Inc., hereby
severally constitute and appoint Alfred C. Liggins, III and Scott R. Royster
and each of them singly, our true and lawful attorneys, with full power to them
and each of them singly, to sign for us in our names in the capacities
indicated below, all pre-effective and post-effective amendments to this
Registration Statement (or any other registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act), and generally to do all things in our names and on our behalf
in such capacities to enable Radio One, Inc. to comply with the provisions of
the Securities Act, as amended, and all requirements of the SEC.
Radio One, Inc.
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----
<S> <C> <C>
/s/ Catherine L. Hughes Chairperson of the Board of February 14, 2000
____________________________________ Directors
Catherine L. Hughes
/s/ Terry L. Jones Director February 14, 2000
____________________________________
Terry L. Jones
/s/ Brian W. McNeill Director February 14, 2000
____________________________________
Brian W. McNeill
/s/ Larry D. Marcus Director February 14, 2000
____________________________________
Larry D. Marcus
/s/ Alfred C. Liggins, III President and Chief February 14, 2000
____________________________________ Executive Officer
Alfred C. Liggins, III (Principal Executive
Officer) and Director
/s/ Scott R. Royster Executive Vice President and February 14, 2000
____________________________________ Chief Financial Officer
Scott R. Royster (Principal Financial and
Accounting Officer)
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement (to be filed by Amendment to
this Registration Statement on Form S-1).
3.1 Certificate of Incorporation of Radio One, Inc. (incorporated
by reference to Radio One's Amendment to its Registration
Statement on Form S-1 filed on May 4, 1999 (File No. 333-
74351; Film No. 99610524)).
3.2 Amended and Restated By-laws of Radio One, Inc. (incorporated
by reference to Radio One's Quarterly Report on Form 10-Q for
the period ended June 30, 1999 (File No. 000-25969; Film
No. 99686684)).
4.1 Indenture dated as of May 15, 1997 among Radio One, Inc.,
Radio One Licenses, Inc. and United States Trust Company of
New York (incorporated by reference to Radio One's Annual
Report on Form 10-K for the period ended December 31, 1997
(File No. 333-30795; Film No. 98581327)).
4.2 First Supplemental Indenture dated as of June 30, 1998, to
Indenture dated as of May 15, 1997, by and among Radio One,
Inc., as Issuer and United States Trust Company of New York,
as Trustee, by and among Radio One, Inc., Bell Broadcasting
Company, Radio One of Detroit, Inc., and United States Trust
Company of New York, as Trustee (incorporated by reference to
Radio One's Current Report on Form 8-K filed July 13, 1998
(File No. 333-30795; Film No. 98665139)).
4.3 Second Supplemental Indenture dated as of December 23, 1998,
to Indenture dated as of May 15, 1997, by and among Radio One,
Inc., as Issuer and United States Trust Company of New York,
as Trustee, by and among Radio One, Inc., Allur-Detroit, Allur
Licenses, Inc., and United States Trust Company of New York,
as Trustee (incorporated by reference to Radio One's Current
Report on Form 8-K filed January 12, 1999 (File No. 333-30795;
Film No. 99504706)).
4.7 Standstill Agreement dated as of June 30, 1998 among Radio
One, Inc., the subsidiaries of Radio One, Inc., United States
Trust Company of New York and the other parties thereto
(incorporated by reference to Radio One's Quarterly Report on
Form 10-Q for the period ended June 30, 1998 (File No. 333-
30795; Film No. 98688998)).
4.9 Stockholders Agreement dated as of March 2, 1999 among
Catherine L. Hughes and Alfred C. Liggins, III (incorporated
by reference to Radio One's Quarterly Report on Form 10-Q for
the period ended June 30, 1999 (File No. 000-25969; Film No.
99686684)).
5.1 Form of Opinion and consent of Kirkland & Ellis (to be filed
by Amendment to this Registration Statement on Form S-1).
10.1 Office Lease dated February 3, 1997 between National Life
Insurance Company and Radio One, Inc. for premises located at
5900 Princess Garden Parkway, Lanham, Maryland, as amended on
February 24, 1997 (incorporated by reference to Radio One's
Annual Report on Form 10-K for the period ended December 31,
1997 (File No. 333-30795; Film No. 98581327)).
10.1(a) Amendment to Office Lease dated January 22, 1999 between
National Life Insurance Company and Radio One, Inc. for
premises located at 5900 Princess Garden Parkway, Lanham,
Maryland (incorporated by reference to Radio One's Quarterly
Report on Form 10-Q for the period ended June 30, 1999 (File
No. 000-25969; Film No. 99686684)).
10.3 Office Lease commencing November 1, 1993 between Chalrep
Limited Partnership and Radio One, Inc., with respect to the
property located at 100 St. Paul Street, Baltimore, Maryland
(incorporated by reference to Radio One's Annual Report on
Form 10-K for the period ended December 31, 1997 (File No.
333-30795; Film No. 98581327)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page
------- ----------- ----
<C> <S> <C>
10.6 Warrantholders' Agreement dated as of June 6, 1995, as
amended by the First Amendment to Warrantholders' Agreement
dated as of May 19, 1997, among Radio One, Inc., Radio One
Licenses, Inc. and the other parties thereto (incorporated by
reference to Radio One's Annual Report on Form 10-K for the
period ended December 31, 1997 (File No. 333-30795; Film
No. 98581327)).
10.7(a) Second Amendment to the Warrantholders' Agreement dated as of
May 3, 1999, among Radio One, Inc., Radio One Licenses, Inc.
and the other parties thereto (incorporated by reference to
Radio One's Quarterly Report on Form 10-Q for the period
ended June 30, 1999 (File No. 000-25969; Film No. 99686684)).
10.17 Credit agreement dated June 30, 1998 among Radio One, Inc.,
as the borrower and NationsBank, N.A., as Documentation Agent
and Credit Suisse First Boston as the Agent (incorporated by
reference to Radio One's Quarterly Report on Form 10-Q for
the period ended June 30, 1998 (File No. 333-30795; Film No.
98688998)).
10.21 Time Management and Services Agreement dated March 17, 1998,
among WYCB Acquisition Corporation, Broadcast Holdings, Inc.,
and Radio One, Inc. (incorporated by reference to Radio One's
Annual Report on Form 10-K for the period ended December 31,
1997 (File No. 333-30795; Film No. 98581327)).
10.30 Agreement dated February 20, 1998 between WUSQ License
Limited Partnership and Radio One, Inc. (incorporated by
reference to Radio One's Annual Report on Form 10-K for the
period ended December 31, 1997 (File No. 333-30795; Film No.
98581327)).
10.40 Merger Agreement dated as of March 30, 1999 relating to the
acquisition of Radio One of Atlanta, Inc. (incorporated by
reference to Radio One's Quarterly Report on Form 10-Q for
the period ended June 30, 1998 (File No. 333-30795; Film No.
98688998)).
10.41 Asset Purchase Agreement dated as of November 23, 1998 (as
amended on December 4, 1998) relating to the acquisition of
WFUN-FM, licensed to Bethalto, Illinois (incorporated by
reference to Radio One's Amendment No. 3 to its registration
statement on Form S-1 filed on April 14, 1999 (File No. 333-
74351; Film No. 99593769)).
10.42 Asset Purchase Agreement relating to the Acquisition of WENZ-
FM and WERE-AM, both licensed to Cleveland, Ohio
(incorporated by reference to Radio One's Amendment No. 3 to
its registration statement on Form S-1 filed on April 14,
1999 (File No. 333-74351; Film No. 99593769)).
10.43 Asset Purchase Agreement dated as of February 10, 1999
relating to the acquisition of WDYL-FM, licensed to Chester,
Virginia (incorporated by reference to Radio One's Amendment
No. 3 to its registration statement on Form S-1 filed on
April 14, 1999 (File No. 333-74351; Film No. 99593769)).
10.44 Asset Purchase Agreement dated as of February 26, 1999
relating to the acquisition of WJKS-FM, licensed to Crewe
Virginia, and WARV-FM, licensed Petersburg, Virginia
(incorporated by reference to Radio One's Amendment No. 3 to
its registration statement on Form S-1 filed on April 14,
1999 (File No. 333-74351; Film No. 99593769)).
10.45 Asset Purchase Agreement dated as of May 6, 1999 relating to
the acquisition of WCDX-FM, licensed to Mechanicsville,
Virginia, WPLZ-FM, licensed to Petersburg, Virginia, WJRV-FM
licensed to Richmond, Virginia, and WGCV-AM licensed to
Petersburg, Virginia (incorporated by reference to Radio
One's Registration Statement on Form S-1 filed on October 25,
1999 (File No. 333-89607; Film No. 99732728)).
10.45(a) Time Brokerage Agreement dated May 5, 1999 among Radio One,
Inc. and Sinclair Telecable, Inc. Commonwealth Broadcasting,
L.L.C. and Radio One, Inc. (incorporated by reference to
Radio One's Quarterly Report on Form 10-Q for the period
ended June 30, 1999 (File No. 000-25969; Film No. 99686684)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page
------- ----------- ----
<C> <S> <C>
10.46 Stock Purchase Agreement dated as of October 26, 1998, by and
between Radio One and Syndicated Communications Venture
Partners, II, L.P. (incorporated by reference to Radio One's
Annual Report on Form 10-K for the period ended December 31,
1998 (File No. 333-30795; Film No. 99581532)).
10.50 Amended and Restated Credit Agreement dated as of February 26,
1999, among Radio One, Inc., as the borrower, and Nations Bank,
N.A., as Administrative Agent, and Credit Suisse First Boston,
as the Documentation Agent (incorporated by reference to Radio
One's Amendment No. 3 to its registration statement on Form S-1
filed on April 14, 1999 (File No. 333-74351; Film No.
99593769)).
10.52 Asset Purchase Agreement dated as of May 24, 1999 relating to
the acquisition of WBOT-FM, licensed to Brockton, Massachusetts
(incorporated by reference to Radio One's Quarterly Report on
Form 10-Q for the period ended June 30, 1999 (File No. 000-
25969; Film No. 99686684)).
10.53 Time Brokerage Agreement dated May 24, 1999 among Radio One,
Inc. and Radio Station WBOT-FM, Brockton, Massachusetts
(incorporated by reference to Radio One's Quarterly Report on
Form 10-Q for the period ended June 30, 1999 (File No. 000-
25969; Film No. 99686684)).
10.54 Agreement and Plan of Warrant Recapitalization dated as of
February 25, 1999, among Radio One, Inc., Radio One Licenses,
Inc. and the other parties thereto (incorporated by reference
to Radio One's Quarterly Report on Form 10-Q for the period
ended June 30, 1999 (File No. 000-25969; Film No. 99686684)).
10.55 Employment Agreement between Radio One, Inc. and Scott R.
Royster dated effective as of January 1, 1999 (incorporated by
reference to Radio One's Registration Statement on Form S-1
filed on October 25, 1999 (File No. 333-89607; Film No.
99732728)).
10.57 Asset Purchase Agreement dated as of December 1, 1999 relating
to the acquisition of WPLY-FM, licensed to Philadelphia,
Pennsylvania.
21.1 Subsidiaries of Radio One, Inc. (incorporated by reference to
Radio One's Registration Statement on Form S-1 filed on March
12, 1999 (File No. 333-74351; Film No. 99564316)).
23.1 Consent of Arthur Andersen, L.L.P.
23.2 Consent of Mitchell & Titus, L.L.P.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
27.1 Financial Data Schedule.
</TABLE>
<PAGE>
Exhibit 10.57
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of December 1,
1999 by and between Greater Media Radio Company, a Pennsylvania corporation
("Seller") and Radio One, Inc., a Delaware corporation ("Buyer").
Recitals
--------
Seller owns and operates radio broadcast station WPLY(FM), Media, Pennsylvania
(the "Station") pursuant to certain licenses, permits and authorizations (as
further defined below, the "FCC Authorizations") issued by the Federal
Communications Commission (the "FCC"); and
Seller desires to sell to Buyer, and Buyer desires to purchase from Seller,
the Station Assets (defined below), subject to the terms and conditions of this
Agreement.
