<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1997.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ODYSSEY COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4832 13-3790661
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
11 SKYLINE DRIVE
HAWTHORNE, NY 10532
(914) 592-1071
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
MICHAEL KAKOYIANNIS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ODYSSEY COMMUNICATIONS, INC.
11 SKYLINE DRIVE
HAWTHORNE, NY 10532
(914) 592-1071
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
JAMES M. DUBIN, ESQ. NICHOLAS P. SAGGESE, ESQ.
Paul, Weiss, Rifkind, Wharton & Garrison Skadden, Arps, Slate, Meagher & Flom LLP
1285 Avenue of the Americas 300 South Grand Avenue
New York, New York 10019-6064 Los Angeles, California 90071
(212) 373-3000 (213) 687-5000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, as amended (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.
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE(3)
<S> <C> <C>
Class A Common Stock, par value $.01 per share.................. $40,250,000 $12,197
</TABLE>
(1) Includes shares which may be purchased by the Underwriters solely to cover
over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee.
(3) Calculated pursuant to Rule 457(o).
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES
AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY
BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED SEPTEMBER 26, 1997
PROSPECTUS
, 1997
SHARES
ODYSSEY COMMUNICATIONS, INC.
CLASS A COMMON STOCK
All of the shares of Class A Common Stock, par value $.01 per share (the
"Class A Common Stock"), of Odyssey Communications, Inc., a Delaware corporation
("Odyssey" or the "Company"), are being offered for sale by the Company (the
"Offering"). The Company's authorized capital stock includes Class A Common
Stock and Class B Common Stock, par value $.01 per share (the "Class B Common
Stock" and, together with the Class A Common Stock, the "Common Stock"). The
rights of holders of Class A Common Stock and Class B Common Stock are
identical, except that each share of Class A Common Stock entitles its holder to
one vote per share on all matters voted upon by the Company's stockholders,
whereas each share of Class B Common Stock entitles its holder to ten votes per
share on all matters voted upon by the Company's stockholders. In addition,
holders of Class B Common Stock vote as a separate class to elect up to 75% of
the members of the Company's Board of Directors. Each share of Class B Common
Stock is convertible at any time into one share of Class A Common Stock. In
addition, at such time as any share of Class B Common Stock ceases to be held by
any of the Principal Stockholders (as defined herein), their affiliates or
relatives, such share of Class B Common Stock shall convert into a share of
Class A Common Stock. After consummation of the Offering, the Principal
Stockholders will own all of the shares of Class B Common Stock, having
approximately % of the outstanding voting power of the Common Stock.
Prior to this Offering, there has been no public market for the Class A
Common Stock. It is currently estimated that the initial public offering price
will be between $ and $ per share of Class A Common Stock. See
"Underwriting" for information relating to the factors considered in determining
the initial public offering price.
An application to list the Class A Common Stock on the American Stock
Exchange ("AMEX") under the symbol "ODS" has been made.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECUR-
ITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................. $ $ $
Total(3).............................. $ $ $
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS (AS DEFINED HEREIN)
AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED.
(2) BEFORE DEDUCTING ESTIMATED OFFERING EXPENSES PAYABLE BY THE COMPANY,
ESTIMATED AT $ .
(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP
TO AN AGGREGATE OF ADDITIONAL SHARES OF CLASS A COMMON STOCK AT THE
PRICE TO THE PUBLIC SHOWN ABOVE, LESS UNDERWRITING DISCOUNTS AND
COMMISSIONS, SOLELY TO COVER OVER-ALLOTMENTS, IF ANY. IF SUCH OPTION IS
EXERCISED IN FULL, THE TOTAL PRICE TO THE PUBLIC, UNDERWRITING DISCOUNTS AND
COMMISSIONS AND PROCEEDS TO THE COMPANY WILL BE $ , $ AND
$ , RESPECTIVELY. SEE "UNDERWRITING."
The shares of Class A Common Stock are being offered hereby by the several
Underwriters, subject to prior sale, when, as and if delivered to and accepted
by the Underwriters and subject to various prior conditions, including their
right to reject orders in whole or in part. It is expected that delivery of the
shares of Class A Common Stock offered hereby will be made in New York, New
York, or through the facilities of The Depository Trust Company, on or about,
1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE>
[PICTURES/LOGO--TO BE FILED BY AMENDMENT]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR AND PURCHASE SHARES OF CLASS A COMMON STOCK IN THE OPEN
MARKET TO COVER A SYNDICATE SHORT POSITION IN THE CLASS A COMMON STOCK OR FOR
THE PURPOSE OF MAINTAINING OR STABILIZING THE PRICE OF THE CLASS A COMMON STOCK.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY AND SHOULD BE READ IN
CONJUNCTION WITH THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, AND OTHER DATA APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION INCLUDED IN THIS
PROSPECTUS (I) ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE
EXERCISED, (II) HAS BEEN ADJUSTED TO GIVE EFFECT TO THE EQUITY CONTRIBUTION AND
THE RECLASSIFICATION (EACH AS DEFINED HEREIN) AND (III) HAS BEEN ADJUSTED TO
GIVE EFFECT TO THE CHANGE BY THE COMPANY OF ITS FISCAL YEAR-END FROM SEPTEMBER
30 TO DECEMBER 31 EFFECTIVE AS OF THE CONSUMMATION OF THE OFFERING. FOR A
DEFINITION AND EXPLANATION OF INDUSTRY TERMS AND THE SOURCE OF MARKET DATA CITED
HEREIN, SEE "MARKET DATA AND CERTAIN DEFINITIONS" ON PAGE 66.
THE COMPANY
Odyssey Communications, Inc. ("Odyssey," or the "Company") was formed in
1994 to acquire radio broadcast properties in or adjacent to major metropolitan
markets and utilize innovative engineering techniques and low-cost,
ratings-driven operating strategies to develop these properties into successful
metropolitan radio stations. In order to accomplish this objective, the Company
applies a variety of innovative broadcast engineering techniques to the radio
broadcast properties it acquires, including Synchronized Total Market Coverage
("STMC"). STMC consists of acquiring two or more stations which broadcast on the
same frequency and simulcasting their signals to achieve broad coverage of a
targeted metropolitan market. In addition to STMC, the Company intends to employ
other broadcast engineering techniques to enter major metropolitan markets at
attractive valuations. These engineering techniques include acquiring suburban
radio stations and moving the station's broadcast antenna closer to the
metropolitan market ("move-ins") and acquiring high-power stations adjacent to
major metropolitan markets and focusing such stations' broadcast signal into the
metropolitan area.
The Company's acquisition/engineering strategies enable it to provide near
seamless coverage of major metropolitan markets at a significantly lower
acquisition cost than typically required to acquire a major market Class B
station. The Company currently owns and operates STMC station combinations in
New York, Los Angeles and Chicago, the three largest radio markets in the United
States in terms of aggregate advertising revenues.
The Company is controlled by Stuart Subotnick, a general partner of
Metromedia Company who will own, subsequent to the Offering, approximately %
of the Common Stock, representing % of the voting power of the Common Stock.
The Company's first targeted market was Los Angeles where the Company
operates a three station combination, which broadcasts as Y-107 ("Y-107 LA"),
featuring a modern rock format on the 107.1-FM frequency. Y-107 LA currently
covers approximately 75% of the Arbitron diaries in the Los Angeles Arbitron
Metro Survey Area ("MSA") and will increase its coverage to over 90% as a result
of an increase in its transmission power pursuant to the FCC Power Increase (as
defined herein), which the Company plans to implement in the fourth quarter of
1997. The Company has demonstrated the success of its strategy in Los Angeles
where Y-107 LA has consistently ranked as one of the top 5 most listened-to
modern rock radio stations in America over the past year, and has achieved a
significant rating of 1.1% in the 12+ category as of the spring 1997 Arbitron
book. The Company has successfully translated its strong listenership into
significant revenues as exemplified by the increase in its power ratio (defined
as a station's share of the aggregate radio market revenues divided by its
Arbitron listenership share) from 0.5 in the six month period ended December
1996 to 1.4 in the six month period ended June 1997. The Company's three Los
Angeles stations (the "Los Angeles Stations") were acquired in early 1996 for a
combined purchase price significantly lower than the market value of Class B
stations in the Los Angeles MSA, as evidenced by transactions consummated since
the deregulation initiated by the passage of the Telecom Act in 1996 (as defined
herein).
The Company recently completed the acquisitions of three stations in the New
York MSA, which collectively broadcast as Y-107 ("Y-107 NY") on the 107.1-FM
frequency. Y-107 NY commenced operations in January 1997 as the only country
music station covering the New York City market. Y-107
3
<PAGE>
NY earned a 1.1% share in the 12+category as of the spring 1997 Arbitron book.
Y-107 NY currently covers approximately 75% of the Arbitron diaries in the New
York MSA and will increase its coverage to approximately 90% as a result of an
increase in its transmission power pursuant to the FCC Power Increase, which the
Company plans to implement in the first quarter of 1998. The Company's three New
York stations (the "New York Stations") were acquired by the Company for a
combined purchase price significantly lower than the market value of Class B
stations in the New York MSA, as evidenced by transactions consummated since the
passage of the Telecom Act.
In August 1997, the Company acquired two radio stations in the Chicago MSA
(the "Chicago Stations"). The acquisition of the Chicago Stations secures the
Company's presence in the top three radio markets in the United States, as
measured in terms of aggregate advertising revenues. The Chicago Stations will
broadcast on the 103.1-FM frequency. The Chicago Stations were acquired for a
combined purchase price which is significantly less than the market value of
Class B stations in the Chicago MSA, as evidenced by transactions consummated
since the passage of the Telecom Act. The Chicago Stations currently cover
approximately 70% of the Arbitron diaries in the Chicago MSA and will increase
their coverage to approximately 90% as a result of the planned increase in their
transmission power pursuant to the FCC Power Increase, which the Company plans
to implement in the second quarter of 1998. The Company is currently exploring
format options for the Chicago Stations and expects to formally begin
broadcasting as a single station during the fourth quarter of 1997.
BUSINESS STRATEGY
The Company's objective is to achieve a significant presence in selected top
20 radio markets by acquiring radio broadcast properties in or adjacent to major
metropolitan markets and utilizing innovative engineering techniques and
low-cost, ratings-driven operating strategies to develop these properties into
successful metropolitan radio stations. The following are the key elements of
the Company's business strategy:
ENTER TOP-20 MARKETS WITH LOW CAPITAL INVESTMENT
The Company intends to utilize STMC and other innovative acquisition and
engineering strategies to gain low-cost entry into major metropolitan radio
markets and achieve market coverage equivalent to Class B metropolitan stations.
- LOW ACQUISITION COST. Industry research indicates that the values of Class
B radio stations in major MSAs have increased significantly since the
passage of the Telecom Act. The Company has created radio stations with
equivalent Arbitron market coverage to Class B radio stations in the three
largest radio markets for a substantially lower capital investment. For
example, while in the Los Angeles MSA, prices have ranged from $113.0
million to $312.0 million, the Company has created for $26.8 million a Los
Angeles station which, following the FCC Power Increase, will have
equivalent Arbitron market coverage. Similarly, in the New York MSA where
prices have ranged from $83.5 million to $286.0 million, the Company has
created for $19.5 million a New York station which, following the FCC
Power Increase, will have equivalent Arbitron market coverage. In the
Chicago MSA, while prices have ranged from $22.0 million to $225.0
million, the Company has created for $10.6 million a Chicago station
which, following the FCC Power Increase, will have equivalent Arbitron
market coverage. Based on the range of purchase prices in recently
consummated transactions as specified above, achieving entry into the top
three radio markets would have required an aggregate investment of between
$218.5 million and $823.0 million, while the Company has entered these
three markets with an aggregate investment of approximately $56.9 million.
The Company continues to explore similar opportunities in other attractive
top 20 markets and believes that there is potential to achieve low-cost
entry by using methods such as STMC, "move-ins" and acquisitions of high
power stations adjacent to major metropolitan markets.
- EFFECTIVE COVERAGE OF ARBITRON RATED METROPOLITAN MARKETS. The Company's
objective is to achieve coverage in excess of 90% of the Arbitron diaries
in its targeted MSAs, which is equivalent to the
4
<PAGE>
coverage typically provided by Class B stations in major metropolitan
markets. Accordingly, the Company bases its acquisition strategy primarily
on the location of Arbitron diaries. Furthermore, to enhance the Arbitron
diary coverage of a station, once acquired, the Company's experienced
staff tailors an engineering solution to optimize the Arbitron diary
coverage of each station.
MAXIMIZE STATION PERFORMANCE
The Company seeks to maximize the operating performance of its stations by
employing a ratings-driven, cash flow-focused operating strategy.
- MAXIMIZE STATION REVENUE. Based on an extensive market research study, the
Company carefully selects the format of the station to maximize
penetration of audience share and advertising revenues in that market. For
example, the Company believes that its carefully selected modern rock
format in Los Angeles and unique country music format in New York City
provide it with a competitive advantage and enhanced listenership in the
respective markets. The Company has successfully translated its strong
listenership into significant revenue as exemplified by the increase in
its power ratio from 0.5 in the six month period ended December 1996 to
1.4 in the six month period ended June 1997 in the Los Angeles market.
- MAXIMIZE BROADCAST CASH FLOW. Another key aspect of the Company's
operating strategy will be to maximize its broadcast cash flow by
controlling its operating costs. The Company has not historically, and
does not intend at present, to expend the significant costs associated
with hiring highly compensated on-air personalities. The Company maintains
operating costs at a relatively low level and focuses on core programming
content to achieve high ratings.
GENERAL
HISTORY AND DEVELOPMENT
The Company was formed by its chairman, Stuart Subotnick and its president
and chief executive officer, Michael Kakoyiannis. Mr. Subotnick contributes his
financial, strategic and operational expertise gained through the development
and operation of the numerous media and communications businesses that he and
longtime partner John Kluge have controlled through Metromedia Company and its
predecessor. Michael Kakoyiannis, the Company's president and chief executive
officer, has been involved in the radio broadcasting industry for over 25 years
in various functions including sales, marketing and general management. In
addition to Mr. Subotnick and Mr. Kakoyiannis, Odyssey has numerous experienced
radio executives involved in all aspects of its operations, including
engineering, sales, marketing, programming and finance. The Company believes
that its quality management team will be instrumental in successfully
implementing its business strategy.
EQUITY CONTRIBUTION, RECLASSIFICATION AND OTHER INFORMATION
Immediately prior to the consummation of the Offering, Stuart and Anita
Subotnick (the "Principal Stockholders") will contribute the entire amount of
certain outstanding stockholders' loans made to the Company ($13.0 million at
June 30, 1997) to the Company's capital in return for the issuance of
additional shares of Class B Common Stock (the "Equity
Contribution"). Simultaneously with the Equity Contribution, each share of the
Company's Common Stock, par value $.01 per share (the "Old Common Stock"), will
be reclassified into shares of Class A Common Stock and the
Principal Stockholders will exchange each share of Class A Common Stock held by
them for one share of Class B Common Stock (the foregoing reclassification and
exchange is hereinafter referred to as the "Reclassification"). In addition,
Odyssey will convert from an S-Corporation to a C-Corporation and will change
its fiscal year-end from September 30 to December 31 in connection with the
Offering. The principal executive offices of the Company are located at 11
Skyline Drive, Hawthorne, New York, New York 10532 and its telephone number is
(914) 592-1071.
RISK FACTORS
See "Risk Factors" beginning on page 8 for a discussion of certain factors
that should be considered by potential investors.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered......................... shares of Class A Common Stock
Common Stock to be outstanding after the
Offering(1)
Class A Common Stock..................... shares
Class B Common Stock..................... shares
Total.................................. shares of Common Stock
Use of proceeds.............................. The net proceeds of the Offering, estimated
to be approximately $ million
(approximately $ million if the
Underwriters' over-allotment option is
exercised in full), will be used by the
Company to repay existing indebtedness under
the Existing Credit Facility (as defined
herein).
Voting rights................................ The holders of Class A Common Stock generally
have rights identical to holders of Class B
Common Stock, except that holders of Class A
Common Stock are entitled to one vote per
share on all matters voted upon by the
Company's stockholders and holders of Class B
Common Stock are entitled to ten votes per
share on all matters voted upon by the
Company's stockholders. Holders of Class A
Common Stock and Class B Common Stock will
vote as a single class on most matters. In
addition, holders of Class B Common Stock
vote as a separate class to elect up to 75%
of the members of the Company's Board of
Directors. Each share of Class B Common Stock
is convertible at any time into one share of
Class A Common Stock. In addition, at such
time as any share of Class B Common Stock
ceases to be held by any of the Principal
Stockholders, their affiliates or relatives,
such share of Class B Common Stock shall
convert into a share of Class A Common Stock.
Proposed AMEX symbol......................... ODS
</TABLE>
- ------------------------
(1) Based on the number of shares outstanding, as of June 30, 1997, after giving
effect to the Equity Contribution and the Reclassification. Does not include
any shares of Class A Common Stock that may be issued upon exercise of
options to acquire shares of Class A Common Stock granted under the 1998
Stock Incentive Plan (as defined herein).
6
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents selected financial and operating data of the
Company which is derived from the audited and unaudited financial statements of
the Company (i) as reported and (ii) on a pro forma basis to reflect (a) the
acquisitions of K&K Radio Broadcasting, L.L.C. and of the assets of WVVX-FM,
Inc.; (b) the sale of the Q stations (as defined herein) and KWIZ-FM; (c) the
consummation of the Offering at a price of $ per share and the application
of the net proceeds therefrom; (d) the conversion of the Company from a
S-Corporation to a C-Corporation; and (e) the Equity Contribution and
Reclassification. See "Pro Forma Financial Statements." The data is qualified by
reference to and should be read in conjunction with the financial statements of
the Company and the related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus. The historical financial results of the Company are not
comparable from period to period because of the acquisition and sale of various
broadcasting properties by the Company during the periods covered.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
--------------------------------------- ------------------------
PRO FORMA
1995 1996(2)(4) 1996 1996(4) 1997(3)
----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues......................................... $ 5,225 $ 7,944 $ $ 4,214 $ 4,700
Station operating expenses........................... 7,185 12,253 7,215 6,820
Corporate general and administrative expenses........ 425 1,201 477 744
Depreciation and amortization........................ 798 1,388 627 776
----------- ------------- ----------- ----------- -----------
Operating (loss)..................................... (3,183) (6,898) (4,105) (3,640)
----------- ------------- ----------- ----------- -----------
Net income (loss).................................... $ (4,005) $ (3,098) $ $ 1,678 $ (5,257)
----------- ------------- ----------- ----------- -----------
----------- ------------- ----------- ----------- -----------
Pro forma net loss per common share..................
Weighted average shares outstanding..................
OTHER OPERATING DATA:
Broadcast cash flow(1)............................... $ (1,960) $ (4,310) $ $ (3,001) $ (2,120)
<CAPTION>
JUNE 30,
1997
-----------
ACTUAL
-----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................................................................ $ 664
Net intangible assets...................................................................................... 44,120
Total assets............................................................................................... 50,968
Notes payable.............................................................................................. 12,952
Long-term debt............................................................................................. 44,700
Stockholders' equity (deficit)............................................................................. (9,057)
<CAPTION>
PRO FORMA
1997
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues......................................... $
Station operating expenses...........................
Corporate general and administrative expenses........
Depreciation and amortization........................
-----------
Operating (loss).....................................
-----------
Net income (loss).................................... $
-----------
-----------
Pro forma net loss per common share..................
Weighted average shares outstanding..................
OTHER OPERATING DATA:
Broadcast cash flow(1)............................... $
PRO FORMA
-----------
<S> <C>
BALANCE SHEET DATA:
Working capital...................................... $
Net intangible assets................................
Total assets.........................................
Notes payable........................................
Long-term debt.......................................
Stockholders' equity (deficit).......................
</TABLE>
- ------------------------------
(1) Broadcast cash flow is defined as operating loss plus depreciation and
amortization plus corporate general and administrative expenses. Although
not calculated in accordance with generally accepted accounting principles,
broadcast cash flow is widely used in the broadcast industry as a measure of
a broadcast company's operating performance. Nevertheless, this measure
would not be considered in isolation or as a substitute for operating loss,
cash flows from operating activities or any other measure for determining
the Company's operating performance or liquidity which is calculated in
accordance with generally accepted accounting principles.
(2) The Company acquired substantially all of the assets of the Los Angeles
Stations and KWIZ-FM on May 30, 1996 and commenced operations of these
stations under a LMA on March 26, 1996. The financial statements include the
operations of these stations from commencement of the LMA period. KWIZ-FM
was sold on December 20, 1996. No gain or loss was recognized on the sale of
KWIZ-FM.
(3) The Company acquired substantially all of the assets of WWHB-FM on April 1,
1997 and WZVU-FM on June 5, 1997 and commenced operations of these stations
under a LMA during December 1996. WWHB-FM and WZVU-FM together with WRGX-FM
broadcast as "Y-107 NY". The financial statements include the operations of
Y107 NY since December 1996.
(4) The statement of operations data for the year ended December 31, 1996 and
for the six months ended June 30, 1996 include (i) the operations of WSTC-AM
and WKHL-FM (referred to herein as the Q stations) to May 30, 1996, the date
on which they were sold; and (ii) a gain on sale of stations of $6,608 in
the year ended December 31, 1996 which represents the gain on sale of the Q
stations.
7
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION AND FINANCIAL DATA SET FORTH ELSEWHERE
IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SHARES OF CLASS A
COMMON STOCK OFFERED HEREBY.
LIMITED HISTORY OF OPERATIONS; NET LOSSES AND NEGATIVE CASH FLOW FROM
OPERATIONS; EXPECTED FUTURE NET LOSSES AND NEGATIVE CASH FLOW FROM OPERATIONS
The Company was formed in August 1994 and has a limited operating history.
Accordingly, prospective investors have limited operating history and limited
historical financial information upon which to base an evaluation of the
Company's performance and an investment in shares of Class A Common Stock. The
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development.
Since inception, the Company has not generated significant revenue, has
incurred substantial net losses and has never generated positive cash flow from
operations. The Company had net losses of $3.1 million and $4.0 million for the
years ended December 31, 1996 and 1995, respectively, and a net loss of $5.3
million for the six months ended June 30, 1997. In addition, as of June 30,
1997, the Company had a deficiency of stockholders' equity of approximately $9.1
million. The Company believes that losses will continue while the Company
pursues its strategy of acquiring and developing radio stations. The Company
will also incur losses during the initial reformatting and assimilation process
with respect to the radio stations that it acquires. There can be no assurance
that an adequate revenue base will be established or that the Company's radio
stations will become profitable or generate positive cash flow. Continued losses
and negative cash flow may prevent the Company from pursuing its strategies for
growth and may have a material adverse effect on the Company.
RISKS ASSOCIATED WITH GROWTH THROUGH FUTURE ACQUISITIONS; FUTURE CAPITAL
REQUIREMENTS;
ASSIMILATION OF ACQUIRED RADIO STATIONS
One of the Company's principal growth strategies is to acquire additional
radio stations. Any future acquisitions, investments, strategic alliances or
related efforts will be accompanied by various associated risks, such as the
difficulty of identifying appropriate acquisition candidates, the competition
among buyers of radio stations, the difficulty of assimilating the operations of
the respective entities, the potential disruption of the Company's ongoing
business, the inability of management to capitalize on the opportunities
presented by acquisitions, investments, strategic alliances or related efforts,
the failure to successfully incorporate licensed or acquired technology and
rights into the Company's services, the inability to maintain uniform standards,
controls, procedures and policies and the impairment of relationships with
employees and customers as a result of changes in management. There can be no
assurance that the Company will be successful in overcoming these risks or any
other problems encountered with such acquisitions, investments, strategic
alliances or related efforts. See "Business--Business Strategy" and
"Business--Litigation." In addition, entities acquired by the Company may have
liabilities, including contingent liabilities, for which the Company may become
responsible.