Agreement
---------
NOW, THEREFORE, taking the foregoing into account, and in consideration of the
mutual covenants and agreements set forth herein, the parties, intending to be
legally bound, hereby agree as follows:
ARTICLE 1: SALE AND PURCHASE
-----------------
1.1 Station Assets. Subject to and in reliance upon the representations,
--------------
warranties and agreements herein set forth, and subject to the terms and
conditions herein contained, Seller shall grant, convey, sell, assign, transfer
and deliver to Buyer on the Closing Date (as hereinafter defined) all right,
title and interest of Seller in all properties, assets, privileges, rights,
interests and claims, the Roxborough Lease (defined below), personal property,
tangible and intangible, of every type and description, wherever located,
including its business and goodwill (except for Excluded Assets as defined in
Section 1.2) used or held for use in the business or operation of the Station
(collectively, the "Station Assets"). Without limiting the foregoing, the
Station Assets shall include the following:
(a) FCC Authorizations. All of the FCC Authorizations issued with
------------------
respect to the Station, including without limitation all rights in and to the
Station's call letters and any variations thereof, and all of those FCC
Authorizations listed and described on Schedule 1.1(a) attached hereto, and all
---------------
applications therefor, together with any renewals or extensions thereof and
additions thereto (collectively, the "FCC Authorizations").
(b) Tangible Personal Property. All interests of Seller as of the date
--------------------------
of this Agreement in all equipment, electrical devices, antennas, cables,
vehicles, furniture, fixtures, STL supporting structures at the Studio Site,
office materials and supplies, hardware, tools, spare parts, and other tangible
personal property of every kind and description, used or held for use in
<PAGE>
connection with the business or operation of the Station, including without
limitation those listed and described on Schedule 1.1(b) attached hereto,
---------------
and any additions and improvements thereto between the date of this Agreement
and the Closing Date (collectively, the "Tangible Personal Property").
(c) Real Property. All interests of Seller as of the date of this
-------------
Agreement under its Roxborough auxiliary transmitter site Lease Agreement dated
October 1, 1996 by and between Cornerstone TeleVision, Inc. (as lessor) and
Greater Media Radio Company (as lessee) (the "Roxborough Lease") (together with
the Studio Lease and the Tower Lease (each defined below), collectively, the
"Real Property").
(d) Time Sales Agreements. Those obligations of Seller that exist on
---------------------
the Closing Date for the sale of air time on the Station for cash entered in the
ordinary course of business, at commercially reasonable rates and cancelable
without penalty on no more than thirty (30) days notice (the "Time Sales
Agreements").
(e) Station Contracts. Those contracts and agreements used in
-----------------
connection with the business or operation of the Station that are listed and
described on Schedule 1.1(e) attached hereto (the "Station Contracts") and those
---------------
contracts that Buyer shall elect in writing to assume at Closing.
(f) Intangible Property. All interests, if any and to whatever extent,
-------------------
of Seller as of the date of this Agreement in all trademarks, trade names,
service marks, franchises, patents, jingles, slogans, logotypes and other
intangible rights, used or held for use in connection with the business or
operation of the Station, if any, including without limitation all right, title
and interest in and to the mark consisting of the Station's call letters and any
variations thereof, and all of those listed and described on Schedule 1.1(f)
---------------
attached hereto, and those acquired by Seller between the date hereof and the
Closing Date (collectively and together with the Websites (defined below), the
"Intangible Property").
(g) Programming and Copyrights. All interests of Seller as of the date
--------------------------
of this Agreement in all programs and programming materials and elements of
whatever form or nature used or held for use in the business or operation of the
Station, whether recorded on tape or any other substance or intended for live
performance, and whether completed or in production, and all related common-law
and statutory copyrights used or held for use in the business or operation of
the Station, if any, together with all such programs, materials, elements and
copyrights acquired by Seller in the business or operation of the Station
between the date hereof and the Closing Date, if any.
(h) Files and Records. All FCC logs and other records that relate to
-----------------
the operation of the Station; all financial statements, balance sheets,
compilations, analyses and other financial records; and all files and other
records of Seller relating to the business or operation of the Station (other
than duplicate copies of such files ("Duplicate Records")), including without
limitation all schematics, blueprints, engineering data, customer lists,
reports, specifications, projections, statistics, promotional graphics, original
2
<PAGE>
art work, mats, plates, negatives and other advertising, marketing or related
materials, and all other technical and financial information concerning the
Station or the Station Assets any of the foregoing of which are in the
possession or control of the Seller.
(i) Claims. Any and all claims and rights against third parties under
------
manufacturers' and vendors' warranties, which have not been made prior to
Closing.
(j) Prepaid Items. All prepaid expenses relating to the Station and
-------------
prepaid taxes relating to the Station or the Station Assets, all of which shall
be adjusted in accordance with Section 1.7.
(k) Goodwill. All of Seller's goodwill in, and going concern value
--------
of, the Station.
(l) Internet Websites. Without limiting the foregoing, all interests,
-----------------
if any, and to whatever extent, of Seller in any internet domain leases and
domain names of Seller relating to the Station, the unrestricted right to the
use of HTML content located and publicly accessible from those domain names,
and, to the extent allowed by law and provided Seller legally is capable of
making such transfer without the consent of "visitors" or any other third
parties, the "visitor" email data base for those sites (collectively, the
"Websites").
The Station Assets shall be sold and conveyed to Buyer free and clear of all
mortgages, liens, deeds of trust, security interests, pledges, restrictions,
prior assignments, charges, claims, defects in title and encumbrances of any
kind or type whatsoever (collectively, "Liens") except: (i) liens for taxes not
yet due and payable for which Buyer receives a Purchase Price adjustment under
Section 1.7; and (ii) the post-Closing obligations of Seller which Buyer will
assume under the Station Contracts ("Permitted Encumbrances").
1.2 Excluded Assets. There shall be excluded from the Station Assets and
---------------
retained by Seller to the extent in existence on the Closing Date, all accounts
receivable; cash; cash equivalents; bank accounts, reserves, and deposits;
publicly traded securities; all corporate books and records (other than those
described in Section 1.1(h)); tax returns and worksheets; insurance policies and
all claims or rights to payment thereunder, other than as set forth in Section
10.7 (Risk of Loss); any contracts and agreements not included in the Station
Contracts; pension, profit sharing and all other employee benefit plans; any
Duplicate Records; any causes of action and claims of Seller arising out of or
relating to transactions or occurrences prior to the Closing Date, other than
those described in Section 1.1(i) above; rights to any tax refunds for tax
periods ending on or prior to the Closing; any contracts not expressly assumed
by Buyer; and the tangible personal property located at the office of Daniel
Lerner as listed on Schedule 1.2 (the "Excluded Assets").
------------
In addition, it is specifically understood and agreed the Station Assets do
not include the Studio Site (as hereinafter defined) and the Tower Site (as
hereinafter defined).
3
<PAGE>
1.3 Liabilities.
-----------
(a) At Closing, Buyer shall execute and deliver to Seller an agreement,
in form and content, reasonably acceptable to Seller and Buyer, pursuant to
which Buyer shall assume and agree to pay, perform and discharge each of the
following solely to the extent liability therefore relates to the business and
operations of the Station from and after the Closing Date (collectively, the
"Assumed Obligations"):
(i) Seller's liabilities, obligations and commitments, contingent
or otherwise, asserted or unasserted, and matured or unmatured, under or
otherwise in respect of the Roxborough Lease; all Station Contracts; and Time
Sales Agreements hereunder;
(ii) Barter Agreements (defined below) consistent with Sections
1.7(b) and 4.1 of this Agreement;
(iii) agreements entered into with Buyer's written consent;
(iv) agreements for miscellaneous services or supplies and other
commitments and contracts of Seller relating to the business and operations of
the Station: (x) entered into after the date hereof consistent with Section 4.1
and outstanding as of the Closing Date which individually do not involve a
commitment of more than Five Thousand ($5,000.00) Dollars and which in the
aggregate do not exceed Fifty Thousand ($50,000.00) Dollars or which can be
terminated on no more than thirty (30) days notice without penalty, and (y)
specified at Closing in a schedule reasonably acceptable to Buyer and Seller;
and
(v) all of Sellers' liabilities and obligations relating to the
business and operations of the Station which are allocated or prorated to Buyer
pursuant to Section 1.7(a) of this Agreement (Adjustments to Purchase Price).
(b) Other than as set forth above in this section, Buyer shall not
assume any liabilities, obligations, debts or commitments whatsoever (all such
liabilities, obligations, debts and commitments, collectively, the "Retained
Liabilities"). The Retained Liabilities include, without limitation: (i) any
liability or obligation of Seller arising out of or relating to any contract,
lease agreement, or instrument (other than the Assumed Obligations); (ii) any
liability or obligation of Seller arising out of or relating to any employee
benefit plan or otherwise relating to employment, including employment
obligations not assumed by Buyer, required by law or by employment handbooks,
policies or contracts through the Closing Date; (iii) any liability or
obligation of Seller arising out of or relating to any litigation, proceeding or
claim relating to events or omissions before the Closing Date; (iv) any other
liabilities, obligations, debts or commitments of Seller whatsoever, whether
accrued now or hereafter, whether fixed or contingent, whether known or unknown;
or (v) any claims asserted against the Station or any of the Station Assets
relating to any event (whether act or omission) prior to the Closing Date,
including without limitation, the payment of all taxes. Seller retains and shall
hereafter pay, satisfy, discharge, perform and fulfill all Retained Liabilities
as they become due, unless contested in good faith by Seller, without any charge
or cost to Buyer.
4
<PAGE>
1.4 Purchase Price.
--------------
(a) Amount. The purchase price to be paid for the Station Assets shall
------
be Eighty Million Dollars ($80,000,000), as adjusted pursuant to Section 1.7
hereof (the "Purchase Price").
(b) Payment. Upon Closing, the Purchase Price shall be paid in cash in
-------
immediately available funds by Fedwire transfer pursuant to written instructions
of the Seller to be delivered by Seller to Buyer at least three (3) business
days prior to Closing.
1.5 Deposit. Upon execution of this Agreement, Buyer shall deposit Three
-------
Million Seven Hundred and Fifty Thousand Dollars ($3,750,000) (the "Deposit")
into escrow with Wilmington Trust Company (the "Escrow Agent"), pursuant to the
Escrow Agreement of even date herewith among Buyer, Seller and the Escrow Agent.
At Closing, the Deposit shall be paid to Seller as a partial payment of the
Purchase Price, and all interest earned thereon shall be returned to Buyer. If
this Agreement is terminated by Seller pursuant to Section 10.1(h) or 10.1(i),
then the Deposit shall be disbursed to Seller as liquidated damages and such
disbursement shall be the sole and exclusive remedy of Seller. Seller hereby
waives all other legal and equitable rights and remedies it may otherwise have
as a result of any breach or default by Buyer under this Agreement. If this
Agreement is terminated without a Closing for any other reason, then the Deposit
and all interest thereon shall be returned to Buyer. Seller and Buyer shall
each solely act in good faith to instruct the Escrow Agent to disburse the
Deposit and all interest thereon in accordance with this Agreement and shall
not, by any act or omission, delay or prevent any such disbursement.
1.6 Allocation. Concurrent with Closing, or, if later, within 90 days
----------
thereafter, Buyer and Seller will allocate the Purchase Price in accordance with
the respective fair market values of the Station Assets and the goodwill being
purchased and sold in accordance with the requirements of Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"). The allocation shall be
pursuant to a schedule prepared by Buyer and mutually agreeable to the parties.
Buyer and Seller each further agrees to file its federal income tax returns and
its other tax returns reflecting such allocation.
1.7 Adjustments.
-----------
(a) The operation of the Station and the income and normal operating
expenses attributable thereto through the date preceding the Closing Date (the
"Adjustment Date") shall be for the account of Seller and thereafter for the
account of Buyer, and, if any income or expense is properly allocable or
credited, then it shall be allocated, charged or prorated accordingly. Expenses
for goods or services received both before and after the Adjustment Date, power
and utilities charges, frequency discounts, and rents and similar prepaid and
deferred items shall be prorated between Seller and Buyer as of the Adjustment
Date in accordance with generally accepted accounting principles. All special
assessments and similar charges or liens imposed against the Tangible Personal
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Property in respect of any period of time through the Adjustment Date, whether
payable in installments or otherwise, shall be the responsibility of Seller, and
amounts payable with respect to such special assessments, charges or liens in
respect of any period of time after the Adjustment Date shall be the
responsibility of Buyer, and such charges shall be adjusted accordingly. To the
extent that any of the foregoing prorations and adjustments cannot be determined
as of the Closing Date, Buyer and Seller shall conduct a final accounting and
make any further payments, as required on a date mutually agreed upon, within
ninety (90) days after the Closing.
(b) With respect to trade, barter or similar agreements for the sale of
time for goods or services ("Barter Agreements") assumed by Buyer pursuant to
Sections 1.3(a)(i) or 1.3(a)(ii), if any, if there exists on the date of
assumption an aggregate negative barter balance (i.e., the amount by which the
value of air time (based upon the Station's then prevailing rates) to be
provided exceeds the fair market value of goods or services to be received
therefor), then, to the extent such excess is greater than $35,000 in the
aggregate for the Station, it will be treated as prepaid time sales and adjusted
for as a proration in Buyer's favor. If, however, there exists on such date an
aggregate positive barter balance (i.e., the amount by which the value of air
time (based upon the Station's then prevailing rates) to be provided is less
than the fair market value of goods or services to be received therefor) with
respect to Barter Agreements assumed by Buyer, there shall be no proration in
Seller's favor.
1.8 Closing. The time and date of closing ("Closing") hereunder (the
-------
"Closing Date") shall be the date specified by Buyer on at least five days'
prior written notice to Seller, which date is not earlier than the fifth
business day, and not later than the tenth business day, after the date that the
FCC Consent shall become a Final Order (defined below), and in the event Buyer
shall fail to specify a Closing Date, the Closing Date shall be 10:00 AM local
time the date that is ten business days after the date that the FCC Consent
shall become a Final Order, or at such other place, time or date as Buyer and
Seller may mutually agree in writing; provided, however, that Buyer may in its
sole discretion waive the requirement that the FCC Consent shall have become a
Final Order and elect to close after the release of initial FCC approval on
public notice that it has consented to the transaction upon a date which may be
mutually agreed by Seller and Buyer; and provided further that the Closing shall
occur no later than July 31, 2000 (which shall be extended to the extent of any
cure period that becomes available under Section 10.1(g) or 10.1(i)) (the "Final
Closing Date"). Notwithstanding anything to the contrary, Seller and Buyer
agree that the Closing Date shall be extended until the tenth business day in
the year 2000 in the event the Closing Date would otherwise be earlier than such
date. The Closing shall occur at the law offices of Rothman Gordon Foreman &
Groudine, P.C., Third Floor, Grant Building, Pittsburgh, Pennsylvania 15219 or
such other place as to which the Parties may mutually agree in writing.
1.9 FCC Application.
---------------
(a) As soon as possible (but in no event later than ten business days
after the date of this Agreement) Seller and Buyer shall file an application
with the FCC (the "FCC Application") requesting the FCC's written consent to the
assignment of the FCC Authorizations from Seller to Buyer or, at Buyer's option,
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to Buyer's wholly-owned subsidiary Radio One Licenses, Inc., pursuant to this
Agreement. Seller and Buyer shall diligently take all steps that are necessary,
proper or desirable to expedite the prosecution of the FCC Application to a
favorable conclusion. Each party shall promptly provide the other with a copy of
any pleading, order or other document served on it relating to the FCC
Application, shall furnish all information required by the FCC, and shall be
represented at all meetings or hearings scheduled to consider the FCC
Application.
(b) The FCC's written consent to the FCC Application is referred to
herein as the "FCC Consent." For purposes of this Agreement, the term "Final
Order" shall mean that action shall have been taken by the FCC (including action
duly taken by the FCC's staff, pursuant to delegated authority) which shall not
have been reversed, stayed, enjoined, set aside, annulled or suspended; with
respect to which no timely request for stay, petition for rehearing, appeal or
certiorari or sua sponte action of the FCC with comparable effect shall be
--- ------
pending; and as to which the time for filing any such request, petition, appeal,
certiorari or for the taking of any such sua sponte action by the FCC shall
--- ------
have expired or otherwise terminated.
1.10 Hart-Scott-Rodino. As soon as possible (but in no event later than ten
-----------------
business days after the date of this Agreement), Buyer and Seller, at Buyer's
sole cost and expense, shall prepare and file with the Federal Trade Commission
and the United States Department of Justice any documents that may be necessary
to comply with the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act") (including a request for early termination of the waiting period
thereunder) and Buyer shall promptly deliver to Seller a true and correct copy
of that which was filed and Buyer, with Seller's cooperation, shall thereafter
promptly furnish all materials thereafter requested by such agencies with copy
to Seller.
1.11 Studio Lease. At the Closing, Seller shall cause its affiliate (the
------------
"Studio Site Owner") that owns the real property used as the Station's studio
(the "Studio Site") to enter into a lease of such property, including all
portions of the Studio Site currently or historically used in connection with
the business or operations of the Station and including, without limitation, the
space used for the Station's STLs and any other transmission equipment, in form
and substance reasonably satisfactory to Buyer and Seller (the "Studio Lease");
provided, however, the personal office of Daniel Lerner consisting of 275 sq.
feet, more or less, and one reserved parking space nearest the main entrance to
the building shall be retained by Studio Site Owner for its own use and shall
not be leased to Buyer. The Studio Lease shall commence upon the Closing Date,
shall be for a term of one year, at a monthly rental rate of $7,500, with Buyer
responsible for all utilities and regular maintenance, and shall be terminable
by Buyer upon 30 days notice without further liability of Buyer other than rent,
utilities and regular maintenance through the date of termination.
1.12 Tower Lease. At the Closing, Seller shall cause its affiliate Greater
-----------
Media Tower Company (the "Tower Site Lessee") that leases the real property used
as the Station's tower site for its main transmitter (the "Tower Site") and owns
the tower and transmitter building located at the Tower Site to enter into a
lease of such space on such tower and on the ground at such property as
currently or historically used by the Station in form and substance reasonably
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satisfactory to Buyer and Seller (the "Tower Lease"). The Tower Lease shall
commence upon the Closing Date, shall be for a term expiring September 30, 2017,
and for no rent (all rental consideration being given hereunder with Buyer
responsible for electricity used by the Station's transmitting equipment
(separate metering or sub-metering equipment to be installed at Buyer's
expense)), provided that Buyer shall reimburse the Tower Site Lessee for Buyer's
proportionate share (which shall be deemed to be 50%) of regular maintenance of
the tower and real property taxes charged to the Tower Site Lessee by the Lessor
of the Tower Site pursuant to the Lease Agreement that commenced October 1, 1997
relating thereto (the "Tower Site Lease"). The Tower Lease shall terminate upon
the demised premises ceasing to serve as a transmitter site for the Station.
1.13 Collection of Accounts Receivable.
---------------------------------
(a) Seller hereby appoints Buyer its agent, for the balance of the
calendar month in which Closing shall have occurred and for four (4) calendar
months thereafter (the "Period of Collection"), to collect accounts receivable
owing to Seller with respect to the Station as of 12:01 a.m. current local time
on the Closing Date. Within five (5) business days after the Closing Date,
Seller shall deliver to Buyer a detailed statement (the "A/R Statement") of such
accounts receivable, listing each account debtor, the respective amounts due and
whether (and when) each such account debtor has been billed. Seller's accounts
receivable shall not be purchased by Buyer but shall remain the property of
Seller. Buyer agrees, however, that for the aforesaid Period of Collection,
Buyer shall use reasonable good faith efforts to collect said accounts
receivable for the account of Seller. Such efforts by Buyer shall not require
(i) the retention of any attorney or the institution of suit or referral to a
collection or similar agency, or (ii) the institution of any proceeding against
an account debtor under any bankruptcy, insolvency or similar law affecting the
rights of creditors generally. Seller agrees to cooperate with Buyer to
facilitate the collection of accounts receivable, including by executing and
delivering any necessary powers of attorney for the deposit of checks.
(b) Any amounts collected by Buyer during the Period of Collection from
an account debtor listed on the A/R Statement who also is indebted to Buyer
shall first be applied to the accounts receivable to be collected by Buyer on
Seller's behalf, unless such account debtor disputes in writing the amount or
liability of any account shown on the A/R Statement to be due and owing to
Seller, in which case, Buyer, at its sole election, may return such disputed
account to Seller for collection (without any further obligation to apply funds
subsequently received from such account debtor to Seller's accounts receivable)
or may pay to Seller the full amount of the disputed account and retain the
account. Buyer shall promptly report such disputes and requests to Seller.
(c) On or before the fifteenth (15th) day of each of the second, third,
fourth and fifth calendar months immediately following the Closing Date, Buyer
shall pay over to Seller, all of Seller's accounts receivable collected by Buyer
during the previous month (the first such payment also to include the balance of
the month in which Closing shall have occurred).
8
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(d) Buyer agrees that it may not settle, discount payment of, extend the
terms of, or otherwise compromise any of Seller's accounts receivable, except as
consented to in writing by Seller. If any account debtor is in bankruptcy,
reorganization or similar proceeding, Seller will have the full collection
responsibility as to such account and the same will no longer be deemed a
Seller's account receivable hereunder; and, Buyer will give notice of any such
bankruptcy, reorganization or other proceeding to Seller promptly after
receiving notice thereof.
(e) Buyer does not guarantee the collection of the whole or any part of
Seller's accounts receivable and shall have no liability to Seller for the
uncollectability of any of Seller's accounts receivable.
(f) Buyer and Seller agree that, without cost to the other, each one's,
bookkeeper will work closely with the bookkeeper of the other and will supply
all information and accommodations as reasonably requested and, in order to
facilitate Buyer's collection of Seller's accounts receivable hereunder, Seller
agrees to maintain at its own expense the software system currently in use and
to assist Buyer in operating such software.
(g) At the end of the Period of Collection, Buyer shall return to Seller
for collection all of Seller's accounts receivable uncollected during the Period
of Collection, and Buyer shall have no further obligation with respect to the
collection thereof.
ARTICLE 2: REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
To induce Buyer to enter into this Agreement and to consummate the
transactions contemplated hereby, Seller represents and warrants (and where
appropriate covenants) to Buyer as follows:
2.1 Organization. Seller is duly organized, validly existing and in good
------------
standing under the laws of the jurisdiction of its organization (as first set
forth above). Seller has the requisite power and authority to own and operate
the Station, to carry on the Station's business as now conducted by it, and to
execute and deliver this Agreement and all of the other agreements and
instruments to be executed and delivered Seller pursuant hereto (collectively,
the "Seller Ancillary Agreements"), to consummate the transactions contemplated
hereby and thereby and to comply with the terms, conditions and provisions
hereof and thereof.
2.2 Authority. The execution, delivery and performance of this Agreement
---------
and the Seller Ancillary Agreements by Seller have been duly authorized and
approved by all necessary action of Seller and do not require any further
authorization or consent of Seller. This Agreement is, and each Seller
Ancillary Agreement when executed and delivered by Seller and the other parties
thereto will be, a legal, valid and binding agreement of Seller enforceable in
accordance with its respective terms, except in each case as such enforceability
may be limited by bankruptcy, moratorium, insolvency, reorganization or other
similar laws affecting or limiting the enforcement of creditors' rights
9
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generally and except as such enforceability is subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
2.3 No Conflicts. Except as set forth in correspondence from Seller to
------------
Buyer dated November 22, 1999, neither the execution and delivery by Seller of
this Agreement and the Seller Ancillary Agreements or the consummation by Seller
of any of the transactions contemplated hereby or thereby nor compliance by
Seller with or fulfillment by Seller of the terms, conditions and provisions
hereof or thereof will:
(i) conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event creating
rights of acceleration, termination or cancellation or a loss of rights under,
or result in the creation or imposition of any Lien upon any of the Station
Assets under, the charter or other organizational documents of Seller, or any
contract, lease, agreement or instrument, or any governmental license, permit or
authorization, or any judgment, order, award or decree to which Seller is a
party or any of the Station Assets is subject or by which Seller is bound, or
any statute, other law or regulatory provision affecting Seller or the Station
Assets; or
(ii) require the approval, consent, authorization or act of, or the
making by Seller of any declaration, filing or registration with, any third
party except for those consents, if any, which are to be delivered at Closing
hereunder or any foreign, federal, state or local court, governmental or
regulatory authority or body, except for such of the foregoing as are necessary
pursuant to the HSR Act and the Communications Act (defined below).