Additional debt or equity financing may be required in order to complete
future acquisitions. The Company's ability to arrange financing and the cost of
such financing are dependent upon numerous factors, including general economic
and capital market conditions, conditions in the radio broadcasting industry,
regulatory developments, credit availability from banks or other lenders,
investor confidence in the industry and the Company, the success of the
Company's radio stations, and provisions of tax and securities laws that are
conducive to raising capital. There can be no assurance that financing will be
available to the Company on acceptable terms in the future or that, if the form
of any such future financing is through the direct or indirect issuance and sale
of equity securities, investors in the Offering will not be
8
<PAGE>
diluted. If the Company cannot arrange such financing, it may be forced to
curtail its acquisition of additional radio stations which may have an adverse
effect on its long-term business strategy.
The number of radio stations operated by the Company has increased with the
recent acquisition of the Chicago Stations. See "Business--Recently Completed
Radio Station Acquisition and Dispositions." Management will be required to
devote significant time to assimilate these radio stations into the Company's
business structure. There can be no assurance that this assimilation can be
accomplished in the manner which management has planned or that the Company will
be able to operate these radio stations profitably. See "--Limited History of
Operations; Net Losses and Negative Cash Flow from Operations; Expected Future
Net Losses and Negative Cash Flow from Operations."
RISKS ASSOCIATED WITH THE COMPANY'S STRATEGY
The Company's business strategy is, in part, based upon the implementation
of engineering solutions such as STMC to create value. There are no significant
barriers preventing other persons from implementing strategies similar to STMC
and otherwise creating value by applying engineering solutions to radio
stations. In addition, the Company believes that its purchase price for the Los
Angeles Stations, New York Stations and Chicago Stations is significantly lower
than the value of Class B stations in those markets. The Company did not have
access to detailed data as to the financial performance, signal characteristics,
listener profile and consumer satisfaction of the radio stations used for
comparison to the Company's broadcast properties. Investors are urged to
consider this limitation on available information in evaluating the success of
the Company's acquisition strategy and its prospects.
SUBSTANTIAL LEVERAGE; PLEDGE OF ASSETS; COVENANTS
At June 30, 1997, after giving pro forma effect to the Offering and the
application of the net proceeds therefrom, the Company's total long-term debt
would have been approximately $ . Because of the Company's substantial
indebtedness, a significant portion of the Company's broadcast cash flow is
required for debt service. The Company's significant leverage could make it
vulnerable to a downturn in the economic performance of its radio stations or a
downturn in economic conditions. In addition, after giving effect to the
application of the net proceeds from the Offering as set forth under "Use of
Proceeds" herein, the amount of additional borrowings available to the Company
under the Amended and Restated Credit Agreement, to be entered into
simultaneously with the consummation of this Offering between the Company and a
major financial institution (the "Bank")(as amended and restated, the "Credit
Facility") will be approximately $ million. See "Description of Credit
Facility." Such amount may not be sufficient to support the Company's growth
strategy and as a result the Company may require additional financing in order
to acquire additional radio stations and accomplish its long- term business
strategies.
Substantially all of the Company's assets will be pledged to secure the
performance by the Company of its obligations under the Credit Facility. In
addition, the Credit Facility will impose on the Company various financial and
non-financial restrictions, including limitations on additional indebtedness,
liens, sale of assets, payment of dividends, guarantee obligations, investments
and capital expenditures. The Credit Facility and the pledge of the Company's
assets may adversely affect the Company's ability to seek additional financing
and pursue its strategy of further growth through acquisitions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
REGULATORY MATTERS AND DEPENDENCE ON LICENSES
Each of the Company's radio stations operates pursuant to one or more
broadcast licenses issued by the Federal Communications Commission (the "FCC")
that presently have a maximum term of eight years. The Company's broadcast
licenses expire at various times from 1997 to 2004. Although the
9
<PAGE>
Company may apply to renew these licenses, third parties may challenge the
Company's renewal applications. While the Company is not aware of facts or
circumstances that would prevent the Company from having its current licenses
renewed, there can be no assurance that the licenses will be renewed. Failure to
obtain the renewal of any of the Company's broadcast licenses, to obtain FCC
approval for an assignment or transfer to the Company of a license in connection
with a radio station acquisition or to obtain and comply with FCC authorization
for the construction of required facilities or modification of technical
parameters or specifications for operations (including the FCC Power Increase)
may have a material adverse effect on the Company. In addition, if the Company
or any of its officers, directors or significant stockholders violates the FCC's
rules and regulations or the Communications Act of 1934, as amended (the
"Communications Act"), is convicted of a felony, or is otherwise found to be
disqualified from being a party to a FCC license, the FCC may in response to a
petition from a third party or on its own motion, in its discretion, commence a
proceeding to impose sanctions against the Company which could involve the
imposition of monetary penalties, the revocation of the Company's broadcast
licenses or other sanctions.
The radio broadcasting industry is subject to extensive and changing
regulation. Among other things, the Communications Act and FCC rules and
policies limit the number of stations that one individual or entity can own, or
in which that individual or entity can hold an attributable interest, in a
market and require FCC approval for transfers of control of FCC licensees and
assignments of FCC licenses. The filing of petitions or complaints against the
Company or other FCC licensees could result in the FCC delaying the grant of, or
refusing to grant, its consent to the assignment of FCC licenses to or from an
FCC licensee or the transfer of control of an FCC licensee. The Communications
Act and FCC rules operate to impose limitations on ownership by Aliens (as
defined in the Communications Act). No corporation owning a broadcast license
may be more than one-fifth directly, or one-fourth indirectly, owned by Aliens,
foreign governments or their representatives. The FCC rules also require, in
certain circumstances, prior approval for changes in voting rights of the Common
Stock and changes in the Board of Directors of the Company. There can be no
assurance that there will not be changes in the current regulatory scheme, the
imposition of additional regulations or the creation of new regulatory agencies,
which changes could restrict or curtail the ability of the Company to acquire,
operate and dispose of radio stations or, in general, to compete profitably with
other operators of radio and other media properties. Moreover, there can be no
assurance that there will not be other regulatory changes, including aspects of
deregulation, that will result in a decline in the value of broadcast licenses
held by the Company or adversely affect the Company's competitive position. See
"--Federal Regulation of Radio Broadcasting."
ANTITRUST MATTERS
An important element of the Company's growth strategy involves the
acquisition of additional radio stations, several of which are likely to require
preacquisition antitrust review by the Federal Trade Commission (the "FTC") and
the Antitrust Division of the United States Department of Justice (the
"Antitrust Division"). Following passage of the Telecom Act, the Antitrust
Division has more frequently reviewed proposed acquisitions of radio stations
and radio station networks, particularly in instances where the proposed
acquiror already owns one or more radio stations in a particular market and the
acquisition involves another radio station in the same market. In the past, the
Antitrust Division has obtained consent decrees requiring an acquiror to dispose
of at least one radio station in a particular market where the acquisition
otherwise would have resulted in a concentration of radio advertising market
share or domination of programming formats reaching certain listeners by the
acquiror.
COMPETITION; DEPENDENCE ON AUDIENCE SHARE RATINGS AND TECHNOLOGY CHANGES
Radio broadcasting is a highly competitive business. The financial success
of each of the Company's radio stations depends, to a significant degree, upon
its audience ratings, its share of the overall radio advertising revenue within
its geographic market and the economic health of the market. The audience
ratings and advertising revenue of the Company's individual stations are subject
to change and any adverse
10
<PAGE>
change in a particular market could have a material adverse effect on the
Company. The Company's radio stations compete for audience share and advertising
revenue directly with other FM and AM radio stations and with other media within
their respective markets, such as newspapers, broadcast and cable television,
magazines, billboard advertising, transit advertising, and direct mail
advertising. Many of these entities are larger and have significantly greater
resources than the Company. While the Company already competes with other radio
stations with comparable programming formats in each of its markets, if another
radio station in the market which currently does not have the same programming
format as the Company's stations were to convert its programming format to a
format similar to one of the Company's stations, if a new station were to adopt
a competitive format, or if an existing competitor were to strengthen its
operations, the Company's stations could suffer a reduction in ratings and/or
advertising revenue and could require increased promotional and other expenses.
The Telecom Act facilitates the entry of other radio broadcasting companies into
the markets in which the Company operates or may operate in the future, some of
which may be larger and have more financial resources than the Company. In
addition, certain of the Company's stations compete, and in the future other
stations of the Company may compete, with combinations of stations operated by a
single operator. There can be no assurance that the Company's radio stations
will be able to maintain or increase their current audience ratings and radio
advertising revenue. See "Business--Competition."
Radio broadcasting is also subject to competition from new media
technologies that are being developed or have been introduced, such as digital
audio broadcasting ("DAB"). DAB may provide a medium for the delivery by
satellite (digital audio radio satellite service, or "DARS") or terrestrial
means of multiple multi-channel, multi-format digital radio services with sound
quality equivalent to compact-discs to local and national audiences. In
addition, cable television operators are introducing a new service commonly
referred to as "cable radio," which provides cable television subscribers with
several high-quality channels of music, news and other information. The Company
cannot predict the effect, if any, that any such new technologies may have on
the radio broadcasting industry or on the Company. See "Business--Competition."
The profitability of the Company's radio stations is subject to various
other factors which influence the radio broadcasting industry as a whole. The
Company's radio stations may be adversely affected by changes in audience
tastes, priorities of advertisers, new laws and governmental regulations and
policies, changes in broadcast technical requirements, proposals to limit the
tax deductibility of expenses incurred by advertisers and changes in the
willingness of financial institutions and other lenders to finance radio station
acquisitions and operations. The Company cannot predict which, if any, of these
factors might have a significant impact on the radio broadcasting industry in
the future, nor can it predict what impact, if any, the occurrence of these
events might have on the Company.
EFFECTS OF ECONOMIC RECESSION
The Company derives substantially all of its revenue from the sale of
advertising time on its radio stations. The Company's broadcasting revenue could
be adversely affected by a future national recession. In addition, because a
substantial portion of the Company's revenue is derived from local advertisers,
the Company's ability to generate advertising revenue in specific markets could
be adversely affected by local or regional economic downturns. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RELIANCE ON KEY PERSONNEL
The Company's business is managed by a small number of key management and
operating personnel, the loss of certain of whom could have a material adverse
effect on the Company. The Company believes that its future success will depend
in large part on its ability to attract and retain highly skilled and qualified
personnel and to expand, train and manage its employee base. The Company has
entered into an employment agreement with Mr. Kakoyiannis which includes
provisions restricting the ability of
11
<PAGE>
Mr. Kakoyiannis to compete against the Company in certain circumstances. See
"Management--Employment Agreements."
CONCENTRATION OF VOTING POWER BY PRINCIPAL STOCKHOLDERS
The holders of Class A Common Stock are entitled to one vote per share on
all matters voted upon by the Company's stockholders. Holders of Class B Common
Stock are entitled to ten votes per share on all matters voted upon by the
Company's stockholders. In addition, holders of Class B Common Stock are
entitled to vote as a separate class to elect up to 75% of the members of the
Company's Board of Directors. Each share of Class B Common Stock is convertible
at any time into one share of Class A Common Stock, and with limited exceptions
converts automatically upon any sale or transfer to a party unaffiliated with,
or unrelated to, the Principal Stockholders. The Principal Stockholders will,
upon consummation of the Offering, own all of the outstanding shares of Class B
Common Stock, which represent approximately % of the combined voting power
of the Common Stock. Accordingly, the Principal Stockholders will be able to
control the Board of Directors and all stockholders decisions and, in general,
to determine (without the consent of the Company's other stockholders) the
outcome of any corporate transaction or other matter submitted to the
stockholders for approval, including mergers, consolidations and the sale of all
or substantially all of the Company's assets. See "Description of Capital
Stock," "Principal Stockholders" and "Certain Relationships and Related
Transactions."
ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE
Prior to the Offering, there has been no public market for the Class A
Common Stock. The initial public offering price of the Class A Common Stock will
be determined by negotiations among the Company and the Underwriters, and may
bear no relationship to the price at which the Class A Common Stock will trade
after completion of the Offering. Application has been made to have the Class A
Common Stock approved for listing, subject to notice of issuance, on the AMEX;
however, there can be no assurance that an active trading market will develop or
be maintained for the Class A Common Stock following the Offering or that the
Class A Common Stock will trade in the public market at or above the initial
public offering price. For factors considered in determining the initial public
offering price, see "Underwriting." After completion of the Offering, the market
price of the Class A Common Stock will be subject to fluctuations in response to
various factors and events, including, among others, the liquidity of the market
for the Class A Common Stock, variations in the Company's operating results,
regulatory or other changes, both domestic and international, affecting the
radio broadcasting industry generally or the Company specifically, announcements
of business developments by the Company or its competitors, changes in operating
results and changes in general market conditions. See "--Limited History of
Operations; Negative Losses and Negative Cash Flow from Operations; Expected
Future Net Losses and Negative Cash Flow from Operations," "--Regulatory Matters
and Dependence on Licenses,"
"--Concentration of Voting Power by Principal Stockholders," and "--Competition;
Dependence on Audience Share Ratings and Technology Changes."
SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL ADVERSE EFFECT ON STOCK PRICE;
REGISTRATION RIGHTS
Sales of a substantial number of shares of Class A Common Stock in the
public market, or the perception that such sales may occur could adversely
affect prevailing market prices for the Class A Common Stock and the ability of
the Company to raise capital in the future. Upon completion of the Offering, the
Company will have outstanding shares of Class A Common Stock. Of such
shares, the shares of Class A Common Stock being sold in the Offering
(together with any shares sold upon exercise of the Underwriters' over-allotment
option) will be immediately eligible for sale in the public market without
restriction, except for shares purchased by or issued to any affiliate (an
"Affiliate") of the Company (within the meaning of the Securities Act of 1933,
as amended (the "Securities Act")). For so long as any stockholder remains an
Affiliate of the Company, any shares of Common Stock held by such
12
<PAGE>
person will only be available for public sale if such shares are registered
under the Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144 ("Rule 144") of the Securities Act, and any sales
by an Affiliate under Rule 144 would be subject to the volume and other
limitations under such rule. Upon the expiration or waiver of certain lock-up
agreements with the Underwriters, approximately shares of Class A Common
Stock (including shares issuable upon conversion of shares of Class B
Common Stock) will be eligible for sale in the public market pursuant to Rule
144. Pursuant to lock-up agreements with the Underwriters, the Company, the
executive officers and the directors of the Company have agreed not to offer,
sell, contract to sell or otherwise dispose of, directly or indirectly, any
shares of Class A Common Stock or any securities of the Company that are
substantially similar to the Class A Common Stock or any securities that are
convertible into or exchangeable for, or that represent the right to receive,
Class A Common Stock or any such substantially similar securities (other than
pursuant to employee or director stock or stock option plans existing on the
date of this Prospectus) for a period of 180 days after the date of this
Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation, except for the shares of Class A Common Stock offered in
connection with the Offering. See "Certain Relationships and Related
Transactions," "Description of Capital Stock" and "Shares Eligible for Future
Sale."
ABSENCE OF DIVIDENDS
The Company anticipates that all of its earnings in the foreseeable future
will be retained to finance the continued growth and expansion of its business
and has no current intention to pay cash dividends on its Common Stock and will
be restricted from so doing by the Credit Facility. See "Dividend Policy" and
"Description of Credit Facility."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Class A Common Stock in the Offering will experience immediate
and substantial dilution of $ per share in the net tangible book value per
share of Class A Common Stock. See "Dilution."
13
<PAGE>
USE OF PROCEEDS
The net proceeds from the Offering are estimated to be approximately
$ million (approximately $ million if the Underwriters'
over-allotment option is exercised in full) after deducting underwriting
discounts and commissions and estimated expenses of the Offering payable by the
Company. Such net proceeds will be used by the Company to repay approximately
$ million under its Existing Credit Facility. The Existing Credit Facility
bears interest at a rate based, at the option of the Company, on the
participating bank's prime rate, or upon the London Interbank Borrowing Rate and
matures on May 30, 2001. The Company's net borrowings under the Existing Credit
Facility during the twelve months ending August 31, 1997 were $25.2 million,
primarily for the acquisition of radio stations. After giving effect to the
Offering and application of the net proceeds therefrom, the Company will have
approximately $ million available under the Credit Facility. See "Description
of Credit Facility."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not expect to do so in the foreseeable future. The Company
anticipates that all future earnings, if any, generated from operations will be
retained to finance the expansion and continued development of its business. Any
future determination with respect to the payment of dividends will be within the
sole discretion of the Company's Board of Directors and will depend upon, among
other things, the Company's earnings, capital requirements, the terms of then
existing indebtedness, applicable requirements of the General Corporation Law of
the State of Delaware (the "DGCL"), general economic conditions and such other
factors considered relevant by the Company's Board of Directors. The Credit
Facility will prohibit the payment of dividends. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Description
of Credit Facility."
DILUTION
As of June 30, 1997, the net tangible book value of the Company was
approximately $ , or $ per share of outstanding Common Stock (taking into
account the Reclassification). The net tangible book value per share of Common
Stock represents the total amount of tangible assets of the Company, less the
total amount of liabilities of the Company, divided by the number of shares of
Common Stock outstanding. After giving effect to the Equity Contribution, the
Reclassification and the sale by the Company of the shares of Class A
Common Stock offered hereby at an assumed initial offering price of $
per share (the midpoint of the range of prices set forth on the cover page of
this Prospectus) and the application of the net proceeds therefrom (after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company), the as adjusted net tangible book value of the Company
as of June 30, 1997 would have been approximately $ , or $ per share,
representing an immediate increase in net tangible book value of approximately
$ per share to existing stockholders and an immediate dilution in net
tangible book value of approximately $ per share to persons purchasing
shares of Class A Common Stock in the Offering. The following table illustrates
this per share dilution to the new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1)................. $
Net tangible book value per share of Common Stock at June 30, 1997
(adjusted for the Reclassification but excluding the Equity
Contribution and the Offering)................................... $
Increase in net tangible book value per share of Common Stock
attributable to gross proceeds of the Offering and the Equity
Contribution.....................................................
-----------
Pro forma net tangible book value per share of Common Stock after
giving effect to the Offering....................................
-----------
Dilution per share to new investors in Class A Common Stock in the
Offering......................................................... $
-----------
-----------
</TABLE>
- ------------------------
(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses.
14
<PAGE>
The following table sets forth, on a pro forma basis as of June 30, 1997,
and after giving effect to the Equity Contribution, the Reclassification and the
Offering, the number of shares of Common Stock purchased from the Company, the
total consideration paid to the Company and the average price per share of
Common Stock paid by existing stockholders and to be paid by new investors in
the Offering, assuming that shares purchased in the Offering are sold at
$ per share (the midpoint of the range of prices set forth on the cover
page of this Prospectus), before deducting the estimated underwriting discounts
and commissions and estimated offering expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................. % $ % $
New investors.....................................
--------- --- ---------- ---
Total........................................... % $ %
--------- --- ---------- ---
--------- --- ---------- ---
</TABLE>
15
<PAGE>
CAPITALIZATION
The following table sets forth the Company's capitalization as of June 30,
1997 (i) as reported, (ii) on a pro forma basis after giving effect to the
acquisition of WVVX-FM, the Equity Contribution and the Reclassification and
(iii) on a pro forma basis, as further adjusted to give effect to the Offering
and the application of the estimated net proceeds therefrom as described in "Use
of Proceeds." This table should be read in conjunction with the Financial
Statements of the Company, including the notes thereto, and the other financial
data included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------------------
(IN THOUSANDS)
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
Long-term debt under the credit facilities................................... $ 44,700 $ $
Notes payable to stockholders................................................ 12,952
---------
Total debt............................................................... 57,652
Stockholders' equity (deficit):
Class A Common Stock, par value $.01 per share; no shares authorized and,
as adjusted, shares authorized; 0 shares issued and outstanding and,
as adjusted, shares issued and outstanding............................ --
Class B Common Stock, par value $.01 per share; no shares authorized and,
as adjusted, shares authorized; shares issued and outstanding and,
as adjusted, shares issued and outstanding............................ --
Common Stock, $.01 par value per share; 2,000 authorized shares; 1,232
shares issued and outstanding as of June 30, 1997 and, as adjusted, 0
shares authorized, issued and outstanding................................ --
Additional paid-in capital................................................. 6,489 --
Accumulated (deficit)...................................................... (15,546)
--------- ----------- -----------
Total stockholders' equity (deficit)..................................... (9,057)
--------- ----------- -----------
Total capitalization......................................................... $ 48,595 $ $
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
16
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma balance sheet at June 30, 1997 is presented as if,
at such date, (i) the Company had completed the acquisition of the assets of
WVVX-FM, Inc., (ii) the Equity Contribution and the Reclassification had been
consummated, and the Company had converted from an S-Corporation to a
C-Corporation, and (iii) the Offering and the application of the net proceeds
therefrom had been consummated.
The unaudited pro forma statement of operations for the six months ended
June 30, 1997 is presented as if, at the beginning of the period, (i) the
Company had completed the acquisition of the assets of K&K Radio Broadcasting,
L.L.C. (which acquisition was completed in June 1997), (ii) the Company had
completed the acquisition of the assets of WVVX-FM, Inc., (iii) the Equity
Contribution and the Reclassification had been consummated, and the Company had
converted from an S-Corporation to a C-Corporation, and (iv) the Offering and
the application of the net proceeds therefrom had been consummated.
The unaudited pro forma statement of operations for the year ended December
31, 1996 is presented as if, at the beginning of the period, (i) the Company had
completed the acquisition of the assets of K&K Radio Broadcasting, L.L.C., (ii)
the Company had completed the acquisition of the assets of WVVX-FM, Inc., (iii)
the Equity Contribution and the Reclassificaion had been consummated, and the
Company had converted from an S-Corporation to a C-Corporation, and (iv) the
Offering and the application of the net proceeds therefrom had been consummated.
Furthermore, the unaudited pro forma statement of operations for the year ended
December 31, 1996 is presented as if, throughout the period, the Company did not
own the assets of KWIZ-FM and the Q stations.
These pro forma financial statements should be read in conjunction with the
Company's Financial Statements and the Notes thereto and the Financial
Statements and Notes thereto of K&K Radio Broadcasting, L.L.C., and WVVX-FM
included elsewhere in this Prospectus. The pro forma information is not
necessarily indicative of the results that would have been reported had such
events actually occurred on the dates specified, nor is it indicative of the
Company's future results.
17
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITION OF PRO FORMA
HISTORICAL WVVX-FM(1) ADJUSTMENTS PRO FORMA
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash....................................................... $ 163 $ $ $
Accounts receivable, net of allowance for doubtful
accounts................................................. 2,525
Other current assets....................................... 349
----------- ------ ----------- -----------
Total current assets..................................... 3,037
Property and equipment, net.................................. 2,601 123
Intangible assets, net....................................... 44,120 9,577
Deferred financing fees...................................... 528
Other assets................................................. 682
----------- ------ ----------- -----------
Total assets............................................. $ 50,968 $ 9,700 $ $
----------- ------ ----------- -----------
----------- ------ ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.......................................... $ 2,373 $ $
Deferred income taxes........................................ $ 3,350(4)
Long-term debt............................................... 44,700 9,700 (2)
Notes payable to stockholders................................ 12,952 (12,952)(3)
Stockholders' equity (deficit)............................... (9,057) (2)
12,952(3)
(3,350)(4)
----------- ------ ----------- -----------
Total liabilities and stockholders' equity (deficit)..... $ 50,968 $ 9,700 $ $
----------- ------ ----------- -----------
----------- ------ ----------- -----------
</TABLE>
- ------------------------
(1) To reflect the acquisition of substantially all the assets of WVVX-FM, Inc.
from Douglas Broadcasting, Inc. in August 1997. Preliminary allocation of
the purchase price and direct costs of acquisition is $123,000 for property
and equipment, and $9,577,000 for intangible assets.
(2) To reflect net proceeds to the Company from the Offering (assuming an
initial public offering price of $ per share) and net of estimated
underwriting discounts and commissions and offering expenses and the use of
the proceeds of this Offering to repay the Existing Credit Facility (see
"Use of Proceeds").
(3) Reflects the planned conversion, at the date of the Offering, of all
existing Notes Payable to stockholders, into shares of Class B Common Stock.
This adjustment is shown as if the conversion was made on all such notes
outstanding at June 30, 1997.
(4) To reflect the reinstatement of deferred tax liabilities in connection with
the conversion from S-Corporation status to C-Corporation status.
18
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(YEAR ENDED DECEMBER 31, 1996)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUISITION OF
K&K RADIO ACQUISITION OF
SALE OF SALE OF BROADCASTING, WVVX-FM, PRO FORMA
HISTORICAL Q(1) KWIZ-FM(1) LLC(2) INC.(3) ADJUSTMENTS PRO FORMA
----------- --------- ------------- --------------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross revenues........ $ 8,567 $ (2,226) $ (1,106) $ 3,174 $ 1,138 $ $
Less: commissions and
fees................ 623 (176) -- 247 1
----------- --------- ------------- ------ ------ ------ -----------
Net revenues.......... 7,944 (2,050) (1,106) 2,927 1,137 --
Station operating
expenses excluding
depreciation and
amortization........ 12,253 (3,586) (313) 1,044 399 --
----------- --------- ------------- ------ ------ ------ -----------
Station operating
income(loss)
excluding
depreciation and
amortization........ (4,309) 1,536 (793) 1,883 738 --
Depreciation and
amortization........ 1,388 (204) (217) 141 306 318(4)
Corporate general and
administrative
expenses............ 1,201 -- -- 1,651 243 --(5 (9)
Reimbursement of
operating expenses
under LMA........... -- -- -- (27) --
----------- --------- ------------- ------ ------ ------ -----------
Operating income
(loss).............. (6,898) 1,740 (576) 118 189 (318)
Interest expense...... (2,827) (390) (473) (2,498) 343 (6)
Gain on sale.......... 6,608 6,608 -- -- -- --
Other (income)
expense............. 19 82 (5) 29 16 --
----------- --------- ------------- ------ ------ ------ -----------
(Loss) before income
taxes............... (3,098) (4,559) (98) (2,351) (170) 2,423
Provision for (benefit
from) income
taxes(8)............ -- -- -- -- 35 (94)(7)
----------- --------- ------------- ------ ------ ------ -----------
Loss before
extraordinary
items............... $ (3,098) $ (4,559) $ (98) $ (2,351) $ (135) $ 2,517 $
----------- --------- ------------- ------ ------ ------ -----------
----------- --------- ------------- ------ ------ ------ -----------
Loss before
extraordinary items
per share of Common
Stock...............
Weighted average
shares of Common
Stock outstanding...
</TABLE>
See notes to unaudited pro forma statement of operations
19
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
(1) Removes the reported historical results of operations of KWIZ-FM, for the
period from the date of its acquisition, May 30, 1996, to its date of sale,
December 20, 1996, and the reported operations of the Q stations for the
period October 1, 1995 to May 30, 1996 included in the historical Company
results.
(2) Reflects historical results of operation for the period January 1, 1996 to
December 31, 1996 of WZVU-FM, Monmouth, New Jersey, acquired from K&K Radio
Broadcasting, L.L.C. on June 5, 1997.
(3) Reflects historical results of operation for the period January 1, 1996 to
December 31, 1996 of WVVX-FM, Highland Park, Illinois, acquired from Douglas
Broadcasting, Inc. on August 8, 1997. The ownership of WVVX-FM changed
during the year ended December 31, 1996. Accordingly, operating results for
the year ended December 31, 1996 were derived by combining the information
for the period from January 1, 1996 to June 13, 1996 (Predecessor) with
those for the period June 14, 1996 to December 31, 1996 (Successor).
(4) Adjustment of historical depreciation and amortization expense of the
acquired businesses to reflect the new allocations of purchase prices to the
assets acquired.
(5) Reflects the elimination of historical corporate overhead expenses.
(6) Reflects pro forma adjustments to reported interest expense of $591,000,
$ , and $644 resulting from: (a) additional indebtedness incurred to
finance the WZVU-FM and WVVX-FM acquisitions; (b) the retirement of $
indebtedness under the Existing Credit Facility from the use of net proceeds
of the Offering; and (c) the Equity Contribution.
(7) Pro forma adjustment relating to the conversion of the Company from
S-Corporation status to C-Corporation status.
(8) To reflect the reinstatement of deferred tax liabilities in connection with
the conversion from
S-Corporation status to C-Corporation status.
(9) As a result of the grant of shares of Class A Common Stock to the Company's
chief executive officer, the Company will record a non-cash, non-recurring
compensation expense in 1997 equal to the fair value of such stock. The
Company has not made a final determination of the fair value of this stock,
however, if the fair value were based on the initial public offering price
or $ per share, compensation expense would not exceed $ .
20
<PAGE>
ODYSSEY COMMUNICATIONS, INC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUISITION OF
K&K RADIO ACQUISITION OF
BROADCASTING, WVVX-FM, PRO FORMA
HISTORICAL LLC (1) INC. (2) ADJUSTMENTS PRO FORMA
----------- --------------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Gross revenues........................... $ 5,283 $ 414 $ 558 $ (375)(3) $
Less: commissions and fees............... 583 1 1
----------- ----- ----- ------ ------------
Net revenues........................... 4,700 413 557 (375)
Station operating expenses excluding
depreciation and amortization.......... 6,820 92 218 (375)(3)
----------- ----- ----- ------ ------------
Station operating income (loss) excluding
depreciation and amortization.......... (2,120) 321 339 0
Depreciation and amortization............ 776 51 145 94(4)
Corporate, general and administrative
expenses............................... 744 220 145 -- ( )(9
Reimbursement of operating expenses under
LMA.................................... (151)
----------- ----- ----- ------ ------------
Operating income (loss).................. (3,640) 201 49 (94)
Interest (expense)....................... (1,663) (180) (231)
Other income (expense)................... 46 -- --
----------- ----- ----- ------ ------------
Income (Loss) before income taxes........ (5,257) 21 (182) 1,157
Provision for (benefit from) income taxes
(8).................................... -- -- (66) (90)(7)
----------- ----- ----- ------ ------------
Net income (loss)........................ $ (5,257) $ 21 $ (116) $ 1,279 $
----------- ----- ----- ------ ------------
----------- ----- ----- ------ ------------
Net loss per share of Common Stock.......
Weighted average shares of Common Stock
outstanding............................
</TABLE>
See notes to unaudited pro forma statement of operations.
21
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 30, 1997
(1) Reflects historical results of operation for the period January 1, 1997 to
May 31, 1997 of WZVU-FM, Monmouth, New Jersey, acquired from K&K Radio
Broadcasting, L.L.C. on June 5, 1997.
(2) Reflects historical results of operation for the period January 1, 1997 to
June 30, 1997 of WVVX-FM, Highland Park, Illinois, acquired from Douglas
Broadcasting, Inc. on August 8, 1997.
(3) Eliminates LMA fees and expenses in the period January 1, 1997 to June 5,
1997, the period during which the Company managed WZVU-FM prior to ownership
(see "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations"). These fees and expenses were reported
in the Company's historical results as station operating expenses and in the
historical results of the acquired businesses as Other Income.
(4) Adjustment of historical depreciation and amortization expense of the
acquired businesses to reflect the new allocations of purchase prices to the
assets acquired.
(5) Reflects the elimination of historical corporate overhead expenses.
(6) Reflects pro forma adjustments to reported interest expense of $389,000,
$ and $400 resulting from: (a) additional indebtedness incurred to
finance the WZVU-FM and WVVX-FM acquisitions; (b) the retirement of $
indebtedness under the Existing Credit Facility from the use of net proceeds
of the Offering; and (c) the Equity Contribution.
(7) Pro forma adjustment relating to the conversion of the Company from
S-Corporation status to C-Corporation status.
(8) To reflect the reinstatement of deferred tax liabilities in connection with
the conversion from S-Corporation to C-Corporation status.
(9) As a result of the grant of shares of Class A Common Stock to the Company's
chief executive officer, the Company will record a non-cash, non-recurring
compensation expense in 1997 equal to the fair value of such stock. The
Company has not made a final determination of the fair value of this stock,
however, if the fair value were based on the initial public offering price
or $ per share, compensation expense would not exceed $ .
22
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents selected financial and operating data and
should be read in conjunction with the Company's Financial Statements and
related Notes and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein. The selected
balance sheet data as of December 31, 1995 and 1994, and September 30, 1994 and
Statement of Operations data for the year ended December 31, 1995, the three
months ended December 31, 1994 and the year ended September 30, 1994 are derived
from the Company's financial statements which have been audited by Holtz
Rubenstein & Co., LLP, Certified Public Accountants. The selected balance sheet
data as of December 31, 1996 and Statement of Operations data for the year ended
December 31, 1996 are derived from the Company's financial statements which have
been audited by KPMG Peat Marwick LLP, Independent Certified Public Accountants.
The selected balance sheet data as of June 30, 1996, and 1997 have been derived
from the Company's unaudited financial statements, which in the opinion of
management, include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of financial condition and results
of operations. The historical financial results of the Company are not
comparable from period to period because of the acquisition and sale of various
broadcasting properties by the Company during the periods covered. Operating
results for the six months ended June 30, 1997 may not be reflective of the
results for the year ended December 31, 1997, particularly due to the then
pending acquisitions not having been completed until subsequent to such date.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED THREE MONTHS YEARS ENDED ENDED JUNE
SEPTEMBER 30, ENDED DECEMBER 31, 30,
--------------------------------- DECEMBER 31, -------------------------- -----------
1992(1) 1993 1994 1994 1995(2) 1996(3)(4) 1996(4)
----------- --------- --------- --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gross revenues..................... $ 257 $ 1,511 $ 2,267 $ 654 $ 5,655 $ 8,567 $ 4,520
Net revenues....................... 233 1,383 2,074 604 5,225 7,944 4,214
Station operating expenses......... 373 2,325 2,326 687 7,185 12,253 7,215
Corporate, general and
administrative expenses.......... -- -- -- -- 425 1,201 477
Depreciation and amortization...... 76 637 524 113 798 1,388 627
Operating loss..................... (217) (1,578) (776) (196) (3,183) (6,898) (4,105)
Gain on sale....................... -- -- -- -- -- (6,608) 6,608
Interest expense................... (4) 258 439 120 842 2,827 920
Net (loss)......................... (218) (1,822) (1,163) (298) (4,005) (3,098) 1,678
Pro forma net loss per common
share............................
Cash dividends per common share....
Weighted average shares
outstanding......................
OTHER OPERATING DATA:
Broadcast cash flow(6)............... $ (140) $ (942) $ (252) $ (83) $ (1,960) $ (4,309) $ (3,001)
<CAPTION>
1997(5)
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Gross revenues..................... $ 5,283
Net revenues....................... 4,700
Station operating expenses......... 6,820
Corporate, general and
administrative expenses.......... 744
Depreciation and amortization...... 776
Operating loss..................... (3,640)
Gain on sale....................... --
Interest expense................... 1,663
Net (loss)......................... (5,257)
Pro forma net loss per common
share............................
Cash dividends per common share....
Weighted average shares
outstanding......................
OTHER OPERATING DATA:
Broadcast cash flow(6)............... $ (2,120)
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF
SEPTEMBER 30, DECEMBER 31, JUNE 30,
------------------------------------- ----------------------------------- --------------------
1992 1993 1994 1994 1995 1996 1996 1997
--------- --------- --------------- ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............... $ (129) $ 204 $ 606 $ 600 $ 1,442 $ 294 $ 1,460 $ 1,664
Net intangible assets......... 3,201 2,917 2,664 2,600 6,040 29,230 42,984 44,120
Total assets.................. 4,587 4,012 4,012 3,863 9,433 38,963 47,900 50,968
Notes payable................. 3,291 4,923 6,028 6,219 13,477 12,544 19,504 12,952
Long-term debt................ -- -- -- -- -- 28,200 31,000 44,700
Stockholder's equity
(deficit)................... 782 (1,046) (3,218) (3,484) (5,821) (3,800) (3,505) (9,057)
</TABLE>
(FOOTNOTES APPEAR ON FOLLOWING PAGE)
23
<PAGE>
- ------------------------------
(1) The financial statements for the 12 months ended December 31, 1995 include
three months (October, November and December 1994) of operations of Q
Broadcasting, Inc. that were included in the three months ended December 31,
1994 financial statements. Revenues and net income for the duplicate period
are $604,000 and $298,000, respectively.
(2) The Company acquired substantially all of the assets of WRGY-FM and WRKL-AM
effective December 20, 1994 and commenced operations on January 1, 1995. The
financial statements include the operations of these stations since January
1, 1995.
(3) The Company acquired substantially all of the assets of the Los Angeles
Stations and KWIZ-FM on May 30, 1996 and commenced operations of these
stations under a LMA on March 26, 1996. The financial statements include the
operations of these stations from commencement of the LMA period. KWIZ-FM
was sold on December 31, 1996. No gain or loss was recognized on the sale of
KWIZ-FM.
(4) The Company acquired WSTC-AM and WKHL-FM during 1992. The financial
statements include the operations of these stations from their date of
acquisition to May 30, 1996, the date on which they were sold. For the year
ended December 31, 1996, the gain on sale of stations represents the gain on
sale of WSTC-AM and WKHL-FM.
(5) The Company acquired substantially all of the assets of WWHB-FM on April 1,
1997 and WZVU-FM on June 5, 1997 and commenced operations of these stations
under a LMA during December 1996. WWHB-FM and WZVU-FM together with WRGX-FM
form Y-107 NY. The financial statements include the operations of Y-107 NY
since December 1996.
(6) Although not calculated in accordance with generally accepted accounting
principles, broadcast cash flow is widely used in the broadcast industry as
a measure of a broadcasting company's operating performance. Nevertheless,
the measure should not be considered in isolation or as a substitute for
operating loss, net loss, cash flows from operating activities or any other
measure for determining the Company's operating performance or liquidity
calculated in accordance with generally accepted accounting principles.
Broadcast cash flow is defined as operating loss plus depreciation and
amortization plus corporate general and administrative expenses.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH "SELECTED
FINANCIAL AND OPERATING DATA" AND THE PRO FORMA FINANCIAL STATEMENTS OF THE
COMPANY, INCLUDING THE NOTES THERETO, AND THE OTHER FINANCIAL DATA APPEARING
ELSEWHERE IN THIS PROSPECTUS. CERTAIN INFORMATION INCLUDED HEREIN CONTAINS
STATEMENTS THAT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SEE "CAUTIONARY NOTE
REGARDING FORWARD-LOOKING STATEMENTS."
GENERAL
The Company was incorporated in August 1994 and commenced operations on
January 1, 1995, having acquired WRGX-FM, Westchester County, New York, and
WRKL-AM, Rockland, New York (together, the "Original New York Stations"), on
that date. On May 30, 1996 Odyssey merged with Q Broadcasting, Inc., ("Q") in a
transaction accounted for as a combination of entities under common control. As
a result of this merger the two entities are deemed to be combined since
inception (see notes to the financial statements included elsewhere in this
Prospectus). Q owned and operated the Q stations in Stamford, Connecticut, from
July 1992 up to the date of the combination with Odyssey. Odyssey reports on the
basis of a December 31 year-end and Q reported on the basis of a September 30
year-end. As a result, the December 31, 1996 and 1995 financial statements
reflect the operations of Q on the basis of the eight month period ended May 30,
1996 (the date of sale of the Q stations) and the 12 months ended September 30,
1995, respectively.
The Q stations were operated in one facility, with one sales and support
staff. Their financial performance is combined for purposes of the discussions
that follow. Y-107 LA, Y-107 NY, WRKL-AM, and the stand-alone operations of
WRGX-FM were operated with separate staffs and facilities, therefore their
performance is separately identified.
Between March 26, 1996 and May 30, 1996, when the stations were acquired,
the Company operated the Los Angeles Stations and KWIZ-FM under a LMA. On March
26, all of the existing operations of the Los Angeles Stations were terminated,
and the Company debuted Y-107 LA under a modern rock format with new staffing
and no existing advertiser base. Although commencing with no revenues, Y-107 LA
revenues had surpassed all other Company revenues combined by November 1996.
During the LMA period, station operating expenses include significant LMA fees
and other reimbursed expenses to the seller. KWIZ-FM was sold on December 20,
1996.
On December 5, 1996, the Company commenced operation of WWZY-FM (formerly,
WZVU-FM), Monmouth, New Jersey, under a LMA, changing its format to country
music. On that date, WWXY-FM (formerly, WRGX-FM), Westchester, New York, which
the Company had operated as a stand-alone FM since its acquisition on January 1,
1995, changed format to broadcast Y-107 NY as a new country music station with
WWZY-FM. Furthermore, on December 30, 1996 the Company began operating WWVY-FM
(formerly, WWHB-FM), Hampton Bays, Long Island, under a LMA. Since that date,
the New York Stations have operated as Y-107 NY. Y-107 NY retained certain
advertisers and staff from all three of the previously stand-alone stations.
WWVY-FM and WWZY-FM were subsequently acquired on April 1, 1997 and June 5,
1997, respectively.
On August 8, 1997 the Company acquired WVVX-FM, Highland Park, Illinois, and
WJDK-FM, Morris, Illinois.
RESULTS OF OPERATIONS
The Company's financial results are dependent on a number of factors,
including the general strength of the local and national economies, local market
competition, the relative efficiency and effectiveness of radio broadcasting
compared to other advertising media, government regulation and policies and the
25
<PAGE>
Company's ability to provide popular programming. The performance of a radio
station group is customarily measured by its ability to generate broadcast cash
flow, calculated as station operating income or loss excluding depreciation and
amortization and corporate overhead. This measure, although widely used in the
broadcast industry as a measure of operating performance, is not calculated in
accordance with generally accepted accounting principles. Broadcast cash flow
should not be considered in isolation or as a substitute for operating income,
net income, cash flows from operating activities, or any other measure for
determining the Company's operating performance or liquidity calculated in
accordance with generally accepted accounting principles.
The Company's primary source of revenue is the sale of advertising. Total
revenue is determined by the number of advertisements aired by the station and
the advertising rates that the stations are able to charge. See
"Business-Advertising Sales."
Given the fact that the Company's strategy involves developing a brand new
metropolitan area radio station, the initial revenue base is zero and subject to
factors other than ratings and radio broadcasting seasonality. After the
start-up period, as is typical in the radio broadcasting industry, the Company's
first calendar quarter generally will produce the lowest revenues for the year,
and the fourth quarter generally will produce the highest revenues for the year.
The Company's operating results in any period may be affected by the incurrence
of advertising and promotion expenses that do not produce commensurate revenues
in the period in which the expenses are incurred.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
NET REVENUES in the six months ended June 30, 1997 were $4,700,000 as
compared to $4,214,000 for the six months ended June 30, 1996, an increase of
$486,000, or 12%. This increase was due primarily to an increase of $2,874,000
in the net revenues of Y-107 LA in the 1997 period when compared to the prior
year and an increase of the Y-107 NY net revenues in the six months ended June
30, 1997 of $230,000, or 27%, compared to the net revenues of the stand-alone
WWXY-FM in the corresponding period of 1996. These increases in net revenues
were partially offset by (a) the absence of net revenues for the Q stations and
KWIZ-FM in the six months ended June 30, 1997 compared to $2,050,000 and
$392,000 net revenues, respectively, for the six months ended June 30, 1996, and
(b) the fact that WRKL-AM net revenues in the six months ended 1997 were down
$177,000, or 23%, when compared to the same period in 1996. The Y-107 LA
increase was principally due to the fact that (a) the 1997 net revenues include
six months of Y-107 LA operations, whereas the 1996 net revenues include only
three months of Y-107 LA operations, and (b) the 1996 period net revenues were
the first three months of operation of the Los Angeles Stations which was
commenced with no existing business. The Y-107 NY increase reflects growth
resulting from the commencement of the initial broadcast of Y-107 NY in January
1997.
STATION OPERATING EXPENSES excluding depreciation and amortization in the
six months ended June 30, 1997 were $6,820,000, as compared to $7,215,000 in the
six months ended June 30, 1996, a decrease of $395,000, or 5%. This decrease is
primarily due to the absence of operating expenses for the Q stations during
this period, offset by the inclusion of the expenses of Y-107 LA and Y-107 NY.
The increase in Y-107 LA operating expenses reflects the fact that (a) the 1997
period station operating expenses represent six months of operations as compared
to three months operations reported in the 1996 period, and (b) the three month
operations in the 1996 period were the first three months of operation of the
station, reflecting incomplete staffing, the absence of significant marketing
initiatives, and minimal talent expenses, and (c) offset by $650,000 of LMA fees
and expenses incurred in the same period in 1996. The increase in the Y-107 NY
operating expenses when compared to the prior year period operating expenses of
the stand-alone WWXY-FM are due to (a) $640,000 of non-recurring LMA fees and
expenses for WWZY-FM and WWVY-FM, (b) significantly increased advertising and
promotional expenditures incurred to launch Y-107 NY and (c) increased selling
and general and administrative expenses in developing the Y-107 NY
infrastructure.
26
<PAGE>
STATION OPERATING LOSS excluding depreciation and amortization (broadcast
cash deficit) for the six months ended June 30, 1997 was $2,120,000 compared to
$3,001,000 for the six months ended June 30, 1996, a decreased deficit of
$881,000, or 29%. The decreased deficit is primarily due to (a) the absence of
operating losses for the Q stations during this period, offset by a decreased
Y-107 LA broadcast cash deficit. This decreased Y-107 LA deficit is primarily
attributable to the positive broadcast cash flow of $101,000 generated by the
station in the second quarter of 1997, its fifth quarter of operation.
Offsetting the decreased deficits was the Y-107 NY broadcast cash deficit of
$1,751,000 for the six months ended June 30, 1997, an increase of $1,289,000
when compared to the broadcast cash deficit in the six months ended June 30,
1996 for the stand-alone WWXY-FM. These results arise due to the factors
detailed in the previous two paragraphs. The six month broadcast cash deficit
results ended June 30, 1997 and 1996 reflect the developmental nature of the
Y-107 LA and Y-107 NY properties.
DEPRECIATION AND AMORTIZATION EXPENSES for the six months ended June 30,
1997 were $776,000, as compared to $627,000 for the corresponding period in the
prior year, an increase of $149,000, or 24%. This increase was due primarily to
the amortization of intangibles and depreciation of capital assets related to
the acquired stations.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES for the six months ended June
30, 1997 were $744,000, as compared to $477,000 for the corresponding period in
the prior year, an increase of $267,000, or 56%. This increase is primarily due
to increases in administrative staff to support the growth of the Company.
INTEREST EXPENSE for the six months ended June 30, 1997 was $1,663,000 as
compared to $920,000 for the corresponding period in the prior year, an increase
of $743,000, or 81%. This increase reflects (a) the initial borrowings of
approximately $31 million under the Existing Credit Facility made to fund, in
part, the acquisition of the Los Angeles Stations and KWIZ-FM on May 30, 1996,
and (b) increased stockholders' loans throughout the 1997 period compared to the
corresponding period in 1996. In the six months ended June 30, 1997 and 1996,
the average outstanding total debt for the Company was $47,023,000 and
$21,232,000, respectively. The average rate of interest on the outstanding debt
was 7.7% and 8.7%, respectively.
NET LOSSES for the six months ended June 30, 1997 were $5,257,000, as
compared to net income of $1,678,000 for the corresponding period in the prior
year. The decline in net income of $6,935,000 is primarily attributable to (a)
1996 period gain of $6,608,000 on the sale of the Q stations and (b) higher
interest expense and depreciation and amortization expenses incurred as part of
the radio station acquisitions of the Company, offset by a decrease in the
broadcast cash deficit due to the absence of the Q stations in 1997 and the
improvement in the Y-107 LA performance.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET REVENUES in the year ended December 31, 1996 were $7,944,000 as compared
to $5,225,000 for the year ended December 31, 1995, an increase of $2,719,000,
or 52%. This increase was primarily due to (a) net revenues of $1,567,000 and
$1,106,000 from the Company's LMA operation and acquisition of the Los Angeles
Stations and KWIZ-FM, respectively, and (b) an increase in net revenues of
WRKL-AM of $320,000 for the year ended December 31, 1996 compared to the prior
year. This increase was partially offset by decreases in net revenues of the Q
stations of $237,000 due to their shorter period of operation and a small
decrease in net revenues of $36,000 at WRGX-FM.