2.4 Financial Statements.
--------------------
(a) Seller has furnished Buyer with unaudited financial statements
used by Seller in the preparation of its federal and state tax returns for
fiscal years 1996, 1997 and 1998 as well as unaudited monthly financial
statements for the period from January 1, 1999 through June 30, 1999. Pursuant
to Section 4.2, Seller will, each month, furnish to Buyer unaudited monthly
financial statements for the subject calendar month as well as financial
statements for the year to date period. In addition, Seller will deliver
financial statements for the comparable month and year to date period for the
previous calendar year. So, for example, on December 31st, Seller would deliver
financial statements for the following periods: (i) October, 1999; (ii) January
1, 1999 through October 31, 1999; (iii) October, 1998; and (iv) January 1, 1998
through October 31, 1998. The financial statements described in the preceding
sentences and in Section 4.2 shall be collectively referred to as "Financial
Statements". The Financial Statements: (x) have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved and as compared with prior periods; and (y)
fairly present Seller's financial position, income, expenses, assets,
liabilities, and the results of operations of the Station as of the dates and
for the periods indicated. There has been no material adverse change in the
financial condition of the Station since the preparation of the most recent
annual or monthly Financial Statement.
(b) Except as reflected in the balance sheets included in the
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Financial Statements dated June 30, 1999, including the notes thereto or
otherwise disclosed in this Agreement or the schedules hereto, and except for
the current liabilities and obligations incurred in the ordinary course of
business of the Station (not including for this purpose any tort-like
liabilities or breach of contract) since the date of this most recent balance
sheet, there exist no liabilities or obligations of Seller, contingent or
absolute, matured or unmatured, known or unknown. Since the June 30, 1999,
balance sheet: (i) Seller has not made any contract, agreement or commitment or
incurred any obligation or liability (contingent or otherwise), except in the
ordinary course of business and consistent with past business practices; (ii)
there has not been any discharge or satisfaction of any obligation or liability
owed by Seller, which is not in the ordinary course of business or which is
inconsistent with past business practices; (iii) there has not occurred any sale
of or loss or material injury to the business, or any material adverse change in
the business or in the condition (financial or otherwise) of the Station; (iv)
Seller has operated the business in the ordinary course; and (v) Seller has not
increased the salaries or any other compensation of any of its employees or
agreed to the payment of any bonuses other than in the ordinary course of
business or which increases or bonuses will not constitute any of the Assumed
Obligations. The monthly balance sheets: (x) have been prepared on a
consistent basis throughout the periods involved and as compared with prior
periods; and (y) fairly present Seller's financial position, income, expenses,
assets, liabilities, and the results of operations of the Station as of the
dates and for the periods indicated, subject to year end adjustments which do
not materially affect the operations of Seller.
2.5 Taxes. Seller has, in respect of the Station's business, filed all
-----
foreign, federal, state, county and local income, excise, property, sales, use,
franchise and other tax returns and reports which are required to have been
filed by it under applicable law and has paid all taxes which have become due
pursuant to such returns or pursuant to any assessments which have become
payable. All monies required to be withheld by Seller from employees of the
Station for income taxes, social security and other payroll taxes have been
collected or withheld, and paid to the appropriate governmental authorities.
2.6 Station Assets. Except for the Excluded Assets, the Station Assets
--------------
constitute all the assets used or held for use in the business or operation of
the Station. Seller has, or will have on the Closing Date, good and marketable
title to the Station Assets, free and clear of Liens, except for Permitted
Encumbrances. Upon delivery to Buyer at Closing of the documents contemplated
by Section 8.1(a), Seller will thereby transfer to Buyer good and marketable
title to the Station Assets, free and clear of Liens, except for Permitted
Encumbrances.
2.7 FCC Authorizations.
------------------
(a) Seller is the holder of the FCC Authorizations listed and described
on Schedule 1.1(a). Such FCC Authorizations constitute all of the licenses
---------------
and authorizations required under the Communications Act of 1934, as amended
(the "Communications Act"), or the rules and regulations of the FCC for, and
used in the operation of, the Station. The FCC Authorizations are in full force
and effect and have not been revoked, suspended, canceled, rescinded or
11
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terminated and have not expired. There is not pending or to the knowledge of
Seller threatened any action by or before the FCC to revoke, suspend, cancel,
rescind or modify any of the FCC Authorizations (other than proceedings to amend
FCC rules of general applicability), and there is not now issued or outstanding
or pending or to the knowledge of Seller threatened, by or before the FCC, any
order to show cause, notice of violation, notice of apparent liability, or
notice of forfeiture or complaint against Seller or the Station. The Station is
operating in material compliance with the FCC Authorizations, the Communications
Act, and the rules and regulations of the FCC.
(b) All reports and filings required to be filed with, and all
regulatory fees required to be paid to, the FCC by Seller with respect to the
Station (including without limitation all required equal employment opportunity
reports) have been timely filed and paid. All such reports and filings are
accurate and complete. Seller maintains a public file for the Station as
required by FCC rules in all material respects. With respect to FCC licenses,
permits and authorizations, Seller is operating only those facilities for which
an appropriate FCC Authorization has been obtained and is in effect, or
otherwise as allowed by law or regulation and Seller is in material compliance
with the conditions of each such FCC Authorization.
(c) Seller is aware of no facts indicating that Seller is not in
compliance with all material requirements of the FCC, the Communications Act, or
any other applicable federal, state and local statutes, regulations and
ordinances. Seller is aware of no facts and Seller has received no notice or
communication, formal or informal, indicating that the FCC is considering
revoking, suspending, canceling, rescinding or terminating any FCC
Authorization.
(d) The operation of the Station does not cause or result in exposure
of workers or the general public to levels of radio frequency radiation in
excess of the "Radio Frequency Protection Guides" recommended in "American
National Standard Safety Levels with Respect to Human Exposure to Radio
Frequency Electromagnetic Fields 3 kHz to 300 GHz" (ANSI/IEEE C95.1-1992) issued
by the American National Standards Institute, adopted by the FCC effective
October 15, 1997, and described in OET Bulletin No. 65. Renewal of the FCC
Authorizations would not constitute a significant environmental impact within
the meaning of Section 1.1307, of the FCC's rules written as it exists on the
date of this Agreement.
(e) Each communications tower structure used in the operation of the
Station (whether owned or leased) has been registered under the rules and
regulations of the FCC, and the Federal Aviation Administration has issued a
determination of no hazard to air navigation with respect to each such tower for
which such a determination is required.
2.8 Real Property.
-------------
(a) General. Schedule 1.1(c) contains a description of all real
------- --------
property used or held for use in the business or operation of the Station. The
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Real Property includes sufficient access to and rights in the real property used
or held for use in the business and operations of the Station as presently
operated and sufficient access to the Station's facilities without need to
obtain any other access rights. Neither the whole nor any part of any Real
Property is subject to any pending or to the knowledge of Seller threatened suit
for condemnation or other taking by any public authority. All buildings and
other improvements included in the Real Property are in good operating condition
and repair, and free from material defect or damage normal wear and tear
excepted and have been maintained in a commercially reasonable manner, and to
the knowledge of Seller comply with applicable zoning, health and safety laws
and codes in all material respects. Seller has delivered to Buyer copies of all
title insurance policies in its possession that are applicable to the Real
Property.
(b) Studio Site. The Studio Site Owner has good and marketable fee
-----------
simple title to the Studio Site (identified on Schedule 1.1(c)), including all
---------------
buildings and other improvements thereon.
(c) Roxborough Lease. The Roxborough Lease is described on
----------------
Schedule 1.1(c) (including the expiration date, renewal and the location of the
- ---------------
real property covered by such lease), and a complete and correct copy thereof,
together with all amendments thereto, has been delivered to Buyer. Seller is the
lessee under the Roxborough Lease. The Roxborough Lease is in full force and
effect and constitutes a valid and binding obligation of Seller and, to the
knowledge of Seller, the other parties thereto (subject to bankruptcy,
insolvency, reorganization or other similar laws relating to or affecting the
enforcement of creditors' rights generally). Seller is in material compliance
with its obligations under the Roxborough Lease, and, to the knowledge of
Seller, is not in, or alleged to be in, breach or default under the Roxborough
Lease, and, to the best knowledge of Seller, no other party to the Roxborough
Lease has breached or defaulted thereunder, and to Seller's knowledge no event
has occurred and no condition or state of facts exists which, with the passage
of time or the giving of notice or both, would constitute such a material
default or breach by Seller or, to the best knowledge of Seller, by any such
other party.
(d) Tower Site Lease. The Tower Site Lease is described on
----------------
Schedule 1.1(c) (including the expiration date, renewal and the location of
- ---------------
the real property covered by such lease), and a complete and correct copy
thereof, together with all amendments thereto, has been delivered to Buyer. The
Tower Site Lessee is the lessee under the Tower Site Lease. The Tower Site Lease
is in full force and effect and constitutes a valid and binding obligation of
the Tower Site Lessee and, to the knowledge of Seller and the Tower Site Lessee,
the other parties thereto (subject to bankruptcy, insolvency, reorganization or
other similar laws relating to or affecting the enforcement of creditors' rights
generally). The Tower Site Lessee is in material compliance with its obligations
under the Tower Site Lease, and, to the knowledge of Seller and the Tower Site
Lessee, is not in, or alleged to be in, breach or default under the Tower Site
Lease, and, to the best knowledge of Seller and the Tower Site Lessee, no other
party to the Tower Site Lease has breached or defaulted thereunder, and to their
knowledge no event has occurred and no condition or state of facts exists which,
with the passage of time or the giving of notice or both, would constitute such
a material default or breach by the Tower Site Lessee or, to the best knowledge
of Seller and the Tower Site Lessee, by any such other party.
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2.9 Personal Property. Except for the Excluded Assets, Schedule 1.1(b)
----------------- ---------------
shall (when delivered pursuant to Section 11.8 hereof) contain a list of all
------------
machinery, equipment, vehicles, furniture and other tangible personal property
used or held for use in the business or operation of the Station. Each item of
Tangible Personal Property is in good operating condition and repair, is free
from material defect or damage, normal wear and tear excepted and is functioning
materially in the manner and purposes for which it was intended.
2.10 Contracts. Each of the Station Contracts constitutes a valid and
---------
binding obligation of Seller and, to the best knowledge of Seller, the other
parties thereto (subject to bankruptcy, insolvency, reorganization or other
similar laws relating to or affecting the enforcement of creditors' rights
generally), is in full force and effect and (except for those Station Contracts
which by their terms will expire prior to the Closing Date or will be otherwise
terminated prior to the Closing Date in accordance with the provisions hereof)
may be transferred to the Buyer pursuant to this Agreement, unless consent to
such transfer is required as set forth in correspondence from Seller to Buyer
dated November 22, 1999, and will be in full force and effect at the time of
such transfer, in each case without breaching the terms thereof or resulting in
the forfeiture or impairment of any rights thereunder and without the consent,
approval or act of, or the making of any filing with, any other party. Seller
is in material compliance with its obligations under each of the Station
Contracts, and Seller to its knowledge is not in, or alleged to be in, breach or
default under any of the Station Contracts, and, to the best knowledge of
Seller, no other party to any of the Station Contracts has breached or defaulted
thereunder, and to its knowledge no event has occurred and no condition or state
of facts exists which, with the passage of time or the giving of notice or both,
would constitute such a material default or breach by Seller or, to the best
knowledge of Seller, by any such other party. Complete and correct copies of
each of the Station Contracts, together with all amendments thereto, have been
delivered to Buyer by Seller.
2.11 Intangible Property. Seller has all right, title and interest in and
-------------------
to, or is licensed to use, all trademarks, service marks, trade names,
copyrights, Websites and all other intangible property necessary to the conduct
of the Station as presently operated. Schedule 1.1(f) contains a description of
---------------
all material Intangible Property. Seller has received no notice of any claim
that any Intangible Property or the use thereof conflicts with, or infringes
upon, any rights of any third party (and Seller is not aware of a reasonable
basis for any such claim of conflict). Seller has received no notice that any
service provided by the Station or any programming or other material used,
broadcast or disseminated by the Station infringes upon any copyright, patent or
trademark of any other party.
2.12 Employees. Seller has delivered to Buyer by correspondence dated
---------
October 15, 1999 and November 19, 1999 a list of all Station employees and their
position and rate of compensation, and a description of all Seller's employee
benefit plans. Seller has delivered to Buyer copies of all Seller's handbooks,
if any, policies and procedures relating to Station employees. Seller is in
material compliance with all labor and employment laws, rules and regulations
applicable to the Station's business, including without limitation those which
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relate to wages, hours, discrimination in employment and collective bargaining,
and is not liable for any arrears of wages or any taxes or penalties for failure
to comply with any of the foregoing. There is no (i) unfair labor practice
charge or complaint against Seller in respect of the Station's business pending
or threatened before the National Labor Relations Board, any state labor
relations board or any court or tribunal, or (ii) strike, dispute, request for
representation, slowdown or stoppage pending or to Seller's knowledge threatened
in respect of the Station's business. Buyer shall have the right, but not the
obligation, to offer employment to any Station employees concurrent with
Closing.
2.13 Compliance with Law. Seller has complied materially with all laws,
-------------------
regulations, rules, writs, injunctions, ordinances, franchises, decrees or
orders of any court or of any foreign, federal, state, municipal or other
governmental authority which are applicable to the Station Assets, the Station
or the Station's business. There is no action, suit or proceeding pending or to
Seller's knowledge threatened against Seller in respect of the Station Assets,
the Station or the Station's business. To the best knowledge of Seller, there
are no claims or investigations pending or threatened against Seller in respect
of the Station Assets, the Station or the Station's business. There is no
action, suit or proceeding pending or threatened against Seller which questions
the legality or propriety of the transactions contemplated by this Agreement.
2.14 Insurance. Seller maintains insurance policies relating to the
---------
Station bearing the policy numbers, for the terms, with the companies, in the
amounts, providing the general coverage set forth in writing and delivered to
Buyer by correspondence dated October 15, 1999. All of such policies are in
full force and effect and Seller is not in default thereunder. Seller has not
received notice from any issuer of any such policies of its intention to cancel,
terminate or refuse to renew any policy issued by it.
2.15 Environmental. No hazardous or toxic substance or waste (including
-------------
without limitation petroleum products) or other material regulated under any
applicable environmental, health or safety law (each a "Contaminant") has been
generated, stored, transported or released (each a "Release") on, in, from or to
the assets or properties of the Station. Neither the Station nor any of the
assets or properties of the Station is subject to any order from or agreement
with any governmental authority or private party respecting (i) any
environmental, health or safety law, (ii) any environmental clean-up, removal,
prevention or other remedial action or (iii) any obligation or liability arising
from the Release of a Contaminant. Neither the Station nor any of the assets or
properties of the Station include any underground storage tanks or surface
impoundments, any asbestos containing material, or any polychlorinated biphenyls
except as set forth on Schedule 2.15. Seller has not received in respect of the
-------------
Station or any assets or properties of the Station any notice or claim to the
effect that it is or may be liable as a result of the Release of a Contaminant.
To the best knowledge of Seller, neither the Station nor any of its assets or
properties is the subject of any investigation by any governmental authority
with respect to a Release of a Contaminant. Seller has delivered to Buyer
copies of all environmental surveys, analyses and assessments in its possession
relating to any of the Real Property.
15
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2.16 No Finder. No broker, finder or other person is entitled to a
---------
commission, brokerage fee or other similar payment from Seller in connection
with this Agreement or the transactions contemplated hereby as a result of any
agreement or action of Seller or any party acting on Seller's behalf.
2.17 Disclosure. With respect to Seller, the Station and the Station
----------
Assets, this Agreement, including any document delivered or generated by Seller
as contemplated hereunder, and the Seller Ancillary Agreements do not and will
not contain any untrue statement of material fact or omit to state a material
fact required to be made in order to make the statements herein and therein not
misleading in light of the circumstances in which they are made.
ARTICLE 3: REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
To induce Seller to enter into this Agreement and to consummate the
transactions contemplated hereby, Buyer represents and warrants (and where
appropriate covenants) to Seller as follows:
3.1 Organization. Buyer is duly organized, validly existing and in good
------------
standing under the laws of the jurisdiction of its organization (as first set
forth above). Buyer has the requisite power and authority to execute and
deliver this Agreement and all of the other agreements and instruments to be
executed and delivered by Buyer (collectively, the "Buyer Ancillary
Agreements"), to consummate the transactions contemplated hereby and thereby and
to comply with the terms, conditions and provisions hereof and thereof.
3.2 Authority. The execution, delivery and performance of this Agreement
---------
and the Buyer Ancillary Agreements by Buyer have been duly authorized and
approved by all necessary action of Buyer and do not require any further
authorization or consent of Buyer. This Agreement is, and each Buyer Ancillary
Agreement when executed and delivered by Buyer and the other parties thereto
will be, a legal, valid and binding agreement of Buyer enforceable in accordance
with its respective terms, except in each case as such enforceability may be
limited by bankruptcy, moratorium, insolvency, reorganization or other similar
laws affecting or limiting the enforcement of creditors' rights generally and
except as such enforceability is subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
3.3 No Conflicts. Neither the execution and delivery by Buyer of this
------------
Agreement and the Buyer Ancillary Agreements or the consummation by Buyer of any
of the transactions contemplated hereby or thereby nor compliance by Buyer with
or fulfillment by Buyer of the terms, conditions and provisions hereof or
thereof will: (i) conflict with the charter or other organizational documents
of Buyer or any judgment, order or decree to which Buyer is subject; or (ii)
require the approval, consent, authorization or act of, or the making by Buyer
of any declaration, filing or registration with, any third party or any foreign,
federal, state or local court, governmental or regulatory authority or body,
except for such of the foregoing as are necessary pursuant to the HSR Act and
the Communications Act.
16
<PAGE>
3.4 No Finder. No broker, finder or other person is entitled to a
---------
commission, brokerage fee or other similar payment in connection with this
Agreement or the transactions contemplated hereby as a result of any agreement
or action of Buyer or any party acting on Buyer's behalf, other than Star Media
Group, whose fee shall be paid by Buyer.
3.5 Ability to Consummate Agreement. Buyer is legally, technically,
-------------------------------
financially, and otherwise qualified to hold the FCC Authorizations and knows of
no reason why it will not be granted Commission consent to hold the FCC
Authorizations and to own and operate the Station under the Communications Act
and the rules and regulations of the Commission, and knows of no reason why it
would not receive an unconditional grant from the Commission to be the licensee
of the Station.
3.6 Buyer's Financial Ability to Consummate. Buyer has commitment(s) for
---------------------------------------
sufficient funds to consummate the transactions contemplated herein.
3.7 Acquisition Event. In the event that on or after the date of this
-----------------
Agreement, Buyer contracts to acquire an interest in a radio station or other
media property (or is a party to a time brokerage agreement or similar agreement
with respect to such a property) (an "Acquisition Event") which operates in the
same market as the Station, and the FCC advises Buyer and Seller, whether orally
or otherwise, that such Acquisition Event will have the effect of impeding the
likelihood of Seller and Buyer receiving the timely written consent of the FCC
to the FCC Application, Buyer shall promptly take such action as shall be
reasonably necessary to remove such impediment, including making any divestiture
or other arrangement that may be necessary in connection therewith.
3.8 Disclosure. This Agreement and any document delivered or generated by
----------
Buyer as contemplated hereunder does not and will not contain any untrue
statement of material fact or omit to state a material fact required to be made
in order to make the statements herein not misleading in light of the
circumstances in which they are made.
ARTICLE 4: COVENANTS OF SELLER
-------------------
Seller covenants and agrees that from the date hereof until the completion of
the Closing:
4.1 Operation of the Business.
-------------------------
(a) Seller shall: (i) except as set forth in this Agreement, continue to
carry on the business of the Station and keep its books and accounts, records
and files materially in conformity with the usual and ordinary manner in which
the business has been conducted in the past; (ii) operate the Station materially
in accordance with the terms of the FCC Authorizations and in material
compliance with the Communications Act, FCC rules, regulations and policies, and
all other applicable laws, rules and regulations, and maintain the FCC
Authorizations in full force and effect and timely file and prosecute any
necessary applications for renewal of the FCC Authorizations; (iii) use
17
<PAGE>
commercially reasonable efforts to preserve the business organization of the
Station intact, retain substantially as at present the Station's employees,
consultants and agents, and preserve the goodwill of the Station's suppliers,
advertisers, customers and others having business relations with it; (iv) keep
all Tangible Personal Property and Real Property in good operating condition
(ordinary wear and tear excepted) and repair and maintain adequate and usual
supplies of inventory, office supplies, spare parts and other materials as have
been customarily maintained in the past; and (v) maintain in effect its current
insurance policies with respect to the Station and the Station Assets. Nothing
contained in this Agreement shall give Buyer any right to control the
programming, operations or any other matter relating to the Station prior to the
Closing, and Seller shall have complete control of the programming, operations
and all other matters relating to the Station up to the Closing.
(b) Notwithstanding Section 4.1(a), Seller shall not, without the prior
written consent of Buyer: (i) sell, lease, transfer, or agree to sell, lease or
transfer, any Station Assets except for non-material sales or leases, in the
ordinary course of business of items which are being replaced by assets of
comparable or superior kind, condition and value; (ii) grant any raises to
employees of the Station, pay any substantial bonuses or enter into any contract
of employment with any employee or employees of the Station except in the
ordinary course of business or which shall not continue beyond the Closing Date;
(iii) amend or terminate any existing time sales contracts with respect to the
Station except in the ordinary course of business; (iv) amend or terminate any
of the Station Contracts or enter into any contract, lease or agreement with
respect to the Station except those entered into in the ordinary course of
business that will be paid and performed in full before Closing; or (v) by any
act or omission knowingly cause any representation or warranty set forth in
Article 2 to become untrue or inaccurate.
(c) Seller shall continue diligently to prosecute, including by
requesting reconsideration of the FCC's adverse decision, Seller's pending FCC
application for construction permit to relocate the antenna of the Station from
Media, Pennsylvania to Philadelphia, Pennsylvania (FCC File No. BPH-940513IB)
(the "Relocation Petition"). Until such time as the Relocation Petition shall
have been granted, Seller shall operate primarily from its main transmitter
location. With respect to the Relocation Petition, Seller shall timely respond
to all FCC inquiries, timely provide Buyer copies of all documents prepared or
received by it that relate thereto, otherwise keep Buyer fully informed of the
status thereof, and consult with Buyer in advance regarding Seller's actions in
connection therewith.
4.2 Reports. Seller shall furnish to Buyer as promptly as possible, but in
-------
no event later than 60 days, after each calendar month for such calendar month:
(a) monthly Financial Statements for Seller, and (b) such other reports as Buyer
may reasonably request relating to Seller. Each of the Financial Statements
delivered pursuant to this Section shall have been prepared in accordance with
generally accepted accounting principles consistently applied during the periods
covered (except as disclosed therein).
18
<PAGE>
4.3 Access. Between the date hereof and the Closing Date, Seller shall give
------
Buyer and the officers, employees, accountants, counsel, agents, consultants and
representatives of Buyer reasonable access to all Station Assets, employees of
Seller and the Station, accounts, books, records, federal and state tax returns
(if, in the view of Buyer's counsel or accountants, reasonably required in
connection with an audit permitted hereunder), deeds, title papers, insurance
policies, licenses, agreements, contracts, commitments, records and files of
every character, equipment, machinery, fixtures, furniture, vehicles, notes and
accounts payable and receivable of Seller relating to the Station, and any other
information concerning the affairs of the Station as Buyer may reasonably
request. It is expressly understood that, pursuant to this Section, Buyer, at
its expense, shall be entitled to conduct such inspections and reviews of the
Station, the Station Assets, and financial records relating to the Station as
Buyer may reasonably desire including without limitation to prepare monthly
financial statements relating to the business or operations of Seller prior to
the deadline specified in Section 4.2 (which shall be at Buyer's election and
which shall not relieve Seller of its obligations pursuant to Section 4.2
above), so long as the same do not unreasonably interfere with Seller's
operation of the Station; provided, however, all such inspections and reviews of
Seller's financial records shall occur at the office of Seller's independent
accountants or at such other location as shall be reasonably agreeable to Buyer
and Seller. No inspection or investigation made by or on behalf of Buyer, or
Buyer's failure to make any inspection or investigation, shall affect Seller's
representations, warranties and covenants hereunder or be deemed to constitute a
waiver of any of those representations, warranties and covenants. Immediately
after the date hereof, Seller shall also reasonably cooperate, and shall cause
its accountants to reasonably cooperate, with Buyer for purposes of Buyer's
inspection and review and to conduct an audit by Buyer's independent accountants
of the Financial Statements for the Station for the years 1996, 1997, 1998 and
1999 all at Buyer's expense (such expense to include prompt payment of
reasonable legal, accounting, and other professional fees and expenses of
Seller, if any, and all advance payments reasonably requested or required by
same). Buyer shall no later than three (3) business days of receipt of any and
all interim or final reports of such inspections, reviews, and audit, deliver a
copy of each such report to Seller and may disclose such financial statements
provided or created hereunder as are, in the view of Buyer's counsel or
accountants, reasonably required in connection with Buyer's reporting pursuant
to relevant SEC regulations, including Regulation S-X, in reports filed by Buyer
with any governmental or regulatory authority, including the Securities and
Exchange Commission; provided, a copy of the proposed disclosure or filing is
delivered to Seller no less than ten (10) days prior to its filing and in the
event Seller shall disagree with the content of any such disclosure or filing,
Buyer shall incorporate or append to such filing the comments of Seller. Any
investigation or examination by Buyer shall not in any way diminish or obviate
any representations or warranties of Seller made in this Agreement or in
connection herewith.