STATION OPERATING EXPENSES excluding depreciation and amortization for the
year ended December 31, 1996 were $12,253,000, as compared to $7,185,000 in the
year ended December 31, 1995, an increase of $5,068,000, or 71%. This increase
was primarily due to (a) station operating expenses of $3,870,000 and $359,000
from the Company's LMA operation and acquisition of Y-107 LA and KWIZ-FM,
respectively, (b) an increase in WRKL-AM station operating expenses of $412,000
for the year ended December 31, 1996 compared to the prior year and (c) an
increase of $476,000 in the Q stations operating expenses. The 1996 Y-107 LA
operating costs of $3,870,000 include $650,000 of non-recurring LMA expenses
incurred
27
<PAGE>
during the two-month period ended May 30, 1996. The increased WRKL-AM and Q
stations operating costs in 1996 when compared to 1995 reflect significant
investments in sales, marketing, programming and administrative support to grow
the stations' ratings.
STATION OPERATING LOSSES excluding depreciation and amortization (broadcast
cash deficit) for the year ended December 31, 1996 was $4,309,000 compared to
$1,960,000 for the year ended December 31, 1995, an increased deficit of
$2,349,000. This increase was primarily due to (a) the broadcast cash deficit of
$2,300,000 from the Company's LMA operation and acquisition of Y-107 LA, offset
by broadcast cash flow of $791,000 from the LMA operation and acquisition of
KWIZ-FM, (b) an increase in the Q stations' operating losses of $712,000 and (c)
an increase in the broadcast cash deficit of WRKL-AM of $92,000 for the year
ended December 31, 1996 compared to the prior year. The broadcast cash deficit
results for the year ended December 31, 1996 are primarily impacted by the
developmental status of the Y-107 LA property in its first three quarters of
operation and the closing months of operation of the Q stations.
DEPRECIATION AND AMORTIZATION EXPENSES for the year ended December 31, 1996
were $1,388,000, as compared to $798,000 for the year ended December 31, 1995,
an increase of $590,000, or 74%. This increase was due primarily to the
amortization of intangibles and the depreciation of capital assets acquired
related to the Y-107 LA and KWIZ-FM acquisitions.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES for the year ended December
31, 1996 were $1,201,000, as compared to $425,000 for the year ended December
31, 1995, an increase of $776,000, or 182%. This increase is due to the
establishment of a corporate staff during 1995 and early 1996 to support
implementation of the Company's business plan.
INTEREST EXPENSE for the year ended December 31, 1996 was $2,827,000, as
compared to $842,000 for the year ended December 31, 1995, an increase of
$1,985,000, or 236%. This increase reflects (a) the initial borrowings of $31
million under the Existing Credit Facility made to fund, in part, the
acquisition of Y-107 LA and KWIZ-FM on May 30, 1996, and (b) increased
stockholders' loans throughout 1996 compared to 1995. In the year ended December
31, 1996 and 1995, the average outstanding total debt for the Company was
$37,026,000 and $11,390,000, respectively. The average rate of interest on the
outstanding debt was 7.6% and 7.4%, respectively.
NET LOSSES for the year ended December 31, 1996 were $3,098,000, as compared
to $4,005,000 for the year ended December 31, 1995, a decrease of $907,000, or
23%. The net decrease is primarily attributable to the gain on the sale by the Q
stations of $6,608,000, offset by (a) higher interest expense and depreciation
and amortization expenses incurred as part of the radio station acquisitions of
the Company, and (b) an increase in the broadcast cash deficit as the Company
reconfigured and developed the Los Angeles Stations.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 1994
NET REVENUES in the year ended December 31, 1995 were $5,225,000 as compared
to $2,074,000 for the year ended September 30, 1994, an increase of $3,151,000,
or 152%. This increase was primarily due to (a) net revenues of $2,938,000 at
the Original New York Stations in the year ended December 31, 1995, and (b) an
increase in net revenues of $213,000 at the Q stations for the year ended
September 30, 1995 compared to the prior year.
STATION OPERATING EXPENSES, excluding depreciation and amortization for the
year ended December 31, 1995 were $7,185,000 as compared to $2,326,000 for the
year ended September 30, 1994, an increase of $4,859,000, or 209%. This increase
was primarily due to (a) station operating expenses of $4,075,000 at the Odyssey
stations in the year ended December 31, 1995, and (b) an increase in station
operating expenses of $784,000 at the Q stations for the year ended September
30, 1995 compared to the prior year. The increased Q stations' operating
expenses reflect investments made to improve programming and marketing.
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<PAGE>
STATION OPERATING LOSSES excluding depreciation and amortization (broadcast
cash deficit) for the year ended December 31, 1995 were $1,960,000 as compared
to $252,000 for the year ended September 30, 1994, an increase of $1,708,000, or
678%. This increase was primarily due to (a) station operating losses of
$1,136,000 at the Original New York Stations in the year ended December 31,
1995, their first year of operation, and (b) an increase in station operating
losses of $571,000 at the Q stations for the year ended September 30, 1995
compared to the prior year, for the reasons stated in the above paragraphs.
DEPRECIATION AND AMORTIZATION EXPENSE for year ended December 31, 1995 was
$798,000 as compared to $524,000 for the year ended September 30, 1994, an
increase of $274,000, or 52%. This increase was primarily due to the acquisition
of the Odyssey stations on January 1, 1995.
CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES for the year ended December
31, 1995 were $425,000, as compared to zero for the year ended September 30,
1994. This increase is due to the establishment of corporate resources for
programming, finance and engineering in 1995 to oversee the Odyssey and Q
stations, and to commence implementation of the Company's business plan.
INTEREST EXPENSE for the year ended December 31, 1995 was $842,000 as
compared to $439,000 for the year ended September 30, 1994, an increase of
$403,000, or 92%. This increase was primarily due to increased interest on
stockholders' loans advanced to complete the acquisition of the Odyssey stations
on January 1, 1995. In the years ended December 31, 1995 and 1994, the average
outstanding total debt for the Company was $11,390,000 and $5,476,000,
respectively. The average rate of interest for the outstanding debt was 7.4% and
8.0%.
NET LOSSES for the year ended December 31, 1995 were $4,005,000, as compared
to $1,163,000 for the year ended September 30, 1994, an increase of $2,842,000,
or 244%. The net loss increase is primarily attributable to (a) higher interest
expense and depreciation and amortization expenses incurred as part of the
Odyssey stations' acquisition, and (b) an increase in the broadcast cash deficit
as the Company began operations of the Odyssey stations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has reported net losses since inception primarily due to
broadcast cash flow deficits characteristic of the start up of Y-107 LA and
Y-107 NY, and depreciation and amortization charges relating to the Company's
acquisition of radio stations, as well as interest charges on its outstanding
debt. The Company believes that it will report significant operating losses for
the year ended December 31, 1997. In addition, because its properties are in the
early stages of development, the Company expects to generate significant net
losses as it continues to expand its presence in major markets. Accordingly, the
Company expects to generate consolidated net losses for the foreseeable future.
As a result, working capital needs have been met by borrowings, including loans
from the Principal Stockholders (which borrowings are to be contributed to the
capital of the Company immediately prior to the consummation of the Offering)
and borrowings under the Existing Credit Facility. See "Risk Factors--Limited
History of Operations; Net Losses and Negative Cash Flow from Operations;
Expected Future Net Losses and Negative Cash Flow from Operations".
The Company has never paid cash or stock dividends on shares of its Common
Stock. The Company will continue to report net losses throughout the start up
period for the Chicago Stations. Furthermore, it intends to retain future
earnings for use in its business and does not anticipate paying dividends on
shares of its Common Stock in the foreseeable future.
CASH FLOWS FROM OPERATING ACTIVITIES
In each of the years ended September 30, 1994, December 31, 1995 and 1996,
and in each of the six-month periods ended June 30, 1996 and 1997, the Company
reported cash used in operations. In the year ended December 31, 1996 and the
six months ended June 30, 1996 these losses were predominantly due to
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the funding of start-up operations at Y-107 LA, together with an increase in
interest expense in both periods, as borrowings under the Existing Credit
Facility were used to fund the Y-107 LA radio station acquisition. In the six
months ended June 30, 1997, the deficit was predominantly due to the start-up
operating losses of Y-107 NY and increased interest expense for borrowings under
the Existing Credit Facility to finance the Y-107 LA and Y-107 NY radio station
acquisitions.
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (excluding acquisitions of radio stations) were
$653,000 and $389,000 in the year ended December 31, 1996, and the six months
ended June 30, 1997, respectively. These expenditures reflect the need to
upgrade and expand the studio and broadcast facilities, computer support
equipment, and to purchase promotional vehicles for the newly formed trimulcast
stations. The Company has no commitments for capital expenditures at August 31,
1997, but does anticipate capital expenditures to upgrade office and studio
facilities in Los Angeles in the next twelve months.
At June 30, 1997, after giving effect to the acquisition of WVVX-FM and
WJDK-FM which were consummated on August 8, 1997, the Company had available
borrowing capacity of $3.3 million and cash on hand of $163,000.
Under the terms of the Credit Facility, the Company will have a $ million
revolving loan facility maturing on , 2002. At August 31, 1997, the
Company had $56.4 million outstanding under the Existing Credit Facility,
$ million of which will be repaid with the net proceeds of the Offering.
Outstanding amounts under the Credit Facility will bear interest at a rate
based, at the option of the Company, on the participating bank's prime rate, or
the London Interbank Borrowing Rate.
The Bank's revolving credit commitment under the Credit Facility will be
reduced by $ million on each of December 31, 1999, 2000 and 2001, and the
entire revolving commitment will terminate on December 31, 2002. The Company
will pay fees of one half of one percent per annum, on the aggregate unused
portion of the facility. See "Risk Factors--Substantial Leverage; Pledge of
Assets; Covenants."
Substantially all of the Company's assets will be pledged to secure the
performance of the obligations of the Company under the Credit Facility.
The Credit Facility will contain certain financial and operational covenants
and other restrictions with which the Company must comply, including, among
others, limitations on capital expenditures, the incurrence of additional
indebtedness, restrictions on the use of borrowings, limitations on paying cash
dividends and redeeming or repurchasing capital stock of the Company, and
requirements to maintain certain financial ratios. The Company is currently in
compliance with all covenants and other restrictions under the Existing Credit
Facility, and anticipates that it will meet the requirements of the Credit
Facility.
The Credit Facility will contain customary events of default, including
material misrepresentations, payment defaults and default in the performance of
other covenants, certain bankruptcy defaults, events having a material and
adverse effect on the Company and revocation of any of the Company's broadcast
licenses.
The Company is actively reviewing potential STMC, and other station
acquisition candidates. As of the date of this Prospectus, the Company has no
commitments for any such acquisitions. After giving effect to the Offering and
application of the net proceeds therefrom, the Company will have available
approximately $ million of borrowing capacity under the Credit Facility, which
can be used for general corporate purposes, including financing these
acquisitions. Amounts available under the Credit Facility may not be sufficient
to support the Company's growth strategy and as a result the Company may require
additional debt or equity financing in order to acquire additional radio
stations and accomplish its long-term business strategies. There can be no
assurance any such financing will be available or available on acceptable terms.
In addition, because of the Company's substantial indebtedness, a significant
portion of the Company's broadcast cash flow is required for debt service.
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The Company anticipates that the net proceeds of the Offering, its available
borrowing capacity and its broadcast cash flow from operations will be
sufficient to finance its capital expenditure programs, as well as existing
operational and debt service requirements through December 31, 1998. Management
believes that its long term liquidity needs will be satisfied through a
combination of (i) the Company's successful implementation and execution of its
growth strategy to acquire and build a major market broadcast group; and (ii)
the Company's properties achieving positive operating results and cash flows
through revenue growth and control of operating expenses. If the Company is
unable to successfully implement its strategy, the Company may be required to
(i) obtain, in addition to the Offering, financing through public or private
sale of debt or equity securities of the Company or (ii) otherwise restructure
its capitalization.
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BUSINESS
GENERAL
The Company was formed in 1994 to acquire radio broadcast properties in or
adjacent to major metropolitan markets and utilize innovative engineering
techniques and low-cost, ratings-driven operating strategies to develop these
properties into successful metropolitan radio stations. In order to accomplish
this objective, the Company applies a variety of innovative broadcast
engineering techniques to the radio broadcast properties it acquires, including
STMC. STMC consists of acquiring two or more stations which broadcast on the
same frequency and simulcasting their signals to achieve broad coverage of a
targeted metropolitan market. In the future, the Company may apply STMC to first
adjacent frequencies. In addition to STMC, the Company intends to employ other
broadcast engineering techniques to enter major metropolitan markets at
attractive valuations. These engineering techniques include acquiring suburban
radio stations and moving the station's broadcast antenna closer to the
metropolitan area ("move-ins") and acquiring high-power stations adjacent to
major metropolitan markets and focusing such stations' broadcast signal into the
metropolitan area.
The Company's acquisition/engineering strategies enable it to provide near
seamless coverage of major metropolitan markets at a significantly lower
acquisition cost than typically required to acquire a major market Class B
station. The Company currently owns and operates STMC station combinations in
New York, Los Angeles and Chicago, the three largest radio markets in the United
States in terms of aggregate advertising revenues.
The Company is controlled by Stuart Subotnick, a general partner of
Metromedia Company, who will own, subsequent to the Offering, approximately
% of the Common Stock, representing % of the voting power of the Common
Stock.
The Company's first targeted market was Los Angeles where the Company
operates a three station combination, which broadcasts as Y-107 LA, featuring a
modern rock format on the 107.1-FM frequency. Y-107 LA consists of three
stations in the Los Angeles metropolitan area, KLYY-FM, KVYY-FM, and KSYY-FM.
Y-107 LA currently covers approximately 75% of the Arbitron diaries in the Los
Angeles MSA and will increase its coverage to over 90% as a result of an
increase in its transmission power pursuant to the FCC Power Increase, which the
Company plans to implement in the fourth quarter of 1997. The Company has
demonstrated the success of its strategy in Los Angeles where Y-107 LA has
consistently ranked as one of the top 5 most listened-to modern rock radio
stations in America over the past year, and has achieved a significant rating of
1.1% in the 12+ category as of the spring 1997 Arbitron book. The Company has
successfully translated its strong listenership into significant revenues as
exemplified by the increase in its power ratio (defined as a station's share of
the aggregate radio market revenues divided by its Arbitron listenership share)
from 0.5 in the six month period ended December 1996 to 1.4 in the six month
period ended June 1997. The Los Angeles Stations were acquired by the Company in
early 1996 for a combined purchase price significantly lower than the market
value of Class B stations in the Los Angeles MSA, as evidenced by transactions
consummated since the deregulation initiated by the passage of the Telecom Act
in 1996.
The Company recently completed the acquisitions of three stations in the New
York MSA, which collectively broadcast as Y-107 NY a country music format on the
107.1-FM frequency. Y-107 NY consists of WWVY-FM, WWXY-FM and WWZY-FM. Y-107 NY
commenced operations in January 1997 as the only country music station covering
the New York City market. Y-107 NY earned a 1.1% share in the 12+category as of
the spring 1997 Arbitron book. Y-107 NY currently covers approximately 75% of
the Arbitron diaries in the New York MSA and will increase its coverage to
approximately 90% as a result of an increase in its transmission power pursuant
to the FCC Power Increase, which the Company plans to implement in the first
quarter of 1998. The New York Stations were acquired by the Company for a
combined purchase price significantly lower than the market value of Class B
stations in the New York MSA, as evidenced by transactions consummated since the
passage of the Telecom Act.
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In August 1997, the Company acquired two radio stations, WVVX-FM and
WJDK-FM, in the Chicago MSA. The acquisition of the Chicago Stations secures the
Company's presence in the top three radio markets in the United States, as
measured in terms of aggregate advertising revenues. The Chicago Stations will
broadcast on the 103.1-FM frequency. The Chicago Stations were acquired for a
combined purchase price which is significantly less than the market value of
Class B stations in the Chicago MSA, as evidenced by transactions consummated
since the passage of the Telecom Act. The Chicago Stations currently cover
approximately 70% of the Arbitron diaries in the Chicago MSA and will increase
their coverage to 90% as a result of the planned increase in their transmission
power pursuant to the FCC Power Increase, which the Company plans to implement
in the second quarter of 1998. The Company is currently exploring format options
for the Chicago Stations and expects to formally begin broadcasting as a single
station during the fourth quarter of 1997.
BUSINESS STRATEGY
The Company's objective is to achieve a significant presence in selected top
20 radio markets by acquiring radio broadcast properties in or adjacent to major
metropolitan markets and utilizing innovative engineering techniques and
low-cost, ratings-driven operating strategies to develop these properties into
successful metropolitan radio stations. The following are the key elements of
the Company's business strategy:
ENTER TOP-20 MARKETS WITH LOW CAPITAL INVESTMENT
The Company intends to utilize STMC and other innovative acquisition and
engineering strategies to gain low-cost entry into major metropolitan radio
markets and achieve market coverage equivalent to Class B metropolitan stations.
- LOW ACQUISITION COST. Industry research indicates that the values of Class
B radio stations in major MSAs have increased significantly since the
passage of the Telecom Act. The Company has created radio stations with
equivalent Arbitron market coverage to Class B radio stations in the three
largest radio markets for a substantially lower capital investment. For
example, while in the Los Angeles MSA, prices have ranged from $113.0
million to $312.0 million, the Company has created for $26.8 million a Los
Angeles station which, following the FCC Power Increase, will have
equivalent Arbitron market coverage. Similarly, in the New York MSA where
prices have ranged from $83.5 million to $286.0 million, the Company has
created for $19.5 million a New York station which, following the FCC
Power Increase, will have equivalent Arbitron market coverage. In the
Chicago MSA, while prices have ranged from $22.0 million to $225.0
million, the Company has created for $10.6 million a Chicago station
which, following the FCC Power Increase, will have equivalent Arbitron
market coverage. Based on the range of purchase prices in recently
consummated transactions as specified above, achieving entry into the top
three radio markets would have required an aggregate investment of between
$218.5 million and $823.0 million, while the Company has entered these
three markets with an aggregate investment of approximately $56.9 million.
The Company continues to explore similar opportunities in other attractive
top 20 markets and believes that there is potential to achieve low-cost
entry by using methods such as STMC, "move-ins" and acquisitions of high
power stations adjacent to major metropolitan markets.
- EFFECTIVE COVERAGE OF ARBITRON RATED METROPOLITAN MARKETS. The Company's
objective is to achieve coverage in excess of 90% of the Arbitron diaries
in its targeted MSAs, which is equivalent to the coverage typically
provided by Class B stations in major metropolitan markets. Accordingly,
the Company bases its acquisition strategy primarily on the location of
Arbitron diaries. Furthermore, to enhance the Arbitron diary coverage of a
station, once acquired, the Company's experienced staff tailors an
engineering solution to optimize the Arbitron diary coverage of each
station.
MAXIMIZE STATION PERFORMANCE
The Company seeks to maximize the operating performance of its stations by
employing a ratings-driven, cash flow-focused, operating strategy.
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- MAXIMIZE STATION REVENUE. Based on an extensive market research study, the
Company carefully selects the format of the station to maximize
penetration of audience share and advertising revenues in that market. For
example, the Company believes that its carefully selected modern rock
format in Los Angeles and unique country music format in New York City
provide it with a competitive advantage and enhanced listenership in the
respective markets. The Company has successfully translated its strong
listenership into significant revenue and as exemplified by the increase
in its power ratio from 0.5 in the six month period ended December 1996 to
1.4 in the six month period ended June 1997 in the Los Angeles market.
- MAXIMIZE BROADCAST CASH FLOW. Another key aspect of the Company's
operating strategy will be to maximize its broadcast cash flow by
controlling its operating costs. The Company has not historically, and
does not intend at present, to expend the significant costs associated
with hiring highly compensated on-air personalities. The Company maintains
operating costs at a relatively low level and focuses on core programming
content to achieve high ratings.
STATION OPERATIONS
The Company currently owns station groups in Los Angeles, New York and
Chicago, the three largest markets in the United States in terms of aggregate
radio advertising revenues. Y-107 LA and Y-107 NY have each exhibited
significant increases in Arbitron ratings and net revenue since their respective
launches. The Company is conducting extensive research in the Chicago market and
expects to formally begin broadcasting the Chicago Stations as a single station
in the last quarter of 1997.
LOS ANGELES
The Los Angeles market is the second largest Arbitron market in terms of
population and the largest in terms of aggregate radio market revenues in the
United States, with 1996 revenues of $540.0 million. Los Angeles is the first
market in which the Company implemented STMC, with its acquisitions of three
radio stations for an aggregate purchase price of $26.8 million. Subsequent to
the planned increase in the power of one of the Los Angeles Stations pursuant to
the FCC Power Increase, which the Company expects to complete in the fourth
quarter of 1997, the Arbitron diary coverage of Y-107 LA will increase to over
90%. This coverage is substantially similar to the Arbitron diary coverage of
many of the highest-ranked Los Angeles Class B stations. In addition to its
coverage of the Los Angeles market, Y-107 LA covers parts of the Ventura,
Orange, Riverside-San Bernardino and San Diego markets.
The Company believes that identifying the appropriate format in a particular
market is crucial to the station's ability to achieve meaningful penetration of
the market's listening audience and aggregate advertising revenues. After
extensive research of the Los Angeles market, the Company launched a modern rock
format, as it believed that there was no comparable station that offered a
lively mix of modern rock music that primarily targets the important 25-54
demographic. The Company has demonstrated the success of its strategy in Los
Angeles where Y-107 LA has consistently ranked as one of the top 5 most
listened-to modern rock radio stations in America over the past year and has
achieved a significant rating of 1.1% in the 12+ category as of the spring 1997
Arbitron book. The Company has successfully translated its strong listenership
into significant revenues as exemplified by the increase in its power ratio from
0.5 in the six month period ended December 1996 to 1.4 in the six month period
ended June 1997. Y-107 LA's cume (the estimated number of different persons who
listened to a station for a minimum of five minutes in a quarter-hour of a
reported daypart) grew from 50,000 to 574,500 in just 6 months.
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The following table sets forth the gross revenues of Y-107 LA on a quarterly
basis, commencing with the third quarter of 1996, the first full quarter of
operations for Y-107 LA under Odyssey's ownership:
<TABLE>
<CAPTION>
QUARTER ENDED GROSS REVENUES
- --------------------------------------------------- --------------
<S> <C>
June 30, 1996...................................... $ 157,000
September 30, 1996................................. 492,000
December 31, 1996.................................. 1,135,000
March 31, 1997..................................... 1,300,000
June 30, 1997...................................... 2,159,000
</TABLE>
The Company believes that to achieve Class B station equivalent Arbitron
coverage and broadcast quality requires extensive engineering expertise. In Los
Angeles, the Company uses several advanced techniques to achieve substantially
full coverage. In addition to the three stations, the Company uses a booster
located in the San Fernando area to enhance its coverage of the market. The
Company believes these engineering solutions have resulted in significantly
broader coverage than traditional simulcasting.
NEW YORK
The New York MSA is the largest Arbitron market in terms of population and
the second largest in terms of aggregate radio market revenues in the United
States, with 1996 revenues of $507.2 million. From 1991 to 1996, radio
advertising revenue in the New York MSA grew from $349.0 million to $507.2
million, a compound annual growth rate of 7.8%. New York is the second market
which the Company entered with its acquisitions of three radio stations for an
aggregate purchase price of approximately $19.5 million. The Company has
implemented STMC in New York as well, creating the equivalent of a New York
Class B station. Subsequent to the implementation of the planned power increase
of the New York Stations pursuant to the FCC Power Increase, which the Company
expects to complete in the first quarter of 1998, the Arbitron diary coverage of
Y-107 NY will increase to approximately 90%. This coverage is substantially
similar to the Arbitron diary coverage of many of the highest-ranked New York
Class B stations.
Y-107 NY has an exclusive format presence in New York, as the Company
believes there are no other country music stations covering substantially all of
the New York MSA. Country music is traditionally a very strong 25-54 demographic
format, which routinely generates high power ratios relative to other formats.
As the only country music station covering substantially all of the New York
market, Y-107 NY's recognition and popularity was significantly enhanced
recently when the station broadcasted live the Garth Brooks concert in Central
Park in New York City. Y-107 NY commenced operations on January 1, 1997 and has
already earned a share of 1.1% in the 12+category as of the spring 1997 Arbitron
book. As in Los Angeles, the Company does not intend to incur the high costs
associated with highly compensated on-air personalities or mainstream syndicated
programming.
The major technical enhancements planned for the New York operation are the
installation of a new digital audio delay system that will allow precise
adjustment of the audio delay between the transmitters to reduce received noise,
installation of new transmitting antennas that will be optimized to provide the
strongest signal possible over populated areas of the New York MSA and new
transmitters to accommodate the FCC Power Increase.
ADVERTISING SALES
The rates a station can charge are in large part dictated by the station's
ability to attract audiences in the demographic groups targeted by its
advertisers, as measured principally by Arbitron Radio Market Reports. The
Company believes that identifying the appropriate format in a particular market
is crucial to the station's ability to achieve meaningful penetration of the
listening audience of the market. In each market entered by the Company, an
extensive competitive analysis is performed to select the format with the
greatest audience and revenue potential.
Virtually all of the Company's revenues are generated from the sale of local
and national advertising for broadcast on its radio stations. The Company
believes that radio is one of the most efficient and cost-
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effective means for advertisers to reach specific demographic groups.
Advertising rates charged by radio stations are based primarily on (i) a
station's share of the audience in the demographic groups targeted by
advertisers, (ii) the number of stations in the market competing for the same
demographic groups, and (iii) the supply of and demand for radio advertising
time. Rates are generally highest during morning and afternoon commuting hours.
The number of advertisements that can be broadcast without jeopardizing
listening levels (and the resulting ratings) is limited in part by the format of
a particular station. The Company's stations strive to maximize revenue by
constantly managing the number of commercials available for sale and adjusting
prices based upon local market conditions. In the broadcasting industry, radio
stations often utilize trade (or barter) agreements to generate advertising time
sales in exchange for goods or services (such as travel and lodging) instead of
for cash. The Company minimizes its use of trade agreements. The Company
determines the number of advertisements broadcast hourly, which maximizes
available revenue dollars without jeopardizing listening levels. Although the
number of advertisements broadcast during a given time period varies, the total
number of advertisements broadcast on a particular station generally does not
vary significantly from year to year. As is typical of the radio broadcasting
industry, Odyssey's stations respond to changing demand for advertising
inventory by varying prices rather than by varying the target inventory level
for a particular station.
Most advertising contracts are short-term and run only for a few weeks.
Ninety percent of the Company's gross revenue is generated from local
advertising, which is sold primarily by a station's sales staff. To achieve
greater control over advertising dollars, the Company's sales force focuses on
establishing direct relationships with local advertisers. To generate national
advertising sales, the Company has recruited in-house staff to represent it in
the largest national sales markets of New York City, Boston, Philadelphia,
Chicago, Atlanta, Dallas, Detroit and San Francisco. This also helps to contain
commission costs as large national representative firms tend to have higher
commission rates than an in-house national sales representative.
COMPETITION
Radio broadcasting is a highly competitive business. Within their respective
markets, each of the Company's radio stations competes for audience share and
advertising revenue directly with other radio stations, as well as with other
media such as television, print media, billboards, compact discs and music
videos. There are a number of other better-capitalized companies competing in
the same geographic markets as the Company, many of which have greater financial
resources. In addition, recently the radio industry has experienced significant
consolidation which has resulted in several radio station groups that have a
large number of radio stations throughout the United States and vastly greater
financial resources and access to capital than the Company.
The financial success of each of the Company's radio stations is dependent
principally upon its share of the overall radio advertising revenue within its
geographic market, its promotion and other expenses incurred to obtain that
revenue and the economic health of the geographic market. Radio advertising
revenues are, in turn, highly dependent upon audience share. Radio station
operators are subject to the possibility of another station changing programming
formats to compete directly for listeners and advertisers or launching an
aggressive promotional campaign in support of an already existing competitive
format. If a competitor, particularly one with substantial financial resources,
were to attempt to compete in either of these fashions, the broadcast cash flow
of the Company's affected station could decrease due to increased promotional
and other expenses and/or lower advertising revenues resulting from lower
ratings. There can be no assurance that any one of the Company's radio stations
will be able to maintain or increase its current audience ratings and radio
advertising revenue market share.
The Company will also face competition from other radio stations that
attempt to replicate the engineering techniques of the Company to cover a
metropolitan area and from stations that simply simulcast on the same or first
adjacent frequencies. While simulcasting has been employed by other broadcast
radio operators in the past, the primary purpose has been to reduce programming
costs for the
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individual stations. The Company believes that most broadcast radio operators
that have employed simulcasting have done so on different frequencies. The
Company believes that few operators have successfully used simulcasting to
effectively cover an entire MSA.
Radio broadcasting is also subject to competition from new media
technologies that are being developed or introduced, such as the delivery of
audio programming by cable television systems or the introduction of DAB. DAB
may deliver by satellite or terrestrial means multi-channel, multi-format
digital radio services with sound quality equivalent to compact discs to
nationwide and regional audiences. The Company cannot predict the effect, if
any, that any such new technologies may have on the radio broadcasting industry.
RECENTLY COMPLETED RADIO STATION ACQUISITIONS
Since its incorporation in August 1994, the Company has acquired the assets
of ten radio stations and has disposed of one station. The following is a
summary of the acquisitions of radio stations which the Company has consummated
since its incorporation. All of these transactions were with non-affiliated
persons.
NEW YORK
In December 1994, the Company acquired the assets of radio station WRGX-FM
(now WWXY-FM), Briarcliff Manor, New York, from West-Land Communicators, Inc.
("West-Land") for a purchase price of $2.5 million, the issuance of a promissory
note in the amount of $1.0 million to West-Land and the assumption of certain
liabilities. In April 1997, the Company acquired the assets of radio station
WWHB-FM (now WWVY-FM), Hampton Bays, New York, from South Fork Broadcasting
Corporation ("South Fork") for a purchase price of $4.0 million and the
assumption of certain liabilities. In June 1997, the Company acquired the assets
of radio station WZVU-FM (now WWZY-FM), Long Branch, New Jersey, including a
radio tower, a radio antenna and a building, from K&K Radio Broadcasting L.L.C.
and K&K Tower, L.L.C. for an aggregate purchase price of $12.0 million, certain
payments under existing leases of the building facilities and the assumption of
certain liabilities. K&K Radio Broadcasting, L.L.C., K&K Tower, L.L.C. and each
of their controlling members and the general manager of WZVU-FM entered into a
covenant not to compete with the Company for a period of three years. Also, in
December 1994, the Company acquired the assets of radio station WRKL-AM, New
City, New York, from Rockland Communicators, Inc. for a purchase price of $1.0
million and the assumption of certain liabilities. The Company intends to
dispose of this station.
LOS ANGELES
In May 1996, the Company acquired four radio stations in the Los Angeles
area from Douglas Broadcasting, Inc. ("Douglas"). The Company acquired the
assets of radio station KMAX-FM (now KLYY-FM), Arcadia, California, KAXX-FM (now
KVYY-FM), Ventura, California, KBAX-FM (now KSYY-FM) Fallbrook, California, and
KWIZ-FM, Santa Ana, California, for an aggregate purchase price of $38.0 million
and the assumption of certain liabilities. The Company also acquired FM
Translator station K252BF, Temecula, California, which rebroadcasts on 98.3 MHz
the signal of KSYY-FM, and FM Booster station KLYY-FM, Burbank, California,
which boosts on 107.1 MHz the broadcast of the signal of KLYY-FM. In December
1996, the Company sold radio station KWIZ-FM to Liberman Broadcasting, Inc. for
a price of $11.2 million and the assumption by Liberman Broadcasting, Inc. of
certain liabilities.
CHICAGO
In August 1997, the Company acquired the assets of radio station WVVX-FM,
Highland Park, Illinois, from WVVX License, Inc., for a purchase price of $9.5
million. Douglas, WVVX, Inc. and WVVX License, Inc. agreed not to compete for a
period of eighteen months. In August 1997, the Company acquired the assets of
radio station WJDK-FM, Morris, Illinois, from DMR Media, Inc., for a purchase
price of $1.1 million. In addition, the Company agreed not to compete with DMR
Media, Inc.'s operations of radio station WCSJ-AM, Morris, Illinois, for a
period of five years.
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PROPOSED RADIO STATION DISPOSITION
The Company intends to dispose of the assets of radio station WRKL-AM, New
City, New York. Completion of this disposition will be subject to certain
conditions, including receipt of FCC approval. There can be no assurance that
this disposition will be consummated.
EMPLOYEES
At August 31, 1997, the Company had approximately 108 full-time employees
and 78 part-time employees. Seven full-time employees of radio station WRKL-AM
are represented by a union. The Company believes that its relations with its
employees are good.
The Company employs several on-air personalities and generally enters into
employment agreements with certain of these personalities to protect its
interests in those relationships that it believes to be valuable. The loss of
certain of these personalities could result in a short term loss of audience
share but the Company does not believe that any such loss would have a material
adverse effect on the Company.
FEDERAL REGULATION OF RADIO BROADCASTING
The ownership, operation and sale of radio stations are subject to the
jurisdiction of the FCC, which acts under authority granted by the
Communications Act. Among other things, the FCC assigns frequency bands for
broadcasting; determines the particular frequencies, locations and power of
stations; issues, renews, revokes and modifies station licenses; determines
whether to approve changes in ownership or control of station licenses;
regulates equipment used by stations; imposes regulations and takes other action
to prevent harmful interference between stations; adopts and implements
regulations and policies that directly or indirectly affect the ownership,
management, programming, operation and employment practices of stations; and has
the power to impose penalties for violations of its rules or the Communications
Act. In February 1996, Congress enacted the Telecommunications Act of 1996 (the
"Telecom Act") to amend the Communications Act. The Telecom Act, among other
measures, directed the FCC, which has since conformed its rules, to (a)
eliminate the national radio ownership limits; (b) increase the local radio
ownership limits as specified in the Telecom Act; (c) issue broadcast licenses
for periods of eight years; and (d) eliminate the opportunity for the filing of
competing applications against broadcast license renewal applications.
Congress, via the recently enacted Balanced Budget Act of 1997, authorized
the FCC for the first time to conduct auctions for the awarding of initial
broadcast licenses or construction permits for commercial radio and television
stations. To facilitate the settlement without auctions of already pending
mutually exclusive applications, Congress directed the FCC to waive existing
rules as necessary. While the Company is not a participant in any such
proceeding, this recent action should result in the awarding of construction
permits for additional radio stations, some of which might have the potential to
compete with the Company's radio stations.
LICENSE GRANTS AND RENEWALS
The Communications Act provides that a broadcast license may be granted to
an applicant if the grant would serve the public interest, convenience and
necessity, subject to certain limitations referred to below. In making licensing
determinations, the FCC considers the legal, technical, financial and other
qualifications of the applicant, including compliance with the Communications
Act's limitations on alien ownership, compliance with various rules limiting
common ownership of broadcast, cable and newspaper properties, and the
"character" of the licensee and those persons holding "attributable" interests
in the licensee. Broadcast licenses are granted for specific periods of time
and, upon application, are renewable for additional terms. The Telecom Act
amended the Communications Act to provide that broadcast licenses be granted,
and thereafter renewed, for a term not to exceed eight years, if the FCC finds
that the public interest, convenience, and necessity would be served.
Generally, the FCC renews broadcast licenses without a hearing. The Telecom
Act amended the Communications Act to require the FCC to grant an application
for renewal of a broadcast license if:
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(1) the station has served the public interest, convenience and necessity; (2)
there have been no serious violations by the licensee of the Communications Act
or the rules and regulations of the FCC; and (3) there have been no other
violations by the licensee of the Communications Act or the rules and
regulations of the FCC which, taken together, would constitute a pattern of
abuse. Competing applications against broadcast license renewal applications are
therefore not entertained. The Telecom Act provided that if the FCC, after
notice and an opportunity for a hearing, decides that the requirements for
renewal have not been met and that no mitigating factors warrant lesser
sanctions, it may deny a renewal application. Only thereafter may the FCC accept
applications by third parties to operate on the frequency of the former
licensee. The Communications Act continues to authorize the filing of petitions
to deny against broadcast license renewal applications during particular periods
of time following the filing of renewal applications. Petitions to deny can be
used by interested parties, including members of the public, to raise issues
concerning the qualifications of the renewal applicant.
Current licenses (expiring in 2004) were renewed in 1996 to the prior
licensees of the Company's Chicago Stations. Presently pending are renewal
applications for the Company's Los Angeles Stations, whose broadcast licenses
will expire on December 1, 1997. Renewal applications are due on February 1,
1998, for the Company's New York Stations, whose broadcast licenses will expire
on June 1, 1998. The Company does not anticipate any material difficulty in
obtaining license renewals for full terms in the future.
The action of the FCC or its staff granting a renewal application may be
reconsidered during specified time periods by the FCC or its staff on their own
motion or by request of the petitioner, and the petitioner may also appeal
within a certain period actions by the FCC to the U.S. Court of Appeals. If the
FCC does not, on its own motion, or upon a request by an interested party for
reconsideration or review, review a staff grant or its own action within the
applicable time periods, and if no further reconsideration, review or appeals
are sought within the applicable time periods, an action by the FCC or its staff
becomes a "Final Order."
LICENSE ASSIGNMENTS AND TRANSFERS OF CONTROL
The Communications Act prohibits the assignment of an FCC license or the
transfer of control of a corporation holding such a license without the prior
approval of the FCC. Applications to the FCC for such assignments or transfers
are subject to petitions to deny by interested parties and must satisfy
requirements similar to those for renewal and new station applicants. Many
transactions involving radio stations provide, as a waivable pre-condition to
closing, that the FCC consent to the transaction has become a "Final Order."
OWNERSHIP RULES
Rules of the FCC limit the number and location of broadcast stations in
which one licensee (or any party with a control position or attributable
ownership interest therein) may have an attributable interest. The FCC, pursuant
to the Telecom Act, eliminated the previously existing "national radio ownership
rule." Consequently, there now is no limit imposed by the FCC to the number of
radio stations one party may own nationally.
The "local radio ownership rule" limits the number of stations in a radio
market in which any one individual or entity may have a control position or
attributable ownership interest. Pursuant to the Telecom Act, the FCC revised
its rules to set the local radio ownership limits as follows: (a) in markets
with 45 or more commercial radio stations, a party may own up to eight
commercial radio stations, no more than five of which are in the same service
(AM or FM); (b) in markets with 30-44 commercial radio stations, a party may own
up to seven commercial radio stations, no more than four of which are in the
same service; (c) in markets with 15-29 commercial radio stations, a party may
own up to six commercial radio stations, no more than four of which are in the
same service; and (d) in markets with 14 or fewer commercial radio stations, a
party may own up to five commercial radio stations, no more than three of which
are in the same service, provided that no party may own more than 50% of the
commercial stations in the market.
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FCC cross-ownership rules also prohibit one party from having attributable
interests in a radio station as well as in a local television station or daily
newspaper, although such limits are waived by the FCC under certain
circumstances. In addition, the FCC has a "cross interest" policy that may
prohibit a party with an attributable interest in one station in a market from
also holding either a "meaningful" non-attributable equity interest (e.g.,
non-voting stock, voting stock, limited partnership interests) or key management
position in another station in the same market, or which may prohibit local
stations from combining to build or acquire another local station. The FCC is
presently evaluating its radio/television, radio/newspaper and cross-interest
rules and policies as well as policies governing attributable ownership
interests. The Company cannot predict whether the FCC will adopt any changes in
these policies or, if so, what the new policies will be or how they might affect
the Company.
ATTRIBUTION RULES
All holders of attributable interests must comply with, or obtain waivers
of, the FCC's multiple and cross-ownership rules. Under the current FCC rules,
an individual or other entity owning or having voting control of 5% or more of a
corporation's voting stock is considered to have an attributable interest in the
corporation and its stations, except that banks holding such stock in their
trust accounts, investment companies, and certain other passive interests are
not considered to have an attributable interest unless they own or have voting
control over 10% or more of such stock. The FCC is currently evaluating whether
to raise the foregoing benchmarks to 10% and 20%, respectively. An officer or
director of a corporation or any general partner of a partnership also is deemed
to hold an attributable interest in the media license. At present, when a single
shareholder holds a majority of the voting stock of a corporate licensee, the
FCC considers other shareholders, unless they are also officers or directors,
exempt from attribution. The FCC has asked for comments as to whether it should
continue the single majority shareholder exemption. Holders of non-voting stock
generally will not be attributed an interest in the issuing entity, and holders
of debt and instruments such as warrants, convertible debentures, options, or
other non-voting interests with rights of conversion to voting interests
generally will not be attributed such an interest unless and until such
conversion is effected. The FCC is currently considering whether it should
expand its attribution rules to reach certain of these interests in certain
circumstances. The Company cannot predict whether the FCC will adopt these or
any other proposals to change its attribution policies.
Under current FCC rules, any stockholder of the Company with 5% or more of
the outstanding votes (except for qualified institutional investors, for which
the 10% benchmark is applicable), will be considered to hold attributable
interests in the Company. Such holders of attributable interests must comply
with or obtain waivers of the FCC's multiple and cross-ownership rules. At
present, none of the attributable stockholders, officers and directors of the
Company have any other media interests besides those of the Company that
implicate the FCC's multiple ownership limits. In the event that the Company
learns of a new attributable stockholder and if such stockholder holds interests
that exceed the FCC limits on media ownership, under the Company's Amended and
Restated Certificate of Incorporation (as defined herein), the Board of
Directors of the Company has the corporate power to redeem stock of the
Company's stockholders to the extent necessary to be in compliance with FCC and
Communications Act requirements, including limits on media ownership by
attributable parties.
The FCC will consider a radio station providing programming and sales on
another local radio station pursuant to a LMA to have an attributable ownership
interest in the other station for purposes of the FCC's radio multiple ownership
rules. In particular, a radio station is not permitted to enter into a LMA
giving it the right to program more than 15% of the broadcast time, on a weekly
basis, of another local radio station which it could not own under the FCC's
local radio ownership rules.
ALIEN OWNERSHIP LIMITS
Under the Communications Act, broadcast licenses may not be granted,
transferred or assigned to any corporation of which more than one-fifth of the
capital stock is owned of record or voted by non-U.S.
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citizens or foreign governments or their representatives or by foreign
corporations. Where the corporation owning the license is controlled by another
corporation, the parent corporation cannot have more than
one-fourth of the capital stock owned of record or voted by Aliens, unless the
FCC finds it in the public interest to allow otherwise. The FCC has issued
interpretations of existing law under which these restrictions in modified form
apply to other forms of business organizations, including general and limited
partnerships. The FCC also prohibits a licensee from continuing to control
broadcast licenses if the licensee otherwise falls under Alien influence or
control in a manner determined by the FCC to be in violation of the
Communications Act or contrary to the public interest. At present, one of the
Company's officers is known by the Company to be an Alien and no other officers,
directors or stockholders are known to be Aliens. In the event that the Company
learns that Aliens own, control or vote stock in the Company in excess of the
Communications Act limit, under the Amended and Restated Certificate of
Incorporation, the Board of Directors of the Company has the corporate power to
redeem stock of the Company's stockholders to the extent necessary to be in
compliance with FCC and Communications Act requirements on alien ownership.
PROGRAMMING REQUIREMENTS
While the FCC has relaxed or eliminated many of its regulatory requirements
related to programming and content, radio stations are still required to
broadcast programming responsive to the problems, needs and interests of the
stations' service areas and must comply with various rules promulgated under the
Communications Act that regulate political broadcasts and advertisements,
sponsorship identifications, indecent programming and other matters. Affirmative
action requirements also exist. Failure to observe these or other FCC rules can
result in the imposition of monetary forfeitures, in the grant of a "short"
(less than full term) license term or, where there have been serious or a
pattern of violations, license revocation.
TECHNICAL AND INTERFERENCE RULES
FCC rules specify technical and interference requirements and parameters
that govern the signal strength and coverage area of radio stations, and which,
unless waived, must be complied with in order to obtain FCC consent to modify a
station's service area or other technical operations. The FCC allots specific FM
radio frequencies and class designations to particular communities of license.
The FM class designations, which vary by geographic location, include (in order
of increasing potential coverage area) Class A, B1, C3, B, C2, C1 and C. (The C
Class designations are generally not allocated to communities in the more
densely-populated regions of the United States, such as the Northeast and
California.) Each FM class has minimum and maximum power specifications and must
not cause interference to the protected service areas of other radio stations,
domestic or international, operating on the same or adjacent frequencies. Under
FCC rules, a radio station must transmit a minimum predicted signal strength to
its allocated community of license, and therefore must locate its transmitting
antenna at a site providing such coverage while also being within a specified
power and height range for that station's class designation, and at specified
minimum distances from the transmitting sites of nearby radio stations operating
on the same or adjacent frequencies. The combination of these requirements sets
limits on the ability of a particular radio station to relocate in certain
directions and to increase signal coverage. Stations may petition the FCC to
change a particular station's community of license and/or class, which changes
are granted by the FCC when its service priorities are met and conflicting
reallotment proposals, if any, are resolved. As to minimum distance separation
requirements designed to afford interference protection to other FM stations,
the FCC rarely waives such specifications. However, the FCC permits radio
stations in certain circumstances to relocate to a site not meeting the minimum
distance separation rule when the station demonstrates that the service contours
of neighboring radio stations will be protected from interference. Because STMC
uses radio stations that operate on the same or adjacent frequencies, the STMC
stations' transmitting sites must be sufficiently distant from each other to
comply with the FCC's interference protection guidelines, unless such stations
are exempt from compliance by their grandfathered status.
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FCC POWER INCREASE
In most instances, changes to the technical specifications of radio
stations, such as increases in the power (effective radiated power, or "ERP")
and subsequent increased coverage area, may be made only after application to
the FCC, and grant by the FCC of a construction permit for the modification of
the station. The Company currently has pending applications before the FCC for
modifications of WRKL-AM, New City, New York, and KLYY-FM, Arcadia, California.
The WRKL-AM modification application requests a "major" change in power, and as
such is subject to mutually exclusive applications. The FCC has not yet issued a
notice accepting the WRKL-AM modification application, which would also trigger
the deadline for the filing of any mutually exclusive applications. Such filings
would result in the delay and potential denial of the WRKL-AM modification
application, and the Company cannot predict the ultimate outcome of that
application. The KLYY-FM modification application requests an increase in the
authorized power of the station from 3 kilowatts to the maximum 6 kilowatt level
permitted for the station's FCC classification. To date, the KLYY-FM
modification application has been held in abeyance by the FCC while it
considered changes to its policy relating to modifications of "grandfathered
short-spaced" FM stations, such as KLYY-FM. Grandfathered short-spaced stations
are those that do not meet the current FCC's requirements for distance
separation of FM radio stations operating on the same or adjacent frequencies as
the stations were authorized before the adoption of the current rules. In the
past, power increases or relocations of such grandfathered stations often did
not comply with the FCC's current technical rules, and would be authorized by
the FCC only in limited circumstances. In August 1997, the FCC adopted a new
policy, which the Company believes will permit it to increase the power of its
radio stations to the maximum 6 kilowatt level (the "FCC Power Increase"). Until
the grant of the subject modification applications, the Company cannot be
certain that the new policy will serve to permit the increases in the Company's
coverage areas.
AGREEMENTS WITH OTHER BROADCASTERS
Over the past several years a significant number of broadcast licensees,
including the Company, have entered into cooperative agreements with other
stations in their markets. One typical example is a local marketing agreement
("LMA") between two separately or co-owned stations, whereby the licensee of one
station programs substantial portions or all of the broadcast day on the other
licensee's station, subject to ultimate editorial and other controls being
exercised by the latter licensee, and sells advertising time during such program
segments for its own account. The FCC has held that LMAs do not per se
constitute a transfer of control and are not contrary to the Communications Act
provided that the licensee of the station maintains ultimate responsibility for
and control over operations of its broadcast station. As is the case of the
Company, typically the LMA is entered into in anticipation of the sale of the
station, with the proposed acquirer providing programming for the station while
the parties are awaiting the necessary regulatory approvals to the transaction.