4.4 Consents. Seller shall use commercially reasonable efforts to obtain
--------
all of the consents required to the assignment of any Station Contract as set
forth in correspondence from Seller to Buyer dated November 22, 1999. If Seller
does not obtain a consent required to assign a Station Contract hereunder, Buyer
shall not be required to assume such Station Contract. Buyer shall identify in
writing to Seller within ten (10) business days of the date hereof, those
consents the receipt of which is a condition precedent to Buyer's obligation to
19
<PAGE>
close under this Agreement (the "Required Consents"). Seller shall obtain the
Required Consents prior to Closing.
4.5 Estoppel Certificates; Title Insurance. Seller, at Seller's expense,
--------------------------------------
will obtain and deliver to Buyer written estoppel certificates (the "Estoppel
Certificates") duly executed by the lessor under the Roxborough Lease, in form
and substance reasonably satisfactory to Buyer. Buyer, at Buyer's expense,
shall have the right to obtain commitments from a title company acceptable to
Buyer to issue to Buyer at standard rates ALTA extended coverage leasehold title
insurance policies with respect to the Roxborough Lease and the Tower Lease with
no exceptions other than Permitted Encumbrances and the following, but only if
and to the extent not at any time adversely affecting the current and intended
use of the properties or requiring the removal or alteration of the presently
existing structures, or appurtenant structures thereon: (a) building and use
restrictions of record; (b) vehicular or pedestrian easements of record
affecting the properties and being contiguous to the front, rear or side lot
lines; (c) water, sewer, gas, electric, cable television, and telephone lines or
easements of record or as presently installed; and (d) prior grants,
reservations or leases of coal, oil, gas, or other minerals as shown by
instruments of record (the "Title Commitments"). The Estoppel Certificates
shall be dated within fifteen days prior to Closing.
4.6 Environmental. Following the execution of this Agreement, at Buyer's
-------------
expense, Buyer may engage engineering or environmental assessment firms
reasonably acceptable to Seller, to perform one or more Phase I, Phase II or
other environmental assessments for any or all of the Real Property, including
the Studio Site and the Tower Site (collectively, the "Environmental
Assessments"). Seller shall cooperate, and shall use reasonable efforts to
ensure that any other person in control of any of the Real Property, including
the Studio Site and the Tower Site, shall also cooperate, with Buyer and such
firms in performing such Environmental Assessments. The Environmental
Assessments shall initially be ordered promptly, but not later than thirty (30)
days, after the date hereof, it being understood that, so long as the initial
Environmental Assessment for a piece of property has been ordered within such
time, any follow-up Environmental Assessments need not be ordered within such
time. Delivery of the Environmental Assessments to Buyer shall not relieve
Seller of any obligation with respect to any representation, warranty or
covenant of Seller herein or waive any condition to Buyer's obligations herein.
If any Environmental Assessment, including any follow-up Environmental
Assessment, reveals the existence of Environmental Noncompliance (defined as any
condition inconsistent with Section 2.15 hereof), Buyer shall have the right to
terminate this Agreement, exercisable by giving written notice thereof to Seller
within fifteen (15) days of the receipt by Buyer of any Environmental
Assessment, or within such longer period as is reasonable in the event further
Environmental Assessments are ordered, specifying the nature of the
Environmental Noncompliance revealed by the Environmental Assessments and the
estimated cost of remediation thereof. In the event an Environmental Assessment
discloses Environmental Noncompliance that can be remedied by the expenditure of
Two Hundred Fifty Thousand Dollars ($250,000) or less, Seller shall remedy the
Environmental Noncompliance at its expense prior to the Closing, and the Closing
will otherwise take place in the manner and at the time provided for herein. In
the event that the cost of remedying the Environmental Noncompliance will exceed
Two Hundred Fifty Thousand Dollars ($250,000), this Agreement shall terminate
20
<PAGE>
unless Buyer agrees to be responsible for the remediation costs in excess of Two
Hundred Fifty Thousand Dollars ($250,000), in which event the Closing will take
place with a reduction of the Purchase Price in the amount of Two Hundred Fifty
Thousand Dollars ($250,000) and Buyer shall be responsible for remedying the
problem at its sole cost and expense. Nothing in this Section or otherwise in
this Agreement shall be construed as creating any third-party beneficiaries or
any other rights in parties other than the parties hereto.
ARTICLE 5: COVENANTS OF BUYER AND SELLER
-----------------------------
Buyer and Seller covenant and agree that from the date hereof until the
completion of the Closing, each party shall promptly notify the other in writing
upon: (a) becoming aware of any order or decree or any complaint praying for an
order or decree restraining or enjoining the consummation of this Agreement or
the transactions contemplated hereunder; or (b) receiving any notice from any
governmental department, court, agency or commission of its intention (i) to
institute an investigation into, or institute a suit or proceeding to restrain
or enjoin, the consummation of this Agreement or such transactions, or (ii) to
nullify or render ineffective this Agreement or such transactions if
consummated.
ARTICLE 6: CONDITIONS TO THE OBLIGATIONS OF SELLER
---------------------------------------
The obligations of Seller under this Agreement are, at its option, subject to
the fulfillment of the following conditions prior to or on the Closing Date:
6.1 Representations, Warranties and Covenants. Each of the representations
-----------------------------------------
and warranties of Buyer contained in this Agreement shall have been true and
correct as of the date when made and shall be deemed to be made again on and as
of the Closing Date and shall then be true and correct, except to the extent
changes are permitted or contemplated pursuant to this Agreement. Buyer shall
have performed and complied with each and every covenant and agreement required
by this Agreement to be performed or complied with by it prior to or on the
Closing Date. Buyer shall have furnished Seller with a certificate, dated the
Closing Date and duly executed by an officer of Buyer authorized on behalf of
Buyer to give such a certificate, to the effect that the conditions set forth in
this Section 6.1 have been satisfied.
6.2 Proceedings. Neither Seller nor Buyer shall be subject to any
-----------
restraining order or injunction restraining or prohibiting the consummation of
the transactions contemplated hereby. In the event such a restraining order or
injunction is in effect, this Agreement may not be abandoned by Seller pursuant
to this Section 6.2 prior to the Final Closing Date, but the Closing shall be
delayed during such period. This Agreement may be abandoned after the Final
Closing Date if such restraining order or injunction remains in effect.
6.3 FCC Consent. The FCC Consent shall have been granted by the FCC by
-----------
initial order.
21
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6.4 Hart-Scott-Rodino. If applicable, the waiting period under the HSR Act
-----------------
shall have expired or been terminated.
6.5 Deliveries. Buyer shall have complied with its obligations set forth in
----------
Section 8.2.
ARTICLE 7: CONDITIONS TO THE OBLIGATIONS OF BUYER
--------------------------------------
The obligations of Buyer under this Agreement are, at its option, subject to
the fulfillment of the following conditions prior to or on the Closing Date:
7.1 Representations, Warranties and Covenants. Each of the representations
-----------------------------------------
and warranties of Seller contained in this Agreement shall have been true and
correct as of the date when made and shall be deemed to be made again on and as
of the Closing Date and shall then be true and correct except to the extent
changes are permitted or contemplated pursuant to this Agreement. Seller shall
have performed and complied with each and every covenant and agreement required
by this Agreement to be performed or complied with by it prior to or on the
Closing Date. Seller shall have furnished Buyer with a certificate, dated the
Closing Date and duly executed by an officer of Seller authorized on behalf of
Seller to give such a certificate, to the effect that the conditions set forth
in this Section 7.1 have been satisfied.
7.2 Proceedings. Neither Seller nor Buyer shall be subject to any
-----------
restraining order or injunction restraining or prohibiting the consummation of
the transactions contemplated hereby. In the event such a restraining order or
injunction is in effect, this Agreement may not be abandoned by Buyer pursuant
to this Section 7.2 prior to the Final Closing Date, but the Closing shall be
delayed during such period. This Agreement may be abandoned after such date if
such restraining order or injunction remains in effect.
7.3 FCC Consent. The FCC Consent shall have been granted by the FCC by Final
-----------
Order, without any conditions materially adverse to Buyer.
7.4 Hart-Scott-Rodino. If applicable, the waiting period under the HSR Act
-----------------
shall have expired or been terminated.
7.5 Deliveries. Seller shall have complied with its obligations set forth in
----------
Section 8.1.
7.6 Required Consents. Seller shall have obtained all of the Required
-----------------
Consents.
7.7 Material Adverse Change. Neither the Station nor any of the Station
-----------------------
Assets shall have suffered a material adverse change since the date hereof, and
there shall have been no changes since the date hereof in the business,
operations, condition (financial or otherwise), properties, assets or
liabilities of Seller, the Station or any of the Station Assets, except: (i)
changes in the economy or other circumstances generally affecting the
broadcasting industry or advertising in the Philadelphia, Pennsylvania market,
22
<PAGE>
provided that any "year 2000 problem" (defined below) shall not be considered a
circumstance generally affecting the broadcasting industry or advertising in the
Philadelphia, Pennsylvania market; (ii) changes contemplated by this Agreement;
and (iii) changes which are not (either individually or in the aggregate)
materially adverse to the Station. The "Year 2000 problem" is anything, other
than the general failure of public services such as power and telephone, that
causes any of Seller's systems, machinery, information technology, computer
software and hardware, and other data sensitive technology not to operate
without error or interruption related to date data (meaning data or input that
includes an indication of or reference to a date) and without other problems
commonly referred to as "year 2000 problems."
ARTICLE 8: ITEMS TO BE DELIVERED AT THE CLOSING
------------------------------------
8.1 Deliveries by Seller. At the Closing, Seller shall deliver to Buyer duly
--------------------
executed by Seller or such other signatory as may be required by the nature of
the document:
(a) bills of sale, certificates of title for owned motor vehicles,
assignments, and other good and sufficient instruments of sale, conveyance,
transfer and assignment, in form and substance reasonably satisfactory to Buyer,
sufficient to sell, convey, transfer and assign the Station Assets to Buyer free
and clear of Liens (other than Permitted Encumbrances);
(b) the Required Consents and any other consents obtained by Seller under
Section 4.4;
(c) certified copies of resolutions authorizing the execution, delivery
and performance by Seller of this Agreement, which shall be in full force and
effect;
(d) the certificate referred to in Section 7.1;
(e) an opinion of Seller's counsel in the form and substance reasonably
satisfactory to Buyer;
(f) the Estoppel Certificates;
(g) the Studio Lease; and
(h) the Tower Lease.
8.2 Deliveries by Buyer. At the Closing, Buyer shall deliver to Seller:
-------------------
(a) the Purchase Price, which shall be paid in the manner specified in
Section 1.4;
(b) an instrument or instruments of assumption of the Assumed
Obligations;
23
<PAGE>
(c) certified copies of resolutions authorizing the execution, delivery
and performance by Buyer of this Agreement, which shall be in full force and
effect at the time of the Closing; and
(d) the certificate referred to in Section 6.1.
ARTICLE 9: SURVIVAL; INDEMNIFICATION
-------------------------
9.1 Survival. All representations, warranties, covenants and agreements
--------
contained in this Agreement, or in any certificate, agreement, or other document
or instrument, delivered pursuant hereto, shall survive (and not be affected in
any respect by) the Closing and any investigation conducted by any party hereto
and any information which any party may receive for a period of one (1) year
following the Closing Date.