The FCC's rules also prohibit a radio licensee from simulcasting more than
25% of its programming on other radio stations in the same broadcast service
(i.e., AM-AM or FM-FM), whether it owns both stations or operates one or both
through a LMA, where such stations serve substantially the same geographic area
as defined by the stations' principal community contours. The Company's stations
are not subject to this limitation.
PROPOSED REGULATORY CHANGES
The FCC has not yet formally implemented certain of the changes to its rules
necessitated by the Telecom Act. Moreover, the Congress and the FCC have under
consideration, and may in the future consider and adopt, new laws, regulations
and policies regarding a wide variety of matters that could, directly or
indirectly, (i) affect the operation, programming, technical requirements,
ownership and profitability of the Company and its radio broadcast stations,
(ii) result in the loss of audience share and advertising revenues of the
Company's radio broadcast stations, (iii) affect the ability of the Company to
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acquire additional radio broadcast stations or finance such acquisitions, (iv)
affect cooperative agreements and/or financing arrangements with other radio
broadcast licensees, (v) affect the Company's competitive position in
relationship to other advertising media in its markets, or (vi) affect the
Company's ability to exploit its unique technical capabilities and innovative
approach to acquiring and using radio broadcast stations. Such matters include,
for example, changes to the license authorization and renewal process; proposals
to revise the FCC's equal employment opportunity rules and other matters
relating to minority and female involvement in broadcasting; proposals to alter
the benchmarks or thresholds for attributing ownership interest in broadcast
media; proposals to change rules or policies relating to political broadcasting;
changes to technical and frequency allocation matters, including those relative
to the implementation of digital audio broadcasting on both a satellite and
terrestrial basis; proposals to restrict or prohibit the advertising of beer,
wine and other alcoholic beverages on radio; changes in the FCC's
cross-interest, multiple ownership, alien ownership and cross-ownership
policies; and proposals to limit the tax deductibility of advertising expenses
by advertisers.
Although the Company believes the foregoing discussion is sufficient to
provide the reader with a general understanding of all material aspects of FCC
regulations that affect the Company, it does not purport to be a complete
summary of all provisions of the Communications Act or FCC rules and policies.
Reference is made to the Communications Act, FCC rules and the public notices
and rulings of the FCC for further information.
PATENTS AND TRADEMARKS
The Company owns registered trademark rights for STMC and domestic trademark
registrations related to the business of the Company and does not own any
patents or patent applications. The Company does not believe that any of its
trademarks are material to its business or operations.
PROPERTIES/FACILITIES
The Company leases approximately 3,200 square feet in Hawthorne, New York,
where its corporate offices are located.
The type of properties required to support each of the Company's radio
stations includes offices, studios, transmitter sites, booster sites, translator
sites and antenna sites. The Company owns, leases or licenses the properties
required to operate its radio stations. The Company owns facilities for the New
York Stations in Long Branch (approximately 6,500 square feet) and for WRKL-AM
in Pamona (approximately 5,100 square feet). The Company leases or licenses
facilities for the Los Angeles Stations in Arcadia, Fallbrook (approximately 355
square feet), Los Angeles, Pasadena (approximately 4,896 square feet), Ventura
(approximately 758 square feet), Temecula and Burbank. The Company leases
facilities for the New York Stations in Hampton Bays (approximately 1,260 square
feet), East Quoque and Westchester. The Company leases facilities for the
Chicago Stations in Highland Park (approximately 2,120 square feet) and Morris.
The Company considers its facilities to be suitable and of adequate sizes for
its current and intended purposes and does not anticipate any difficulties in
renewing those leases or licenses or in leasing or licensing additional space,
if required.
The Company owns substantially all its other equipment, consisting
principally of transmitting antennae, transmitters, studio equipment and general
office equipment. The Company owns towers in Long Branch, NJ, Highland Park, IL,
and Morris, IL. The towers, antennae and other transmission equipment used in
the Company's stations are generally in good condition.
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The following table sets forth the location of the Company's principal
properties:
<TABLE>
<CAPTION>
LOCATION FACILITY
- --------------------------------------- ----------------------------------------------------
<S> <C>
Y107--LOS ANGELES
Arcadia, CA............................ FM tower(4)
Fallbrook, CA.......................... FM tower, studio, transmitter site(1)
Pasadena, CA........................... Studio, business offices(1)
Ventura, CA............................ FM tower, studio, transmitter site(1)
Temecula, CA........................... Translator site(1)
Burbank, CA............................ Booster site(1)
Y107--NEW YORK
Hampton Bays, NY....................... Business offices(1)
Hawthorne, NY.......................... Studio, corporate offices(1)
Long Branch, NJ........................ FM tower, studio(2)
Westchester, NY........................ FM tower(1)
East Quoque, NY........................ FM tower, transmitter site(1)
CHICAGO STATIONS
Highland Park, IL...................... FM tower(4), studio(1)
Morris, IL............................. Studio(1), FM tower, transmitter site(2)
WRKL-AM
Pamona, NY............................. Tower, studio(3)
</TABLE>
- -------------------
(1) Leased.
(2) Owned.
(3) Held for sale--See "--Proposed Station Disposition."
(4) Tower owned by the Company while the property is leased.
LITIGATION
THE KIM NGUYEN SON LITIGATION
In December 1996, Mr. Kim Nguyen Son d.b.a. Khoa Ky Thuat Radio Station
filed an action before the Superior Court of the State of California for the
County of Orange for breach of contract against Liberman Broadcasting, Inc. and
Leonard D. Liberman (together, "Liberman") in connection with the cancellation
by the Company of four broadcasting contracts with Mr. Kim Nguyen Son for a
Vietnamese speaking radio show on KWIZ-FM, which cancellation was subsequently
confirmed by Liberman after its purchase of KWIZ-FM and the reformatting of the
radio station to Spanish language. In July, 1997, the plaintiff filed a second
amended complaint for damages for, among other things, (i) breach of contract
against the Company, Michael Kakoyiannis and Keith James and for (ii)
intentional interference with contract against Liberman, Jose Liberman, Mr.
Kakoyiannis and Mr. James. In his amended complaint, the plaintiff is asking for
compensatory damages in the amount of $500,000 plus interest and costs, as well
as punitive damages. The action against Mr. Kakoyiannis was dismissed in July,
1997. On August 12, 1997, the Company, Mr. Kakoyiannis, Liberman and Jose
Liberman filed a motion to strike portions of the amended complaint on the
ground that the allegations are irrelevant and improper and not drawn or filed
in conformity with the laws of California and the Company and Liberman filed a
notice of demurrer to the amended complaint on the ground that the plaintiff
failed to state a cause of action. In management's opinion, the outcome of this
litigation will not have a material adverse effect on the Company.
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THE INFINITY LITIGATION
On July 19, 1996, the Company filed a complaint against Infinity
Broadcasting Corporation and Infinity Broadcasting of Los Angeles d.b.a. radio
station KROQ-FM (together, "Infinity") in the Superior Court of the State of
California for the County of Los Angeles for restraint of trade, monopolization,
intentional or negligent interference with contract and economic advantages and
unfair competition. On August 18, 1997, the Company entered into a Settlement
Agreement and Mutual General release with Infinity with respect to all claims
and disputes. As part of the settlement, the Company and Shadow Broadcast
Services ("Shadow") entered into an agreement for the provision of traffic
reports, monetary payments and related advertising consideration by Shadow to
the Company. The performance of Shadow's obligations is guaranteed by Infinity
up to $50,000.
OTHER LITIGATION
The Company is involved in litigation from time to time in the ordinary
course of its business. In management's opinion, the outcome of all pending
legal proceedings, individually and in the aggregate, will not have a material
adverse effect on the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company as of September 24, 1997.
<TABLE>
<CAPTION>
NAME AGE OFFICE OR POSITION HELD
- ------------------------------------ ----------- ---------------------------------------------------------------------
<S> <C> <C>
Stuart Subotnick.................... 55 Chairman of the Board
Michael Kakoyiannis................. 54 Chief Executive Officer, President and Director
Anita Subotnick..................... 53 Director
Steven G. Blatter................... 31 Vice President--Programming
Alan D. Kirschner................... 46 Vice President--Engineering
Bryan Subotnick..................... 33 Executive Vice President--Corporate Development
Paul R. Thomson..................... 41 Vice President and Chief Financial Officer
</TABLE>
Each director is elected to serve until a successor is elected and qualified
or, if earlier, until the director's death, resignation or removal. Officers,
subject to the terms of their respective employment agreements, serve at the
pleasure of the Board of Directors. See "--Employment Agreements."
Set forth below is the background of each of the Company's executive
officers and directors.
STUART SUBOTNICK founded the Company in 1994 and has served as Chairman of
the Board of Directors since the Company's inception. Mr. Subotnick has spent
approximately 30 years at Metromedia Company (and its predecessor) and together
with long-time partner John W. Kluge, has overseen Metromedia's investments in
numerous media, entertainment and communications businesses. Mr. Subotnick has
served since 1996 as Vice Chairman, President and Chief Executive Officer of
Metromedia International Group, Inc., an international media and communications
company that owns radio stations in Eastern Europe and Russia. Mr. Subotnick has
also served as Executive Vice President of Metromedia Company and its
predecessor for over five years. Metromedia Company and its predecessor owned
and operated radio stations, television stations, an outdoor advertising
business, and cellular telephone and paging operations throughout the United
States. Mr. Subotnick is also a director of Carnival Cruise Lines, Inc., RDM
Sports Group, Inc., a diversified sporting goods company and of Metromedia Fiber
Network, Inc. Mr. Subotnick is married to Anita Subotnick. Stuart and Anita
Subotnick are the parents of Bryan Subotnick.
MICHAEL KAKOYIANNIS founded the Company in 1994 and has served as Chief
Executive Officer, President and a Director of the Company since its inception.
Mr. Kakoyiannis has over 25 years of experience in the radio broadcasting
business in major metropolitan markets. Prior to joining the Company, Mr.
Kakoyiannis was Executive Vice President of the Westwood One Stations Group
("Westwood One"), which operated three stations in Los Angeles and New York:
WNEW-AM and WYNY-FM in New York and KQLZ-FM, known as "Pirate Radio," in Los
Angeles. Additionally, Mr. Kakoyiannis was Vice President and General Manager of
all three stations. Prior to his tenure at Westwood One, Mr. Kakoyiannis was an
Executive Vice President from 1986 to 1989 at Metropolitan Broadcasting, a
company that was owned by Metromedia Company and its predecessor, and controlled
nine stations that were generally located in major metropolitan markets.
ANITA SUBOTNICK founded the Company in 1994 and has been serving as a
Director since the Company's inception. Mrs. Subotnick has been a private
investor for more than the last five years.
STEVEN G. BLATTER has been serving as Vice President in charge of
Programming for the Company since 1995. Mr. Blatter served as Program Director
for the radio station WRGX(FM), which is owned by the Company, from 1993 to 1995
and as Director of Programming for MJI Broadcasting from 1991 to 1993.
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Mr. Blatter served as Music Director for the radio station WYNY(FM) owned by
Westwood One Stations Group, from 1988 to 1991.
ALAN D. KIRSCHNER has been a Vice President of the Company since September
1997 and a Director of Engineering since July 1995. Mr. Kirschner has been
serving as radio technical consultant for AM and FM radio stations since 1972.
Mr. Kirschner served as Chief Engineer responsible for technical operations of
radio station WYNY owned by Broadcasting Partners, Inc. and Evergreen Media, in
New York from 1993 to 1995 and a Director of Engineering for Westwood One
Stations Group in New York from 1988 to 1993.
BRYAN SUBOTNICK has served as Executive Vice President--Corporate
Development of the Company since September 1997. Mr. Subotnick served as Vice
President of the Company from January 1997, and Director of Operations from May
1995 to December 1996. Prior to joining the Company, Mr. Subotnick was Vice
President and General Counsel of Papamarkou & Company, an international finance
and investment company, in 1995, and as a General Partner in the law firm of
Shanker & Subotnick, which specialized in entertainment law, from 1992 to 1994.
PAUL R. THOMSON has served as Vice President of the Company since September
1997 and as Chief Financial Officer of the Company since January 1996. Prior to
joining the Company, Mr. Thomson served as Corporate Controller of Herbalife
International, Inc. from 1993 to 1996, as Chief Financial Officer of Bernard
Salick Companies from 1992 to 1993 and as Controller--Radio Stations Group of
Westwood One, Inc. from 1989 to 1992. Prior to 1992, Mr. Thomson worked with
Price Waterhouse LLP for 12 years in London, Caracas and Los Angeles. He is a
certified public accountant and a member of the Institute of Chartered
Accountants in England and Wales.
BOARD; ELECTION OF DIRECTORS; AGREEMENTS REGARDING BOARD POSITIONS
Following the appointment of the initial Board of Directors described below,
25% of the members of the Board of Directors of the Company will be elected by a
majority of the votes cast by holders of shares of Class A Common Stock, voting
as a separate class, at the annual meeting of stockholders and hold office until
their successors have been duly elected and qualified or until their death,
resignation or removal. Holders of shares of Class B Common Stock will vote as a
separate class to elect up to 75% of the Board of Directors. Directors may be
removed, with or without cause, only by the holders of the class of Common Stock
that, as of the date such removal is effected, would be entitled to elect such
directors at the next annual meeting of stockholders. Vacancies in a
directorship may be filled only by (a) the remaining directors elected by
holders of each class of Common Stock that (x) elected such director and (y) as
of the date such vacancy is filled, would be entitled to elect such director at
the next annual meeting of the stockholders or (b) if there are no such
remaining directors, then by the vote of the holders of the class or classes of
Common Stock that, as of the date such vacancy is filled, would be entitled to
elect such director at the next annual meeting of stockholders, voting as a
separate class at a meeting, special or otherwise, of the holders of Common
Stock of such class. Within 90 days of the consummation of the Offering, the
Principal Stockholders will elect additional persons to serve on the Board of
Directors, including at least 2 outside directors.
COMMITTEES OF THE BOARD
Within 90 days of the consummation of the Offering, the Board of Directors
will establish a Compensation Committee and an Audit Committee. The Compensation
Committee will make recommendations concerning the salaries and incentive
compensation of employees of and consultants to the Company. The Audit
Committee, comprised entirely of directors who are not employees of the Company,
will be responsible for reviewing the results and scope of audits and other
services provided by the Company's independent auditors.
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EXECUTIVE COMPENSATION
The following table sets forth in summary form all compensation for all
services rendered in all capacities to the Company for the year ended December
31, 1996 of the Chairman of the Board of Directors, the Chief Executive Officer
of the Company and the other most highly compensated executive officers of the
Company (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------- ---------------
SALARY BONUS OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) SARS COMPENSATION ($)
- --------------------------------------------------- --------- --------- --------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
Stuart Subotnick................................... 1996 $ -- $ -- $ -- $ --
Chairman of the Board
Michael Kakoyiannis................................ 1996 230,000 37,500 -- 8,000
Chief Executive Officer and President
Paul R. Thomson.................................... 1996 165,000 25,000 -- 8,400
Vice President and Chief Financial Officer
Steven G. Blatter.................................. 1996 160,000 27,500 -- 2,400
Vice President--Programming
</TABLE>
COMPENSATION OF DIRECTORS
Directors who are officers, employees or affiliates of the Company receive
no compensation for their services as directors. Each director of the Company
who is not also an officer, employee or affiliate of the Company (an "outside
director") will be entitled to receive directors' fees of $ for each
Board of Directors meeting attended and $ for each committee meeting
attended ($ if such director is chairing the committee). Outside directors
will be eligible to participate in the 1998 Incentive Stock Plan (as defined
herein) pursuant to which options to purchase shares of Class A Common Stock
will be granted to each outside director immediately upon such director's
initial election and qualification for the Board of Directors. Options to
purchase shares of Class A Common Stock will be granted annually on the day of
each annual stockholders' meeting. Each outside director will be eligible to
receive options to purchase a maximum of shares of Class A Common Stock
pursuant to the 1998 Incentive Stock Plan. Each option will have an exercise
price equal to the fair market value of a share of Class A Common Stock on the
date of grant. All such options granted to outside directors will be immediately
exercisable.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Michael
Kakoyiannis, Paul R. Thomson, Steven G. Blatter and Alan D. Kirschner.
EMPLOYMENT AGREEMENT WITH MICHAEL KAKOYIANNIS
In connection with the consummation of the Offering, the Company will amend
the employment agreement of Mr. Kakoyiannis. As amended, Mr. Kakoyiannis'
employment agreement will terminate on October 17, 2001 and will provide Mr.
Kakoyiannis with a base salary of $300,000 a year. In addition to his base
salary, Mr. Kakoyiannis will also be entitled to an annual bonus as determined
by the Compensation Committee if certain performance targets have been met. Mr.
Kakoyiannis will be entitled to participate in all benefits generally made
available to senior executives of the Company. The Company will also cause a
term life insurance to be issued to Mr. Kakoyiannis for $2,000,000. Under his
employment agreement, Mr. Kakoyiannis will be entitled to receive shares of
Class A Common Stock so that immediately after this grant of Class A Common
Stock, Mr. Kakoyiannis will own 12% of the Common Stock immediately prior to the
consummation of the Offering, in exchange for his existing shares of Old Common
Stock. As a result of this grant of Class A Common Stock, the Company will
record a non-cash, non-recurring compensation
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expense in 1997 equal to the fair value of such stock. The Company has not made
a final determination of the fair value of this stock, however, if the fair
value were based on the initial public offering price of $ per share,
compensation expense would not exceed $ . In addition, Mr. Kakoyiannis will
also be entitled to receive shares of Class A Common Stock for every 20%
increase in the price of the Common Stock following the Offering (up to a
maximum of shares) provided that such price remains in effect for six
consecutive months. If the Company terminates Mr. Kakoyiannis' employment
without cause, it will be obligated to pay him severance payments in an amount
equal to eighteen times his base monthly salary. In addition, Mr. Kakoyiannis'
employment-related benefits will continue for eighteen months after his
termination of employment. If Mr. Kakoyiannis' employment is terminated for
cause or disability, the Company will not be obligated to make any severance
payments or continue any benefits. Mr. Kakoyiannis will be entitled to terminate
his employment and to receive severance payments upon the occurrence of a
"change of control" of the Company (as defined in Mr. Kakoyiannis' employment
agreement). Following the termination of his employment with the Company for any
reason, Mr. Kakoyiannis will not, during eighteen months thereafter, own,
acquire or obtain any license for an AM or FM radio station or render any
services or advice to, or be engaged in any AM or FM radio station within 75
miles of the transmitter of any radio station owned or operated by the Company.
In addition, if Mr. Kakoyiannis' employment is terminated, the Company will have
the right to purchase all of Mr. Kakoyiannis' shares in the Company and Mr.
Kakoyiannis will have the right to require the Company to purchase all of his
shares of the Company.
EMPLOYMENT AGREEMENT WITH PAUL R. THOMSON
In connection with the consummation of the Offering, the Company will amend
the employment agreement of Mr. Thomson. As amended, Mr. Thomson's employment
agreement will terminate on December 31, 1998. Mr. Thomson's employment
agreement will provide for an annual base salary of $175,000. Mr. Thomson's
salary will be increased to $187,500 in January 1998. Mr. Thomson will be
entitled to participate in all benefits generally made available to senior
executives of the Company and to receive annual bonus compensation as determined
by the Compensation Committee if certain performance targets have been met. Such
bonus compensation shall not exceed $30,000 for 1997 and $35,000 for 1998. If
the Company terminates Mr. Thomson's employment without cause or upon the
occurrence of a "change of control" (as defined in Mr. Thomson's employment
agreement), the Company will be obligated to make severance payments in an
amount equal to (i) twelve times Mr. Thomson's monthly base salary if such
termination or change of control occurs before January 1, 1998 or (ii) the
lesser of three monthly base salary or the base salary for the remaining months
of Mr. Thomson's employment under his employment agreement if such termination
or change of control occurs after January 1, 1998. Following the termination of
his employment with the Company for any reason, Mr. Thomson shall not serve in
any accounting or financial capacity for, or otherwise be involved in the
accounting and financial functions of any radio station with a rock-based format
within 50 miles of the transmitter of any of the Company's radio stations for a
period of 4 months following the termination of Mr. Thomson's employment
agreement.
EMPLOYMENT AGREEMENT WITH STEVEN G. BLATTER
In connection with the consummation of the Offering, the Company will amend
the employment agreement of Mr. Blatter. As amended, Mr. Blatter's employment
agreement will terminate on December 31, 1998. Mr. Blatter's employment
agreement will provide for an annual base salary of $165,000. Mr. Blatter's
salary will be increased to $181,500 in January 1998. Mr. Blatter will be
entitled to participate in all benefits generally made available to senior
executives of the Company and to receive semi-annual bonus compensation as
determined by the Compensation Committee if certain performance targets have
been met. Such semi-annual bonus compensation shall not exceed $13,750 for 1997
and $15,000 for 1998. If the Company terminates Mr. Blatter's employment
agreement without cause, the Company will be obligated to make severance
payments in an amount equal to (i) the remainder of Mr. Blatter's base salary
through December 31, 1998 if such termination occurs before January 1, 1998,
(ii) six times Mr. Blatter's base monthly salary if such termination occurs
after January 1, 1998 but before July 1, 1998, or (iii) the
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<PAGE>
aggregate amount of Mr. Blatter's monthly salary for the remaining term of his
employment if the termination occurs after July 1, 1998. If Mr. Blatter's
employment agreement is terminated following a "change of control" (as defined
in Mr. Blatter's employment agreement), Mr. Blatter will be entitled to one and
one-half times his base monthly salary. Following the termination of his
employment with the Company for any reason, Mr. Blatter shall not serve as
Program Director, or otherwise be involved in the programming of any radio
station with a rock-based format within 50 miles of the transmitter of any of
the Company's radio stations for 180 days following the termination of Mr.
Blatter's employment agreement.
EMPLOYMENT AGREEMENT WITH ALAN D. KIRSCHNER
In connection with the consummation of the Offering, the Company will amend
the employment agreement of Mr. Kirschner. As amended, Mr. Kirschner's
employment agreement will terminate on December 31, 1998. Mr. Kirschner's
employment agreement will provide for and annual base salary of $110,000. Mr.
Kirschner will be entitled to participate in all benefits generally made
available to senior executives of the Company and to receive annual bonus
compensation as determined by the Compensation Committee if certain performance
targets have been met. Such bonus compensation shall not exceed 10% of Mr.
Kirschner's base annual salary. If Mr. Kirschner's employment agreement is
terminated without cause or upon Mr. Kirschner's disability, the Company will be
obligated to make severance payments in an amount equal to six times Mr.
Kirschner's base monthly salary. If Mr. Kirschner's employment agreement is
terminated upon a "change of control" (as defined in Mr. Kirschner's employment
agreement), the Company shall pay Mr. Kirschner twelve times his monthly salary.
Following the termination of his employment with the Company for any reason, Mr.
Kirschner shall not serve in any engineering or technical capacity for, or
otherwise be involved in the engineering and technical functions of any radio
station within 50 miles of the transmitter of any of the Company's radio
stations for 30 days following the termination of Mr. Kirschner's employment
agreement.
1998 STOCK INCENTIVE PLAN
In connection with the consummation of the Offering the Company intends to
adopt the Odyssey Communications, Inc. 1998 Incentive Stock Plan (the "1998
Incentive Stock Plan") within 60 days of the consummation of the Offering. The
following is a summary of the material features of the 1998 Incentive Stock
Plan.
The purpose of the 1998 Incentive Stock Plan is to give Odyssey a
significant advantage in retaining key employees, officers and directors, and to
provide an incentive to selected key employees, officers and directors of
Odyssey who have substantial responsibility in the direction of Odyssey, and
others whom the Committee (as defined herein) determines provide substantial and
important services to Odyssey, to acquire a proprietary interest in Odyssey, to
continue as employees, officers and directors or in their other capacities, and
to increase their efforts on behalf of Odyssey.
TYPES OF AWARDS
The types of awards that may be granted pursuant to the 1998 Incentive Stock
Plan include (i) incentive stock options ("ISOs") and (ii) non-qualified stock
options ("NQSOs" and together with ISOs, "Stock Options" and "Awards"). ISOs are
intended to be treated as incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). NQSOs are, in
general, options which do not have the special income tax advantages associated
with ISOs.
Stock Option grants will consist of the maximum number of ISOs that may be
granted to a particular grantee under applicable law with the balance of the
Stock Options being NQSOs.
ADMINISTRATION OF THE PLAN
The 1998 Incentive Stock Plan will be administered by the Compensation
Committee of the Board of Directors (the "Committee"). The Committee will
consist of two or more members of the Board of Directors each of whom shall be
an "outside director" as defined under Section 162(m) of the Code, and
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<PAGE>
the regulations and interpretations thereunder. Members of the Committee will be
eligible to receive certain Awards (other than ISOs) under the 1998 Incentive
Stock Plan.
Subject to the terms and conditions of the 1998 Incentive Stock Plan and the
formula awards for Independent Directors (as defined herein), the Committee is
authorized to grant Awards, to determine which employees, officers, directors or
other individuals may be granted Awards, to determine the type and number of
Awards to be granted, to determine the term of such Awards, to determine the
exercise price of any Award, to determine the terms of any agreement pursuant to
which Awards are granted, to interpret and construe the 1998 Incentive Stock
Plan, and to determine any other matters delegated to it under the 1998
Incentive Stock Plan or necessary for the proper administration of the 1998
Incentive Stock Plan.
SHARES OF CLASS A COMMON STOCK SUBJECT TO THE 1998 INCENTIVE STOCK PLAN
Subject to certain exceptions set forth in the 1998 Incentive Stock Plan,
the aggregate number of shares of the Class A Common Stock that may be the
subject of Awards under the 1998 Incentive Stock Plan is . The maximum
number of shares of Class A Common Stock available with respect to Awards
granted to any one grantee shall not exceed, in the aggregate, shares.
Shares of Class A Common Stock granted under the 1998 Incentive Stock Plan may
either be authorized but unissued shares of Class A Common Stock not reserved
for any other purpose or shares of Class A Common Stock held in or acquired for
the treasury of the Company.
Shares of Class A Common Stock subject to an Award which terminates
unexercised may again be subject to an Award under the 1998 Incentive Stock
Plan. In addition, shares of Class A Common Stock surrendered to the Company in
payment of the exercise price or applicable taxes upon exercise or settlement of
an Award may also be used thereafter for additional Awards.
ELIGIBILITY
Any key employee, officer and director, including a director who is not an
employee and a director who serves on the Committee, of the Company who has
substantial responsibility in the direction of the Company and anyone else whom
the Committee determines provides substantial and important services to the
Company is eligible to receive Awards.
Independent Directors who serve on the Board of Directors on the date the
1998 Incentive Stock Plan is adopted shall be entitled to receive Awards under
the 1998 Incentive Stock Plan with respect to shares of Class A Common Stock,
each having an exercise price equal to the fair market value of a share of Class
A Common Stock on the date of grant. Any other Independent Director who first
serves on the Board subsequent to the date the 1998 Incentive Stock Plan was
adopted shall be entitled to receive Awards under the 1998 Incentive Stock Plan
with respect to shares of Common Stock, each having an exercise price
equal to the fair market value of a share of Class A Common Stock on the date of
grant. For purposes hereof, "Independent Directors" shall mean any member of the
Board of Directors who during his entire term as a director was not employed by
the Company and its subsidiaries, within the meaning of Section 424(f) of the
Code, and who also satisfies the criteria for "outside director" under Section
162(m) of the Code.
TERMS AND CONDITIONS OF STOCK OPTIONS
The exercise price of all ISOs granted under the 1998 Incentive Stock Plan
is the fair market value of the Class A Common Stock on the date of grant. The
exercise price of all NQSOs granted under the 1997 Incentive Stock Option Plan
will be determined by the Committee, although the initial awards will be made at
fair market value of the Class A Common Stock on the date of grant. The term of
each Stock Option granted under the 1998 Incentive Stock Plan will be determined
by the Committee but will in no event be greater than ten years from the date of
grant.
With respect to ISOs granted to a grantee who owns stock possessing more
than 10% of the voting rights of the Company's outstanding capital stock on the
date of grant, the exercise price of the ISO shall
51
<PAGE>
be equal to 110% of the fair market value of the Class A Common Stock subject to
the ISO on the date of grant and the ISO may not be exercisable more than five
years after the date of grant.
Stock Options shall vest and become exercisable over a period of years as
determined by the Committee.
Upon the exercise of a Stock Option, the grantee must pay the exercise price
in cash. Notwithstanding the foregoing, at the discretion of the Committee, the
exercise price may be paid with shares of Class A Common Stock already owned by,
and in possession of, the grantee or in a combination of cash or shares of Class
A Common Stock.
The aggregate fair market value of the Class A Common Stock (determined on
the date of grant) for which ISOs granted under the 1998 Incentive Stock Plan
and any other plan of the Company or a subsidiary may be exercisable for the
first time by any grantee during any calendar year cannot exceed $100,000 or
such other amount as may be prescribed under the Code or applicable regulations
and rulings from time to time.
ACCELERATION OF VESTING AND EXERCISABILITY
If a grantee's employment with Odyssey is terminated because of the
grantee's death, the grantee's retirement on or after attaining age sixty-five
or a Change in Control prior to the date of the Stock Option is by its terms
exercisable, the Stock Option shall be immediately exercisable (and the
restrictions thereof, if any, shall lapse) as of the date of the termination of
the grantee's employment, subject to the other terms of the 1998 Incentive Stock
Plan.
Upon a Change in Control of Odyssey, (i) each holder of a Stock Option shall
have the right to exercise the Stock Option in full without regard to any
waiting period, installment period or other limitation or restriction thereon
and (ii) each holder of a Stock Option shall have the right, exercisable by
written notice to Odyssey within sixty days after the Change in Control, to
receive, in exchange for the surrender of the Stock Option or any portion
thereof to the extent the Stock Option is then exercisable in accordance with
clause (i), an amount of cash equal to the difference between the fair market
value of the Class A Common Stock on the date of exercise and the exercise price
of the Stock Option.
In general, under the 1998 Incentive Stock Plan, a "Change in Control" of
Odyssey shall be deemed to have occurred as of the first day any one or more of
the following four conditions have been satisfied: (i) any event whereby a
Person (other than (a) Odyssey or an affiliate, as defined in the Securities
Exchange Act of 1934, as amended (the "Exchange Act") of Odyssey, or (b) any
employee benefit plan or trust sponsored or maintained by Odyssey or an
affiliate, as defined in the Exchange Act) (x) acquires 50% or more of Odyssey's
outstanding voting securities or (y) acquires securities of Odyssey bearing a
majority of voting power with respect to election of directors of Odyssey; (ii)
a change in the composition of the Board of Directors such that at any time a
majority of the Board of Directors shall not have been members of the Board of
Directors for twenty-four months; provided, however, that directors who were
appointed or nominated for election by at least two-thirds of the directors who
were directors at the beginning of such twenty-four month period (or deemed to
be such directors under this clause (ii)) shall be deemed to be directors at the
beginning of such twenty-four month period for the purposes of this clause (ii);
(iii) the stockholders of Odyssey approve any plan or proposal for the
liquidation or dissolution of Odyssey; or (iv) any consolidation or merger of
Odyssey, other than a merger or consolidation of Odyssey in which the voting
securities of Odyssey outstanding immediately prior thereto continue to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 50% of the combined voting power of
the voting securities of Odyssey or such surviving entity outstanding
immediately after such merger or consolidation. "Person" shall have the same
meaning as ascribed to such term in Section 3(a)(9) of the Exchange Act and used
in Section 13(d) thereof.
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ADJUSTMENT PROVISIONS
The total number and character of shares of Class A Common Stock subject to
Awards and the number and character of shares of Class A Common Stock subject to
outstanding Awards and/or the exercise price of such shares will be
appropriately adjusted by the Committee if the shares of Class A Common Stock
are changed into or exchanged for a different number or kind of shares of stock
or other securities of Odyssey or of another corporation (whether by reason of
merger, consolidation, recapitalization, reclassification, split, reverse split,
combination of shares, or otherwise). The Committee may also make appropriate
adjustments in the event of a merger, consolidation or other transaction or
event having a similar effect.
AMENDMENT AND TERMINATION OF THE 1998 INCENTIVE STOCK PLAN
Unless terminated earlier by action of the Board of Directors of Odyssey,
the 1998 Incentive Stock Plan will terminate on the tenth anniversary of its
adoption, and no additional grants under the 1998 Incentive Stock Plan will be
made after that date.
The Board of Directors may amend or terminate the 1998 Incentive Stock Plan
at any time, but may not, without the written consent of the grantee, make any
such alteration which would impair the rights of a holder of an outstanding
Award. Furthermore, the 1998 Incentive Stock Plan may not be amended without the
approval of the holders of a majority of the outstanding stock of Odyssey (i) to
decrease the minimum exercise price for ISOs; (ii) to extend the term of the
1998 Incentive Stock Plan beyond ten years, (iii) to extend the maximum terms of
the Awards granted beyond ten years, (iv) to withdraw the administration of the
1998 Incentive Stock Plan from the Committee, (v) to change the class of
eligible employees, officers, directors and other grantees, (vi) to increase the
aggregate number of shares of Class A Common Stock authorized to be issued, and
(vii) to otherwise require stockholder approval to comply with Rule 16b-3 under
the Exchange Act or any other applicable law, regulation, or listing requirement
or to qualify for an exemption or characterization that is deemed desirable by
the Board of Directors. No amendment or terminations of the 1998 Incentive Stock
Plan shall, without written consent of the grantee, alter the terms of Awards
already granted and such Stock Options shall remain in full force and effect as
if the 1998 Incentive Stock Plan had not been terminated.
MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS
The Committee may, within the limitations of the Incentive Stock Plan,
modify, extend or renew outstanding Awards granted under the 1998 Incentive
Stock Plan, or accept the surrender of outstanding Awards and authorize the
granting of new Awards in substitution therefor. No modification may, without
the consent of the grantee, alter or impair any rights or obligations under any
Award theretofore granted to the grantee nor shall any modification adversely
affect the status of an ISO under Section 422 of the Code.
TRANSFERABILITY OF AWARDS AND OTHER PROVISIONS
The rights of a grantee with respect to the Awards granted pursuant to the
1998 Incentive Stock Plan are not transferable other than by will or the laws of
descent and distribution and are exercisable, during the lifetime of the
grantee, only by the grantee or by the guardian or legal representative of the
grantee acting in a fiduciary capacity on behalf of the grantee under state law
or court supervision. An Award is not subject, in whole or in part, to
attachment, execution or levy of any kind.
RIGHTS UPON TERMINATION OF EMPLOYMENT
If the grantee dies while an employee or when no longer an employee but
while he or she still has the right to exercise an Award, the grantee's estate
shall have the right for a period of one year following the date of death to
exercise the Award to the extent such Award is exercisable and to the extent
such Award has not yet expired.
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Upon a grantee's retirement from Odyssey or a subsidiary on or after
attaining age sixty-five the grantee shall have the right for a period of three
months following the date of retirement to exercise an Award to the extent such
Award is exercisable and to the extent such Award has not yet expired.
Upon a grantee's termination of employment from Odyssey on account of
disability, the grantee or the legal representative of the grantee, shall have
the right for a period of one year following the date of such termination to
exercise an Award to the extent such award is exercisable and to the extent such
Award has not yet expired.
In the event the grantee's employment with Odyssey or a subsidiary is
terminated for any reason other than disability, death or retirement on or after
attaining age sixty-five, the grantee may exercise an Award within three months
after his or her termination of employment.
RIGHTS AS STOCKHOLDER
No grantee of any Stock Option has any rights as a stockholder with respect
to any shares of Common Stock subject to his or her Stock Option prior to the
date on which he or she is recorded as the holder of such shares of Class A
Common Stock on the records of Odyssey.
RIGHT TO CONTINUED EMPLOYMENT
The 1998 Incentive Stock Plan is not a contract of employment, and the terms
of employment of any grantee shall not be affected in any way by the 1998
Incentive Stock Plan or related instruments except as specifically provided
therein. The establishment of the 1998 Incentive Stock Plan shall not be
construed as conferring any legal rights upon any grantee for a continuation of
employment, nor shall it interfere with the right of or any subsidiary to
discharge any grantee and to treat him or her without regard to the effect which
such treatment might have upon him or her as a grantee.
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of September 24, 1997, certain
information regarding the beneficial ownership of the Company's voting stock by
(i) each of the Company's directors, (ii) each person believed by the Company to
own beneficially more than 5% of its outstanding voting stock, (iii) each of the
Company's Named Executive Officers and (iv) all executive officers and directors
of the Company as a group. The information set forth below assumes consummation
of the Equity Contribution, the Reclassification and the Offering. Except as
otherwise indicated, each stockholder listed below has sole voting and
investment power with respect to shares beneficially owned by such person.
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK(A)
---------------------------- --------------------------
<S> <C> <C> <C> <C>
NUMBER PERCENT NUMBER PERCENT
OF OF OF OF
NAME SHARES CLASS SHARES CLASS
- ---------------------------------------------------------------- ------------- ------------- ------------- -----------
Michael Kakoyiannis............................................. -- --% -- --%
c/o Odyssey Communications, Inc.
11 Skyline Drive
Hawthorne, New York 10532
Stuart and Anita Subotnick...................................... -- --% -- 100%
c/o Metromedia Company
215 East 67th Street
New York, New York 10017
Steven G. Blatter............................................... -- * -- *
Paul R. Thomson................................................. -- * -- *
All Directors and Executive Officers as a group................. -- --% -- 100%
<CAPTION>
<S> <C>
PERCENT OF
TOTAL
NAME VOTING POWER
- ---------------------------------------------------------------- ---------------
Michael Kakoyiannis............................................. --%
c/o Odyssey Communications, Inc.
11 Skyline Drive
Hawthorne, New York 10532
Stuart and Anita Subotnick...................................... --%
c/o Metromedia Company
215 East 67th Street
New York, New York 10017
Steven G. Blatter............................................... *
Paul R. Thomson................................................. *
All Directors and Executive Officers as a group................. --%
</TABLE>
- ------------------------
* less than 1.0%
(a) The shares of Class B Common Stock are convertible into shares of Class A
Common Stock at the rate of one share of Class A Common Stock for each share
of Class B Common Stock and the holders of shares of Class B Common Stock
are entitled to 10 votes per share.
55
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
HISTORICAL TRANSACTIONS
On May 29, 1996, the Company was merged with Q Broadcasting, Inc., a
Delaware corporation owned by Mr. and Mrs. Subotnick, with the Company as the
surviving corporation. As a result of the merger, Mr. and Mrs. Subotnick each
received 216 shares of Old Common Stock.
On May 30, 1996, the Company entered into the Existing Credit Facility with
The Chase Manhattan Bank and several other lenders (collectively, "Chase")
pursuant to which Chase agreed to make revolving credit loans to the Company
from time to time until May 31, 2001 or earlier, as provided under the Existing
Credit Facility. The payment and performance by the Company under the Existing
Credit Facility is guaranteed by Stuart Subotnick under a Guarantee Agreement,
dated as of May 30, 1996. Simultaneously with the consummation of the Offering
and the application or the use of proceeds therefrom, Mr. Subotnick's guarantee
will terminate.
In addition, pursuant to a Pledge Agreement, dated as of May 30, 1996 (the
"Old Pledge Agreement"), the Principal Stockholders each granted Chase a first
priority security interest in their shares of Old Common Stock and Mr.
Kakoyiannis granted Chase a second priority security interest in his shares of
Old Common Stock. In connection with the consummation of the Offering, the Old
Pledge Agreement will terminate.
The Principal Stockholders have made various loans to the Company in order
to finance the Company's radio station acquisitions and working capital
requirements. The loans from the Principal Stockholders bear interest at
variable rates not exceeding 8%, payable monthly, and aggregated approximately
$8.7 million of principal amount on May 30, 1996. In May 1996, in connection
with the merger of Q Broadcasting, Inc. with and into the Company, the Principal
Stockholders contributed $5.1 million principal amount of stockholders' loans to
Q Broadcasting, Inc. to the capital of Q Broadcasting, Inc. The Principal
Stockholders' outstanding loans to Q Broadcasting, Inc. and to the Company of
$11.7 million of aggregate principal amount were subordinated to the Existing
Credit Facility by a subordinated promissory note dated May 24, 1996. On June
30, 1997, the loans from the Principal Stockholders aggregated approximately
$13.0 million of principal amount. Immediately prior to the consummation of the
Offering, the Principal Stockholders will contribute the entire amount of their
outstanding stockholders' loans to the capital of the Company and the Company
will issue the Principal Stockholders shares of Class B Common Stock.
Mr. Subotnick and Mr. Kakoyiannis entered into a Loan Agreement, dated as of
August 4, 1995, as amended, pursuant to which Mr. Subotnick made a loan to Mr.
Kakoyiannis as evidenced by a promissory note, dated August 4, 1995, in the
original principal amount of $500,000. This loan is secured by a first priority
security interest in favor of Mr. Subotnick in Mr. Kakoyiannis' shares of Old
Common Stock.
TRANSACTIONS ENTERED INTO IN CONNECTION WITH THE OFFERING
RECLASSIFICATION
Immediately prior to the consummation of the Offering, the Company intends
to effect the Reclassification. Pursuant to the Reclassification, each share of
Old Common Stock will be reclassified into shares of Class A Common Stock.
Also in connection with the Offering, Mr. and Mrs. Subotnick will exchange each
share of Class A Common Stock held by them for one share of Class B Common
Stock. See "Description of Capital Stock" for a description of the relative
rights of holders of Class A Common Stock and Class B Common Stock.
56
<PAGE>
CONVERSION FROM S-CORPORATION INTO A C-CORPORATION
In connection with the consummation of the Offering, the Company will
convert from an S-Corporation to a C-Corporation.
CHANGE IN THE COMPANY'S FISCAL YEAR
In connection with the consummation of the Offering, the Company will change
its fiscal year-end from September 30 to December 31.
TERMINATION OF SHAREHOLDERS' AGREEMENT
In connection with the Offering, the Company, Mr. Kakoyiannis and the
Principal Stockholders will terminate an existing Shareholders' Agreement, dated
as of October 17, 1994, by and among the Company, the Principal Stockholders and
Mr. Kakoyiannis.
EQUITY CONTRIBUTION
Immediately prior to the consummation of the Offering, the Principal
Stockholders will contribute the entire amount of certain outstanding
stockholders' loans made by them to the Company ($13.0 million at June 30, 1997)
to the capital of the Company and the Company will issue to the Principal
Stockholders shares of Class B Common Stock. See "--Historical
Transactions."
DESCRIPTION OF CREDIT FACILITY
The Company has received a commitment letter from the Bank to enter into the
Credit Facility. The Credit Facility will replace the Company's existing Credit
Agreement, dated as of May 30, 1996, as amended, among the Company, several
financial institutions and The Chase Manhattan Bank, as agent (the "Existing
Credit Facility").
Under the terms of the Credit Facility, the Company will have a $ million
reducing revolving loan facility maturing on , 2002. Outstanding
amounts under the Credit Facility will bear interest at a rate based, at the
option of the Company, on the participating bank's prime rate, or the London
Interbank Borrowing Rate.
The Credit Facility will contain certain financial and operational covenants
and other restrictions with which the Company must comply, including, among
others, limitations on capital expenditures, the incurrence of additional
indebtedness, restrictions on the use of borrowings, limitations on paying cash
dividends and redeeming or repurchasing capital stock of the Company, and
requirements to maintain certain financial ratios.
The Credit Facility will contain customary events of default, including
material misrepresentations, payment defaults and default in the performance of
other covenants, certain bankruptcy defaults, events having a material and
adverse effect on the Company and revocation of the any of the Company's
broadcast licenses.
The Credit Facility will be secured by a first priority security interest in
favor of the Bank in all tangible and intangible assets of the Company. See
"Risk Factors--Substantial Leverage; Pledge of Assets; Covenants."
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company will upon consummation of the
Equity Contribution and the Reclassification consist of shares of Common
Stock, par value $0.01 per share (the "Common Stock"), of which shares
have been designated as Class A Common Stock and shares have been
designated as Class B Common Stock. Effective upon completion of the Offering,
shares of Class A Common Stock will be issued and outstanding and
shares of Class B Common Stock will be issued and outstanding. In addition,
shares of Class A Common Stock will be reserved for issuance upon
conversion of the Class B Common Stock. As of September 24, 1997, there were
three holders of record of Old Common Stock.
The following summary of certain provisions of the Common Stock does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of the Company's Amended and Restated Certificate of Incorporation
(the "Amended and Restated Certificate of Incorporation") and Bylaws, copies of
which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part (the "Registration Statement").
GENERAL
The shares of Class A Common Stock and Class B Common Stock are identical in
all respects, except for voting rights and certain conversion rights and
transfer restrictions with respect to the shares of the Class B Common Stock.
The number of authorized shares of any class or classes of capital stock of the
Company may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a majority
of the voting power of the Common Stock of the Company entitled to vote
generally in the election of directors irrespective of the provisions of Section
242(b)(2) of the DGCL or any corresponding provisions hereinafter enacted.
VOTING RIGHTS
The holders of Class A Common Stock are entitled to one vote per share.
Holders of Class B Common Stock are entitled to ten votes per share. Holders of
all classes of Common Stock entitled to vote will vote together as a single
class on all matters presented to the stockholders for their vote or approval
except for the election and the removal of directors as described below and as
otherwise required by applicable law. In addition, with respect to the election
of directors, the Company's Amended and Restated Certificate of Incorporation
provides that holders of Class B Common Stock will vote as a separate class to
elect up to 75% of the members of the Company's Board of Directors. Stockholders
have no cumulative voting rights.
Directors may be removed, with or without cause, only by the holders of the
class of Common Stock that, as of the date such removal is effected, would be
entitled to elect such directors at the next annual meeting of stockholders.
Vacancies in a directorship may be filled only by (a) the remaining directors
elected by holders of each class of Common Stock that (x) elected such director
and (y) as of the date such vacancy is filled, would be entitled to elect such
director at the next annual meeting of the stockholders or (b) if there are no
such remaining directors, then by the vote of the holders of the class or
classes of Common Stock, that, as of the date such vacancy is filled, would be
entitled to elect such director at the next annual meeting of stockholders,
voting as a separate class at a meeting, special or otherwise, of the holders of
Common Stock of such class.
DIVIDENDS
Holders of Class A Common Stock and the Class B Common Stock are entitled to
receive dividends at the same rate if, as and when such dividends are declared
by the Board of Directors out of assets legally available therefor. The Company
may not make any dividend or distribution to any holder of any class of Common
Stock unless simultaneously with such dividend or distribution the Company makes
the same dividend or distribution with respect to each outstanding share of
Common Stock regardless of class. In the
58
<PAGE>
case of a dividend or other distribution payable in shares of a class of Common
Stock, including distributions pursuant to stock splits or divisions of Common
Stock, only shares of Class A Common Stock may be distributed with respect to
Class A Common Stock and only shares of Class B Common Stock may be distributed
with respect to Class B Common Stock. Whenever a dividend or distribution,
including distributions pursuant to stock splits or divisions of the Common
Stock, is payable in shares of a class of Common Stock, the number of shares of
each class of Common Stock payable per share of such class of Common Stock shall
be equal in number. In the case of dividends or other distributions consisting
of other voting securities of the Company or of voting securities of any
corporation which is a wholly-owned subsidiary of the Company, the Company shall
declare and pay such dividends in three separate classes of such voting
securities, identical in all respects except that (i) the voting rights of each
such security issued to the holders of Class A Common Stock shall be one-tenth
of the voting rights of each such security issued to holders of Class B Common
Stock, (ii) such security issued to holders of Class B Common Stock shall
convert into the security issued to the holders of Class A Common Stock upon the
same terms and conditions applicable to the conversion of Class B Common Stock
into Class A Common Stock and shall have the same restrictions on transfer and
ownership applicable to the transfer and ownership of the Class B Common Stock,
and (iii) with respect only to dividends or other distributions of voting
securities of any corporation which is a wholly owned subsidiary of the Company,
the respective voting rights of each such security issued to holders of the
Class A Common Stock and Class B Common Stock with respect to the election of
directors shall otherwise be as comparable as is practicable to those of the
Class A Common Stock and Class B Common Stock. In the case of dividends or other
distributions consisting of securities convertible into, or exchangeable for,
voting securities of the Company or of voting securities of any corporation
which is a wholly owned subsidiary of the Company, the Company shall provide
that such convertible or exchangeable securities and the underlying securities
be identical in all respects (including, without limitation, the conversion or
exchange rate) except that the underlying securities may have the same
differences as they would have if the Company issued voting securities of the
Company or of a wholly owned subsidiary rather than issuing securities
convertible into, or exchangeable for, such securities. The Company does not
anticipate paying cash dividends in the foreseeable future. See "Dividend
Policy."