9.2 Indemnification.
---------------
(a) From and after Closing for a period of one (1) year following the
Closing Date, provided that any claim for a Deficiency made hereunder within
such one (1) year period shall not be voided by the expiration of such period,
Seller (an "Indemnifying Party") hereby agrees to indemnify and hold harmless
Buyer, the shareholders, directors, officers and employees of Buyer and all
persons which directly or indirectly, through one or more intermediaries,
control, are controlled by, or are under common control with Buyer, and their
respective successors and assigns (collectively, the "Buyer Indemnitees") from,
against and in respect of, and to reimburse the Buyer Indemnitees for, the
amount of any and all Deficiencies (as defined in Section 9.3(a)).
(b) From and after Closing for a period of one (1) year following the
Closing Date, provided that any claim for a Deficiency made hereunder within
such one (1) year period shall not be voided by the expiration of such period,
Buyer (an "Indemnifying Party") hereby agrees to indemnify and hold harmless
Seller, the shareholders, directors, officers and employees of Seller and all
persons which directly or indirectly, through one or more intermediaries,
control, are controlled by, or are under common control with Seller, and their
respective successors and assigns (collectively, the "Seller Indemnitees") from,
against and in respect of, and to reimburse the Seller Indemnitees for, the
amount of any and all Deficiencies (as defined in Section 9.3(b)).
9.3 Deficiencies.
------------
(a) As used in this Article 9, the term "Deficiencies" when asserted by
Buyer Indemnitees or arising out of a third party claim against Buyer
Indemnitees shall mean any and all losses, damages, liabilities and claims
sustained by the Buyer Indemnitees and arising out of, based upon or resulting
from: (i) any misrepresentation, breach of warranty, or any failure to comply
with any covenant, obligation or agreement on the part of Seller contained in or
made pursuant to this Agreement; (ii) any failure by Seller to pay or perform
any of the Retained Liabilities unless being contested in good faith or not yet
24
<PAGE>
due or payable; or (iii) without limiting the foregoing, any litigation,
proceeding or claim by any third party relating to the business or operation of
the Station prior to Closing. Such Deficiencies include without limitation any
and all acts, suits, proceedings, demands, assessments and judgments, and all
fees, costs and expenses of any kind, related or incident to any of the
foregoing (including, without limitation, any and all Legal Expenses (as defined
in Section 9.6 below)).
(b) As used in this Article 9, the term "Deficiencies" when asserted by
Seller Indemnitees or arising out of a third party claim against Seller
Indemnitees shall mean any and all losses, damages, liabilities and claims
sustained by the Seller Indemnitees and arising out of, based upon or resulting
from: (i) any misrepresentation, breach of warranty, or any failure to comply
with any covenant, obligation or agreement on the part of Buyer contained in or
made pursuant to this Agreement; (ii) any failure by Buyer to pay or perform any
of the Assumed Obligations unless being contested in good faith or not yet due
or payable; or (iii) any litigation, proceeding or claim by any third party
relating to the business or operation of the Station after Closing. Such
Deficiencies include without limitation any and all acts, suits, proceedings,
demands, assessments and judgments, and all fees, costs and expenses of any
kind, related or incident to any of the foregoing (including, without
limitation, any and all Legal Expenses (as defined in Section 9.6 below)).
9.4 Procedures.
----------
(a) In the event that any claim shall be asserted by any third party
against the Buyer Indemnitees or Seller Indemnitees (Buyer Indemnitees or Seller
Indemnitees, as the case may be, hereinafter, the "Indemnitees"), which, if
sustained, would result in a Deficiency, then the Indemnitees, within ten (10)
days after learning of such claim, shall notify the Indemnifying Party of such
claim describing in reasonable detail the facts giving rise to the claim, and
shall extend to the Indemnifying Party a reasonable opportunity to control and
to defend against such claim, at the Indemnifying Party's sole expense and
through legal counsel acceptable to the Indemnitees, provided that the
Indemnifying Party proceeds in good faith, expeditiously and diligently. The
Indemnitees shall, at their option and expense, which expense shall not
constitute a Deficiency, have the right to participate in, but not to control,
any defense undertaken by the Indemnifying Party with legal counsel of their own
selection. No settlement or compromise of any claim which may result in a
Deficiency may be made by the Indemnifying Party without the prior written
consent of the Indemnitees unless: (A) prior to such settlement or compromise
the Indemnifying Party acknowledges in writing its obligation to pay in full the
amount of the settlement or compromise and all associated expenses; and (B) the
Indemnitees are furnished with a full and unconditional release from the party
or parties asserting the claim.
(b) In the event that the Indemnitees assert the existence of any
Deficiency against the Indemnifying Party, they shall give written notice to the
Indemnifying Party of the nature and amount of the Deficiency asserted. If the
Indemnifying Party, within a period of thirty (30) days (or such shorter period
as shall be reasonable in the circumstances) after the giving of notice by the
Indemnitees, shall not give written notice to the Indemnitees announcing its
intent to contest such assertion of the Indemnitees (such notice by the
25
<PAGE>
Indemnifying Party being hereinafter referred to as the "Contest Notice"), such
assertion of the Indemnitees shall be deemed accepted and the amount of the
Deficiency shall be deemed established. In the event, however, that a Contest
Notice is given to the Indemnitees within said 30-day period (or such shorter
period as set forth above), then the contested assertion of a Deficiency shall
be settled by arbitration to be held in Philadelphia, Pennsylvania in accordance
with the Commercial Rules of the American Arbitration Association then existing.
The determination of the arbitrator shall be delivered in writing to the
Indemnifying Party and the Indemnitees and shall be final, binding and
conclusive upon all of the parties hereto, and the amount of the Deficiency, if
any, determined to exist, shall be deemed established.
(c) The Indemnitees and the Indemnifying Party may agree in writing, at
any time, as to the existence and amount of a Deficiency, and, upon the
execution of such agreement such Deficiency shall be deemed established.
9.5 Payment. The Indemnifying Party hereby agrees to pay the amount of
-------
established Deficiencies within 15 days after the establishment thereof. The
amount of established Deficiencies shall be paid in cash. At the option of the
Indemnitees, the Indemnitees may offset any Deficiency or any portion thereof
that has not been paid by the Indemnifying Party to the Indemnitees against any
obligation the Indemnitees, or any of them, may have to the Indemnifying Party.
9.6 Legal Expenses. As used in this Article 9, the term "Legal Expenses"
--------------
shall mean any and all fees (whether of attorneys, accountants or other
professionals), costs and expenses of any kind reasonably incurred by any person
identified herein and its counsel in investigating, preparing for, defending
against, or providing evidence, producing documents or taking other action with
respect to any threatened or asserted claim.
9.7 Threshold. Notwithstanding anything to the contrary contained in this
---------
Agreement, neither party shall have the right to assert a claim for Deficiencies
against the other party, unless, at the time such claim is asserted, the
aggregate amount of all Deficiencies of the party asserting such claim for
Deficiencies exceeds One Hundred Thousand Dollars ($100,000.00) (the "Basket"),
provided that: (i) once the Basket has been exceeded, all Deficiencies,
including the amount of the Basket, shall be repaid as set forth herein, and
(ii) the Basket shall not apply to the Assumed Obligations or the Retained
Liabilities, but credit against the Basket shall be given for any Assumed
Obligations or Retained Liabilities wrongfully paid by an Indemnitee. Any claim
of Buyer or Seller shall be reduced to the extent of insurance proceeds actually
received or realized in connection with such claim for Deficiencies.
ARTICLE 10: MISCELLANEOUS
10.1 Termination. This Agreement may be terminated at any time prior to
-----------
Closing: (a) by the mutual consent of Seller and Buyer; (b) by any party hereto
if the FCC has denied the FCC Application in a Final Order; (c) by Buyer as
provided in Section 4.6 (Environmental) or in Section 10.6 (Broadcast
Transmission Interruption); (d) by Buyer as provided in Section 10.7 (Risk of
Loss); (e) by Buyer or Seller if the Closing has not taken place by the Final
26
<PAGE>
Closing Date; (f) by Buyer, if on the Closing Date Seller has failed to satisfy
any of the conditions set forth in Section 7.1, 7.5, 7.6 or 7.7; (g) by Buyer if
Seller has failed to cure a material breach of any of its agreements,
obligations, representations, warranties or covenants under this Agreement
within thirty (30) calendar days after it receives notice from Buyer of such
breach, provided that no such notice and cure period shall be afforded to Seller
anent its obligation to make deliveries on the Closing Date as set forth in
Section 8.1 (other than Section 8.1(d) and other than Section 8.1(a) (but only
if Buyer fails to tender the Purchase Price)); (h) by Seller, if on the Closing
Date Buyer has failed to satisfy either of the conditions set forth in Section
6.1 or 6.5; or (i) by Seller if Buyer has failed to cure a material breach of
any of its agreements, obligations, representations, warranties or covenants
under this Agreement within thirty (30) calendar days after it receives notice
from Seller of such breach, provided that no such notice and cure period shall
be afforded to Buyer anent its obligation to make deliveries on the Closing Date
as set forth in Section 8.2 (other than Section 8.2(d)). A termination pursuant
to this Section 10.1 shall not relieve any party of any liability it would
otherwise have for a breach of this Agreement, nor may any party exercise its
rights to terminate if such party shall be in material breach of this Agreement.
10.2 Specific Performance. In the event of anticipatory repudiation or
--------------------
breach by Seller of any representation, warranty, covenant or agreement under
this Agreement, at Buyer's election, in addition to any other remedy available
to it, Buyer shall be entitled to an injunction restraining any such
anticipatory repudiation or breach and, subject to obtaining any requisite
approval of the FCC, to enforcement of this Agreement by a decree of specific
performance requiring Seller to fulfill its obligations under this Agreement, in
each case without the necessity of showing economic loss or other actual damage.
The remedies provided Buyer in this Agreement shall be cumulative and shall not
preclude the assertion by Buyer of any other rights or the seeking of any other
remedies against Seller.
10.3 Expenses. Unless otherwise provided in this Agreement, or as otherwise
--------
agreed by the parties, each party hereto shall bear all of its expenses incurred
in connection with the transactions contemplated by this Agreement, including
without limitation, accounting and legal fees incurred in connection herewith;
provided, however, that: (i) Seller and Buyer shall each pay one-half of the
FCC filing fees required to be paid in connection with the FCC Application; (ii)
Seller shall be exclusively responsible for, and Buyer shall not have any
liability or responsibility for, any sales or transfer taxes (including without
limitation any real estate transfer taxes), arising from the transfer of the
Station Assets to Buyer; and (iii) the HSR Act filing fee will be paid for by
Buyer.
10.4 Further Assurances. From time to time prior to and after Closing, each
------------------
party hereto will execute all such instruments and take all such actions as any
other party shall reasonably request, without payment of further consideration,
in connection with carrying out and effectuating the intent and purpose hereof
and all transactions contemplated by this Agreement, including without
limitation the execution and delivery of any and all confirmatory and other
instruments in addition to those to be delivered at Closing, and any and all
actions which may reasonably be necessary to complete the transactions
contemplated hereby. The parties shall cooperate reasonably with each other
and with their respective counsel and accountants in connection with any steps
27
<PAGE>
required to be taken as part of their respective obligations under this
Agreement.
10.5 Public Announcements. Prior to Closing, neither party shall, without
--------------------
the approval of the other party hereto, make any press release or other public
announcement concerning the transactions contemplated by this Agreement, except
(i) to announce it has been entered into, and (ii) as and to the extent that
such party shall be so obligated by law, in which case such party shall give
advance notice to the other party and the parties shall use their best efforts
to cause a mutually agreeable release or announcement to be issued.
Notwithstanding the foregoing, the parties acknowledge that the rules and
regulations of the FCC require that public notice of the transactions
contemplated by this Agreement be made after the FCC Application has been filed
with the FCC, and that such notice may be broadcast on the Station without the
advance consent of Buyer.
10.6 Broadcast Transmission Interruption. If before Closing the regular
-----------------------------------
broadcast transmission of the Station in the normal and usual manner is
interrupted for a period of twenty four consecutive hours or more, Seller shall
give the prompt written notice thereof to Buyer. Buyer shall then have the
right, by giving written notice to Seller, to postpone (and if necessary re-
postpone) the Closing to a date that is thirty (30) days after the end of any
such interruption. If regular broadcast transmission in the normal and usual
manner is interrupted for a continuous period of seventy-two (72) hours or more
at any time prior to Closing, then (a) Seller immediately shall give written
notice thereof to Buyer, and (b) Buyer shall have the right, by giving written
notice to Seller, to (i) terminate this Agreement, or (ii) postpone the Closing
as provided above.
10.7 Risk of Loss. The risk of any loss, damage or destruction to any of
------------
the Station Assets to be transferred to Buyer hereunder, including without
limitation Buyer's rights under the Tower Lease and the Studio Lease, from fire
or other casualty or cause shall be borne by Seller at all times up to 12:01
a.m. local time on the Closing Date. Upon the occurrence of any loss or damage
to any of the property or assets to be transferred hereunder as a result of
fire, casualty, accident or other causes prior to the Closing, Seller shall: (a)
promptly notify Buyer of same in writing stating with particularity the extent
of loss or damage incurred, the cause thereof, if known, and the extent to which
restoration, replacement and repair of the Station Assets lost or destroyed is
expected to be covered under any insurance policy with respect thereto; and (b)
except as set forth below: (x) promptly begin to repair or cause to be repaired
and to restore the property to its condition prior to any such loss, damage or
destruction; and (y) apply the proceeds of any claim for any loss payable under
any insurance policy with respect thereto to repair, replace or restore any such
property to its former condition, subject to the conditions stated below.
Without limiting Seller's obligations set forth above, in the event the loss
exceeds One Million Dollars ($1,000,000.00) and the property cannot be
substantially repaired or restored within ninety (90) days, Buyer shall have the
option (but not the obligation) exercisable within ten (10) days after receipt
of such notice from Seller to:
(i) Postpone the Closing until such time as the property has been
completely repaired, replaced or restored, which Seller shall promptly
do; or
28
<PAGE>
(ii) Elect to consummate the Closing and accept the property in its
"then" condition, in which event Seller shall assign to Buyer all
rights under any insurance policy covering the loss and pay over to
the Buyer any proceeds under any such insurance policy thereto
received by Seller with respect thereto as a credit against Buyer's
obligation to pay the Purchase Price to Seller; or
(iii) Terminate this Agreement (but only if, as provided above, the
property cannot be substantially repaired or restored within ninety
(90) days) and receive the Deposit together with interest thereon.
10.8 Cooperation. Buyer and Seller shall each promptly deliver to the other
-----------
a copy of each and every filing it shall make referencing the other and the
Station to (i) the FCC and (ii) the SEC during the period from the date hereof
to the Closing Date. Any of Seller's books, records and documents acquired by
Buyer and reasonably required by Seller shall, on reasonable notice, be made
available to Seller for examination and duplication after Closing at Buyer's
principal office in Philadelphia, Pennsylvania for a period of four (4) years
from the Closing Date. From the date of Closing and for a period of three (3)
years thereafter, if, in the view of Buyer's counsel or accountants, reasonably
required in connection with Buyer's reporting pursuant to relevant SEC
regulations, including Regulation S-X, Seller, at the sole cost and expense of
Buyer (such expense to include payment of reasonable legal, accounting, and
other professional fees and expenses of Seller, if any, and all advance payments
reasonably requested or required by same), shall provide Buyer with such
cooperation and information as Buyer shall reasonably request in Buyer's: (i)
analysis and review of Financial Statements or information provided or created
hereunder, or (ii) preparation of any reports or analyses prepared by Buyer.
Seller shall also make its accountants available, including any opinions and
financial statements relating to the Seller, to provide explanations of any
documents or information provided hereunder and to permit disclosure of such
information by Buyer, including disclosure to any governmental authority,
including the Securities and Exchange Commission, if such disclosure is, in the
view of Buyer's counsel or accountants, reasonably required in connection with
Buyer's reporting pursuant to relevant SEC regulations, including Regulation S-
X.
ARTICLE 11: GENERAL PROVISIONS
------------------
11.1 Successors and Assigns. This Agreement shall be binding upon and inure
----------------------
to the benefit of the parties hereto, and their respective representatives,
successors and assigns. Neither Seller nor Buyer may assign any of its rights or
delegate any of its duties hereunder without the prior written consent of the
other party, and any such attempted assignment or delegation without such
consent shall be void, provided, in the event in accordance with Section 1.9(a)
Buyer shall have elected to have filed the FCC Application in the name of Radio
One Licenses, Inc. as assignee, and consent to which has been granted, Radio One
29
<PAGE>
shall have the right to have the FCC Authorizations assigned by Seller at
Closing to its wholly-owned subsidiary Radio One Licenses, Inc.
11.2 Amendments; Waivers. The terms, covenants, representations, warranties
-------------------
and conditions of this Agreement may be changed, amended, modified, waived, or
terminated only by a written instrument executed by the party waiving
compliance. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right of such party at a later date to enforce the same. No waiver by any party
of any condition or the breach of any provision, term, covenant, representation
or warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation or warranty of this Agreement.
11.3 Notices. All notices, requests, demands and other communications
-------
required or permitted under this Agreement shall be in writing (which shall
include notice by telex or facsimile transmission) and shall be deemed to have
been duly made and received when personally served, or when delivered by Federal
Express or a similar overnight courier service, expenses prepaid, or, if sent by
telex, graphic scanning or other facsimile communications equipment, delivered
by such equipment, addressed as follows:
if to Seller: Greater Media Radio Company
1003 E. Baltimore Pike
Media, PA 19063
Attn: Daniel Lerner
Facsimile No.: 610-565-6077
with a copy (which shall not constitute notice) to:
Rothman Gordon Foreman & Groudine, P.C.
Grant Building
Third Floor
Pittsburgh, PA 15219
Attn: Frederick A. Polner
Facsimile No.: (412) 281-7304
if to Buyer: Radio One, Inc.
5900 Princess Garden Parkway, Suite 800
Lanham, MD 20706
Attn: Alfred C. Liggins, President
Facsimile No.: (301) 306-9638
30
<PAGE>
with a copy (which shall not constitute notice) to:
Radio One, Inc.
5900 Princess Garden Parkway, Suite 800
Lanham, MD 20706
Attn: Linda J. Eckard, General Counsel
Facsimile No.: (301) 306-9638
and Wiley, Rein & Fielding
1776 K Street, N.W.
Washington, D.C. 20006
Attn: Dominic T. Bodensteiner
Facsimile No.: (202) 719-7049
Any party may alter the address to which communications are to be sent by
giving notice of such change of address in conformity with the provisions of
this Section providing for the giving of notice.
11.4 Captions. The captions of Articles and Sections of this Agreement are
--------
for convenience only and shall not control or affect the meaning or construction
of any of the provisions of this Agreement.
11.5 Governing Law. This Agreement and all questions relating to its
-------------
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the State of Pennsylvania, without
giving effect to principles of conflicts of laws.
11.6 Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and agreement between the parties with regard to the subject
matter hereof, and supersedes all prior agreements, understandings, inducements
or conditions, express or implied, oral or written, relating to the subject
matter hereof. The express terms hereof control and supersede any course of
performance and/or usage of trade inconsistent with any of the terms hereof.
This Agreement has been prepared by all of the parties hereto, and no inference
of ambiguity against the drafter of a document therefore applies against any
party hereto.
11.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument.
11.8 Delivery of Schedule 1.1(b). The parties acknowledge that Schedule
--------------------------- --------
1.1(b) has not been delivered as of the date hereof. Seller shall deliver a
- ------
draft of Schedule 1.1(b) to Buyer no later than ten (10) business days after the
---------------
date hereof. Schedule 1.1(b), when delivered, shall include without limitation
---------------
all of the tangible personal property used or held for use in the business or
operation of the Station wherever located (including at the Studio Site, the
Tower Site and the site of the Roxborough Lease), provided, however, that such
-------- -------
schedule shall not under any circumstances include any Excluded Asset, the tower
and building at the Tower Site or the building at the Studio Site. Buyer shall
have ten (10) business days from receipt of the draft Schedule 1.1(b) to review
---------------
the form and substance of such draft schedule, including by visiting the Station
31
<PAGE>
and any location at which any of the Station Assets shall be located. In the
event that draft Schedule 1.1(b) is not in form and substance reasonably
---------------
satisfactory to Buyer, Buyer shall notify Seller thereof specifying in detail
why such Schedule is not acceptable, and Buyer and Seller shall negotiate in
good faith to agree upon the form and substance of Schedule 1.1(b).
---------------
11.9 Corporate Existence. Seller shall maintain in good standing its
-------------------
corporate existence until at least December 15, 2000, and shall maintain during
such period a Net Worth (defined below) of no less than $1,000,000. "Net Worth"
means total assets less total liabilities, both determined in accordance with
generally accepted accounting principles.
[SIGNATURE PAGE FOLLOWS]
32
<PAGE>
[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
first above written.
BUYER: RADIO ONE, INC.
By: /s/ Alfred C. Liggins, III
--------------------------------
Name: Alfred C. Liggins, III
Title: Chief Executive Officer & President
SELLER: GREATER MEDIA RADIO COMPANY
By: /s/ Lynn B. Bruder
--------------------------------
Name: Lynn B. Bruder
Title: President
<PAGE>
Schedules
- ---------
1.1(a) FCC Authorizations
1.1(b) Tangible Personal Property
1.1(c) Real Property
1.1(e) Station Contracts
1.1(f) Intangible Property
1.2 Excluded Personal Property of Daniel Lerner
2.15 Environmental
<PAGE>
Exhibit 23.1
Consent of the Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made a part of this
registration statement.
/s/ Arthur Andersen L.L.P.
Baltimore, Md.,
February 14, 2000
<PAGE>
Exhibit 23.2
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made a part of this
registration statement.
By: /s/ Mitchell & Titus, L.L.P.
Mitchell & Titus, L.L.P.
Washington, DC
February 11, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements of the Company for the three years in the
period ended December 31, 1998, and for the nine months ended September 30, 1998
and 1999, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1996 JAN-01-1997 JAN-01-1998 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 SEP-30-1998 SEP-30-1999
<CASH> 0 8,500,00 4,455,000 0 4,428,000
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 0 9,626,000 13,269,000 0 2,209,000
<ALLOWANCES> 0 (904,000) (1,243,000) 0 (2,320,000)
<INVENTORY> 0 0 0 0 0
<CURRENT-ASSETS> 0 17,537,000 17,641,000 0 25,721,000
<PP&E> 0 7,819,000 11,306,000 0 21,821,000
<DEPRECIATION> 0 (3,387,000) (4,589,000) 0 (6,285,000)
<TOTAL-ASSETS> 0 79,225,000 153,856,000 0 257,826,000
<CURRENT-LIABILITIES> 0 3,287,000 5,041,000 0 10,444,000
<BONDS> 0 74,954,000 131,739,000 0 107,585,000
0 22,968,000 0 0 0
0 0 26,684,000 0 0
<COMMON> 0 0 5,000 0 18,000
<OTHER-SE> 0 (21,984,000) (24,864,000) 0 124,836,000
<TOTAL-LIABILITY-AND-EQUITY> 0 79,225,000 153,856,000 0 257,082,600
<SALES> 27,027,000 36,955,000 52,696,000 38,057,000 65,062,000
<TOTAL-REVENUES> 27,027,000 36,955,000 52,696,000 38,057,000 65,062,000
<CGS> (3,325,000) (4,588,000) (6,587,000) (4,753,000) (8,087,000)
<TOTAL-COSTS> (3,325,000) (4,588,000) (6,587,000) (4,753,000) (8,087,000)
<OTHER-EXPENSES> 19,982,000 26,831,000 35,746,000 25,643,000 46,721,000
<LOSS-PROVISION> 1,105,000 894,000 1,942,000 1,281,000 2,063,000
<INTEREST-EXPENSE> 7,252,000 8,910,000 11,455,000 7,996,000 11,479,000
<INCOME-PRETAX> (3,609,000) (2,959,000) (734,000) (68,000) (1,026,000)
<INCOME-TAX> 0 0 (1,575,000) 0 731,000
<INCOME-CONTINUING> (3,609,000) (2,959,000) 841,000 (68,000) (1,757,000)
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 (1,985,000) 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> (3,609,000) (4,944,000) 841,000 (68,000) (1,757,000)
<EPS-BASIC> (0.38) (0.53) (0.31) (0.30) (0.22)
<EPS-DILUTED> (0.38) (0.74) (0.31) (0.30) (0.22)
</TABLE>