RESTRICTIONS ON ADDITIONAL ISSUANCES AND TRANSFER
The Company may not issue or sell any shares of Class B Common Stock or any
securities (including, without limitation, any rights, options, warrants or
other securities) convertible into, or exchangeable or exercisable for, shares
of Class B Common Stock to any person or entity other than to the Principal
Stockholders, their affiliates or relatives (each, a "Permitted Holder").
Additionally, shares of Class B Common Stock may not be transferred, whether by
sale, assignment, gift, bequest, appointment or otherwise, to a person other
than to a Permitted Holder. Notwithstanding the foregoing (i) any Permitted
Holder may pledge his, her or its shares of Class B Common Stock to a financial
institution pursuant to a bona fide pledge of such shares as collateral security
for indebtedness due to the pledgee provided that such shares remain subject to
the transfer restrictions and that, in the event of foreclosure or other similar
action by the pledgee, such pledged shares of Class B Common Stock may only be
transferred to a Permitted Holder or converted into shares of Class A Common
Stock, as the pledgee may elect and (ii) the foregoing transfer restrictions
shall not apply in the case of a merger, consolidation or business combination
of the Company with or into another corporation in which all of the outstanding
shares of Common Stock of the Company regardless of class are purchased by the
acquiror.
CONVERSION
Shares of Class A Common Stock have no conversion rights. Shares of Class B
Common Stock are convertible into shares of Class A Common Stock, in whole or in
part, at any time and from time to time at the option of the holder, on the
basis of one share of Class A Common Stock for each share of Class B Common
Stock converted. Additionally, at such time as any share of Class B Common Stock
ceases to be held by any of the Principal Stockholders, their affiliates or
relatives, such share of Class B Common Stock
59
<PAGE>
shall convert into a share of Class A Common Stock. The Company covenants that
(i) it will at all times reserve and keep available out of its authorized but
unissued shares of Class A Common Stock, such number of shares of Class A Common
Stock issuable upon the conversion of all outstanding shares of Class B Common
Stock, (ii) it will cause any shares of Class A Common Stock issuable upon
conversion of a share of Class B Common Stock that require registration with or
approval of any governmental authority under federal or state law before such
shares may be issued upon conversion to be so registered or approved and (iii)
it will use its best efforts to list the shares of Class A Common Stock required
to be delivered upon conversion prior to such delivery upon such national
securities exchange upon which the outstanding Class A Common Stock is listed at
the time of such delivery.
RECLASSIFICATION AND MERGER
In the event of a reclassification or other similar transaction as a result
of which the shares of Class A Common Stock are converted into another security,
then a holder of Class B Common Stock will be entitled to receive upon
conversion the amount of such other security that the holder would have received
if the conversion occurred immediately prior to the record date of such
reclassification or other similar transaction. No adjustments in respect of
dividends will be made upon the conversion of any share of Class B Common Stock;
except if a share is converted subsequent to the record date for the payment of
a dividend or other distribution on shares of Class B Common Stock but prior to
such payment, then the registered holder of such share at the close of business
on such record date will be entitled to receive the dividend or other
distribution payable on such date regardless of the conversion thereof or the
Company's default in payment of the dividend due on such date.
In the event the Company enters into any consolidation, merger, combination
or other transaction in which shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or any other property, then,
and in such event, the shares of each class of Common Stock will be exchanged
for or changed into either (i) the same amount of stock, securities, cash and/or
any other property, as the case may be, into which or for which each share of
any other class of Common Stock is exchanged for or changed into shares of
capital stock, such shares so exchanged for or changed into may differ to the
extent and only to the extent that the Class A Common Stock and the Class B
Common Stock differ as provided in the Company's Amended and Restated
Certificate of Incorporation or (ii) if holders of each class of Common Stock
are to receive different distributions of stock, securities, cash and/or any
other property, an amount of stock, securities, cash and/or property per share
having a value, as determined by an independent investment banking firm of
national reputation selected by the Board of Directors, equal to the value per
share into which or for which each share of any other class of Common Stock is
exchanged or changed.
LIQUIDATION
In the event of a liquidation of the Company, after payment of the debts and
other liabilities of the Company the remaining assets of the Company will be
distributable ratably among the holders of the Class A Common Stock and Class B
Common Stock treated as a single class.
OTHER PROVISIONS
Except as described below, the holders of the Class A Common Stock and Class
B Common Stock are not entitled to preemptive rights. None of the Class A Common
Stock or Class B Common Stock may be subdivided or combined in any manner unless
the other classes are subdivided or combined in the same proportion. The Company
may not make any offering of options, rights or warrants to subscribe for shares
of Class B Common Stock. If the Company makes an offering of options, rights or
warrants to subscribe for shares of any other class or classes of capital stock
(other than Class B Common Stock) to all holders of a class of Common Stock,
then the Company is required to simultaneously make an identical offering to all
holders of the other classes of Common Stock other than to any class the holders
of which, voting as a separate class, agree that such offering need not be made
to such class. All such options, rights or warrants offerings shall offer the
respective holders of Class A Common Stock and Class B Common Stock the right
60
<PAGE>
to subscribe at the same rate per share. All outstanding shares of Common Stock
are, and all shares of Common Stock offered hereby when issued will be, upon
payment therefor, validly issued, fully paid and nonassessable. Holders of
shares of Common Stock do not have preemptive rights.
The DGCL does not require stockholder approval for any issuance of
authorized shares of Common Stock. Such authorized and unissued shares may be
used for a variety of corporate purposes, including future public offerings to
raise additional capital or to facilitate corporate acquisitions. One of the
effects of the existence of unissued and unreserved shares of Common Stock may
be to enable the Board of Directors to issue shares to persons friendly to
current management, which issuance could render more difficult or discourage an
attempt to obtain control of the Company by means of a merger, tender offer,
proxy consent or otherwise, and thereby protect the continuity of the Company's
current management and possibly deprive the stockholders of opportunities to
sell their shares of Common Stock at prices higher than prevailing market
prices.
At present there is no established trading market for the Class A Common
Stock.
An application to list the shares of the Class A Common Stock has been made
to the AMEX under the proposed symbol "ODS."
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
As a Delaware corporation, the Company is subject to the DGCL, including
Section 203. Section 203 of the DGCL prohibits certain transactions between a
Delaware corporation and an "interested stockholder," which is defined as a
person who, together with any affiliates or associates of such person,
beneficially owns, directly or indirectly, 15% or more of the outstanding voting
shares of a Delaware corporation. This provision prohibits certain business
combinations (defined broadly to include mergers, consolidations, sales or other
dispositions of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation, and certain transactions that would
increase the interested stockholder's proportionate share ownership in the
corporation) between an interested stockholder and a corporation for a period of
three years after the date the interested stockholder becomes an interested
stockholder, unless (i) prior to the date the interested stockholder becomes an
interested stockholder, the business combination or the transaction by which the
stockholder becomes an interested stockholder is approved by the corporation's
board of directors, (ii) upon consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, such stockholder held at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (other than stock held by directors who are also officers
or by certain employee stock plans) or (iii) the business combination is
approved by a majority of the board of directors, and at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder. Mr. and Mrs. Subotnick are interested stockholders under the DGCL.
However since their acquisition of the Company's securities was approved in
advance by the Company's Board of Directors, they would not be prohibited from
engaging in a business combination with the Company.
In the event that the Company learns of a new attributable stockholder and
if such stockholder holds interests that exceed the FCC limits on media
ownership or if the Company learns that Aliens own, control or vote stock in the
Company in excess of the Communications Act limits, under the Amended and
Restated Certificate of Incorporation, the Board of Directors of the Company has
the corporate power to redeem stock of the Company's stockholders to the extent
necessary to be in compliance with FCC and Communications Act requirements. See
"Business--Federal Regulation of Radio Broadcasting."
The Amended and Restated Certificate of Incorporation and Bylaws include
certain provisions which are intended to enhance the likelihood of continuity
and stability in the composition of the Board of Directors and which may have
the effect of delaying, deterring or preventing a future takeover or change in
control of the Company unless such takeover or change in control is approved by
the Board of Directors. Such provisions may also render the removal of directors
and management more difficult.
61
<PAGE>
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
The Bylaws provide that stockholders seeking to bring business before an
annual meeting of stockholders, or to nominate candidates for election as
directors at an annual or special meeting of stockholders, must provide timely
notice thereof in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 70 days nor more than 90 days prior to the meeting;
provided, however, that in the event that the date of the annual meeting is
advanced by more than 20 days or delayed by more than 70 days from such
anniversary date, notice by the stockholder to be timely must be received no
earlier than the close of business on the ninetieth day prior to such annual
meeting and not later than the close of business on the later of the seventieth
day prior to such annual meeting or the tenth day following the day on which
public announcement of the date of such meeting is first made. The Bylaws also
specify certain requirements for a stockholder's notice to be in proper written
form. These provisions may preclude some stockholders from bringing matters
before the stockholders at an annual or special meeting or from making
nominations for directors at an annual or special meeting.
The Company's Amended and Restated Certificate of Incorporation provides
that to the fullest extent permitted by the DGCL, a director of the Company
shall be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director. Under current Delaware law, liability of
a director may not be limited (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(iii) in respect of certain unlawful dividend payments or stock redemptions or
repurchases and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of the provisions of the Amended and
Restated Certificate of Incorporation and the Bylaws is to eliminate the rights
of the Company and its stockholders (through stockholders' derivative suits on
behalf of the Company) to recover monetary damages against a director for breach
of the fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described in
clauses (i) through (iv) above. This provision does not limit or eliminate the
rights of the Company or any stockholder to seek nonmonetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
In addition, the Amended and Restated Certificate of Incorporation and the
Bylaws provide that the Company shall indemnify its directors, officers,
employees and agents to the extent not prohibited by Delaware law.
In addition, prior to the completion of the Offering, the Company intends to
enter into agreements (the "Indemnification Agreements") with each of the
directors of the Company pursuant to which the Company will agree to indemnify
each such director against claims, liabilities, damages, expenses, losses,
costs, penalties or amounts paid in settlement (collectively, "Losses") incurred
by such director and arising out of his capacity as a director, executive
officer, employee and/or agent of the Company to the maximum extent permitted by
applicable law. In addition, such director or officer shall be entitled to an
advance of expenses to the maximum extent authorized or permitted by law to meet
the obligations indemnified against. The Indemnification Agreements will also
obligate the Company to purchase and maintain insurance for the benefit and on
behalf of its directors insuring against all liabilities that may be incurred by
such director in or arising out of his capacity as a director, officer, employee
and/or agent of the Company.
To the extent that the Board of Directors or the stockholders of the Company
may in the future wish to limit or repeal the ability of the Company to
indemnify directors, such repeal or limitation may not be effective as to
directors who are currently parties to the Indemnification Agreements, because
their rights to full protection will be contractually assured by the
Indemnification Agreements. It is anticipated that similar contracts may be
entered into, from time to time, with future directors and with executive
officers of the Company.
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<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock will be Chase
Mellon Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the shares of Class A
Common Stock. Sales of a substantial amount of Class A Common Stock in the
public market, or the perception that such sales may occur, could adversely
affect the market price of the Class A Common Stock prevailing from time to time
in the public market and could impair the Company's ability to raise additional
capital through the sale of its equity securities in the future.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted securities from the
Company or any "affiliate" of the Company, as that term is defined under the
Securities Act, the holder is entitled to sell within any three-month period a
number of shares of Class A Common Stock that does not exceed the greater of 1%
of the then-outstanding shares of the Class A Common Stock or the average weekly
trading volume of shares of Class A Common Stock on all exchanges and reported
through the automated quotation system of a registered security association
during the four calendar weeks preceding the date on which notice of the sale is
filed with the Securities and Exchange Commission (the "Commission"). Sales
under Rule 144 are also subject to certain restrictions on the manner of sales,
notices, requirements and the availability of current public information about
the Company. If two years have elapsed since the date of acquisition of
restricted shares from the Company or from any "affiliate" of the Company, and
the holder thereof is deemed not to have been an affiliate of the Company at any
time during the 90 days preceding a sale, such person would be entitled to sell
such Class A Common Stock in the public market under Rule 144(k) without regard
to the volume limitations, manner of sale provisions, public information
requirements or notice requirements.
Upon completion of the Offering, the Company will have approximately
shares of Class A Common Stock outstanding ( if the Underwriters'
overallotment option is exercised in full), including shares of Class A
Common Stock sold in the Offering ( if the Underwriters' overallotment
option is exercised in full) and "restricted" shares of Class A Common
Stock.
The shares of Class A Common Stock offered in the Offering will be freely
tradeable without restriction or further registration under the Securities Act
by persons other than "affiliates" of the Company within the meaning of Rule
144. The holders of restricted shares generally will be entitled to sell these
shares in the public securities market without registration under the Securities
Act to the extent permitted by Rule 144 or any exemption under the Securities
Act.
The Company and each of its executive officers, directors and certain
stockholders have entered into lock-up agreements with the Underwriters,
providing that, subject to certain exceptions, they will not, for a period of
180 days from the date of this Prospectus, offer, sell or contract to sell or
otherwise dispose, directly or indirectly, or announce an offering of, any
shares of Class A Common Stock or any securities convertible into, or
exchangeable for, shares of Class A Common Stock without prior written consent
of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), subject to
certain exceptions. See "Underwriting."
Promptly after completion of the Offering, the Company intends to file with
the Commission a Registration Statement on Form S-8, covering the shares of
Class A Common Stock underlying options granted under the 1998 Incentive Stock
Plan. This registration statement will become effective immediately upon filing
with the Commission. As a result, the shares of Class A Common Stock so
registered and acquired pursuant to the 1998 Incentive Stock Plan will be
available for sale by non-affiliates in the public securities market without
limitation and by affiliates, subject to the volume limitations of Rule 144.
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UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement,
dated , 1997, between the Company and the Underwriters (the "Underwriting
Agreement"), a syndicate of underwriters named below (the "Underwriters"), for
whom DLJ is acting as representative (the "Representative"), each of the
Underwriters have severally and not jointly agreed to purchase from the Company
and the Company, has agreed to sell to them, the number of shares of Class A
Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
CLASS A
UNDERWRITERS SHARES
- -------------------------------------------------------------------------------------------- -----------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........................................
-----------
Total.................................................................................
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Class A Common
Stock offered hereby are subject to approval of certain legal matters by counsel
and to certain other conditions. If any of the shares of Class A Common Stock
are purchased by the Underwriters pursuant to the Underwriting Agreement, all
such shares (other than shares of Class A Common Stock covered by the
over-allotment option described below) must be so purchased.
The Company has granted to the Underwriters an option, exercisable at any
time on or before 30 days after the date of this Prospectus, to purchase up to
an aggregate of additional shares of Class A Common Stock at the initial
public offering price less the underwriting discounts and commissions, solely to
cover over-allotments. To the extent that the Underwriters exercise such option,
each of the Underwriters will be committed, subject to certain conditions, to
purchase a number of option shares of Class A Common Stock proportionate to such
Underwriter's initial commitment as indicated in the table above.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Company and its executive officers and directors, subject to certain
limited exceptions, have agreed not to offer to sell, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option to purchase, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of Class A Common
Stock or any securities convertible into or exercisable or exchangeable for
shares of Class A Common Stock or, enter into any swap or other arrangement that
transfers all or a portion of the economic consequences associated with the
ownership of any shares of Class A Common Stock (regardless of whether any of
the foregoing transactions is to be settled by the delivery of Common Stock, or
such other securities, in cash or otherwise) for a period of 180 days after the
date of this Prospectus without the prior written consent of DLJ. In addition,
during such period, without such prior written consent, the Company has also
agreed not to file a registration statement with respect to, and its executive
officers and directors have agreed not to make any demand for, or exercise any
right with respect to, the registration of any shares of Class A Common Stock or
any securities convertible into or exercisable for shares of Class A Common
Stock.
At the request of the Company, the Underwriter has reserved up to
of the shares of Class A Common Stock offered hereby for sale at the public
offering price to certain directors, officers and
64
<PAGE>
employees of the Company. The number of shares of Class A Common Stock available
for sale to the general public will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the Underwriter to the general public on the same basis as the other
shares offered hereby. All purchasers of such reserved shares will be required
to enter into agreements identical to those described in the immediately
preceding paragraph restricting the transferability of such shares for a period
of 180 days after the date of this Prospectus.
Prior to the Offering, there has been no established trading market for the
Class A Common Stock. The initial public offering price for the shares of Class
A Common Stock offered was determined by negotiation between the Company and the
Representative. The factors considered in determining the initial public
offering price include the history of and the prospects for the industry in
which the Company competes, the past and present operations of the Company, the
historical results of operations of the Company, the prospects for future
earnings of the Company, the recent market prices of securities of generally
comparable companies and the general conditions of the securities markets at the
time of the Offering.
The Representative has advised the Company that the Underwriters propose to
offer shares of Class A Common Stock to the public initially at the public
offering price set forth on the cover page of this Prospectus and, through the
Representative, to certain dealers at such price less a concession not in excess
of $ per share; that the Underwriters and such dealers may allow a discount
not in excess of $ per share on sales to certain other dealers; and that,
after the commencement of the initial public offering, the public offering price
and concession and discount to dealers may be changed by the Representative on
behalf of the Underwriters. The Representative has informed the Company that it
does not expect to confirm sales to accounts over which the Underwriters
exercise discretionary authority.
Application has been made to have the shares of Class A Common Stock
approved for inclusion on the AMEX, under the symbol "ODS."
In connection with Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Class A Common
Stock. Specifically, the Underwriters may over-allot the Offering, creating a
syndicate short position. The Underwriters may bid for and purchase shares of
Class A Common Stock in the open market to cover syndicate short positions or to
stabilize the price of the Class A Common Stock. In addition, the Underwriters
may reclaim selling concessions from other Underwriters in the Offering, if they
repurchase previously distributed shares of Class A Common Stock in syndicate
covering transactions, in stabilization transactions or otherwise. These
activities may stabilize or maintain the market price of the Class A Common
Stock above independent market levels. The Underwriters are not required to
engage in these activities, and may end these activities at any time and will,
in any event, be discontinued 30 days after settlement of the Offering.
Other than in the United States, no action has been taken in any
jurisdiction by the Company or the Underwriters that would permit a public
offering of shares of Class A Common Stock in any jurisdiction where action for
that purpose is required. The shares of Class A Common Stock offered hereby may
not be offered or sold, directly or indirectly, and neither this Prospectus nor
any other offering material or advertisements in connection with the offer and
sale of the shares of Class A Common Stock may be distributed or published in or
from any jurisdiction, except under circumstances that will result in compliance
with applicable rules and regulations of any such jurisdiction. Persons into
whose possession this Prospectus comes are hereby advised to inform themselves
about and to observe any restrictions relating to the offering of shares of
Class A Common Stock and the distribution of this Prospectus. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
shares of Class A Common Stock in any jurisdiction or in any circumstances in
which such an offer or solicitation is unlawful.
Certain of the Underwriters and their affiliates have provided from time to
time, and expect to provide in the future, commercial or investment banking
services to the Company and its affiliates, for
65
<PAGE>
which such Underwriters and their affiliates have received and expect to receive
customary fees and commissions.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby and
certain other legal matters in connection with the Class A Common Stock offered
hereby will be passed upon for the Company by Paul, Weiss, Rifkind, Wharton &
Garrison, New York, New York. Certain legal matters in connection with the
Offering will be passed upon for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom LLP, Los Angeles, California.
EXPERTS
The financial statements of Odyssey Communications, Inc. and related
schedule for the Company as of December 31, 1996 and for the year then ended,
the financial statements of K&K Radio Broadcasting, LLC as of December 31, 1996
and for the year then ended and the financial statements of WVVX as of December
31, 1996 and for the year then ended have been included herein and in the
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The financial statements of Odyssey Communications Inc. and related
schedules as of December 31, 1995 and for the years then ended and for the
year-ended September 30, 1994 and for the three months ended December 31, 1994
appearing herein have been audited by Holtz, Rubenstein & Co., LLP, independent
auditors as stated in their report appearing elsewhere in the Registration
Statement, and upon the authority of said firm as experts in accounting and
auditing.
MARKET DATA AND CERTAIN DEFINITIONS
Unless otherwise indicated herein, all markets, audience ratings and
audience rankings have been derived for the indicated station or group of
stations from surveys of the indicated demographic group listening Monday
through Sunday, 6 a.m. to 12 midnight, based on the average of the survey
periods for the referenced year, as reported by Arbitron, Radio Market Report,
The Arbitron Company ("Arbitron"). Unless otherwise indicated herein, audience
share data is expressed as the "local" average quarter hour share for each
indicated radio station. A radio station's "local" audience share is derived by
comparing the radio station's average quarter hour share to the total average
quarter hour share for all stations listed as inside the MSA ("home-to-market"
or "above the line") by Arbitron. Average quarter hour share is the percentage
of the estimated number of persons who listened to a given radio station for a
minimum of five minutes within a quarter hour compared to the total number of
persons who listened to radio in the market within such quarter hour. The most
recent Arbitron survey utilized in this Prospectus is Spring 1997. Unless
otherwise indicated herein metro rank, market ranking by radio advertising
revenue and market radio advertising revenue have been obtained from Investing
in Radio, 1997 Market Report-- Third Edition, BIA Publications Inc. Information
regarding radio station sales in each of the Company's markets has been obtained
from Duncan's American Radio, L.L.C., as set forth in the following
publications: (i) Duncan's Radio Market Guide 1996, (ii) American Radio, Fall
1996, (iii) Duncan's Radio Market Guide 1997, (iv) American Radio, Winter 1997
and (v) American Radio, Spring 1997.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus under the caption "Prospectus
Summary," "Risk Factors," "Business" and otherwise utilizing the phrases "will,"
"expects," "intends" and "contemplates" are "forward-looking" statements (as
such term is defined in the Private Securities Litigation Reform Act of 1995),
including statements regarding, among other items, (i) the Company's growth
strategy, (ii) the
66
<PAGE>
Company's intention to acquire additional radio stations and to enter additional
markets, (iii) the Company's expectation of improving the coverage areas of its
radio stations and (iv) the Company's ability to successfully implement its
business strategy. These forward-looking statements are based largely on the
Company's expectations and are subject to a number of risks and uncertainties,
certain of which are beyond the Company's control. Actual results could differ
materially from these forward-looking statements as a result of, among other
things, the facts described in "Prospectus Summary," "Risk Factors" and
"Business" including, among others, (i) changes in the competitive marketplace,
including the introduction of new technologies or formatting changes by the
Company's competitors, (ii) changes in the regulatory framework, (iii) changes
in audience tastes and (iv) changes in the economic conditions of local markets.
Other factors which may materially affect actual results include, among others,
the following: general economic and business conditions; industry capacity;
demographic changes; changes in political, social and economic conditions; and
various other factors beyond the Company's control. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
information contained in this Prospectus will in fact transpire.
ADDITIONAL INFORMATION
The Company is not currently subject to the information requirements of the
Exchange Act. As a result of the Offering, the Company will be required to file
reports and other information with the Commission pursuant to the informational
requirements of the Exchange Act. The Company intends to furnish its
stockholders with annual reports containing consolidated financial statements
audited by independent certified public accountants and unaudited quarterly
reports.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the securities offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus, which
is a part of the Registration Statement, omits certain information, exhibits,
schedules and undertakings set forth in the Registration Statement. For further
information pertaining to the Company and the securities offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents or
provisions of any documents referred to herein are not necessarily complete, and
in each instance, reference is made to the copy of the document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
The Registration Statement may be inspected without charge at the office of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the
Registration Statement may be obtained from the Commission at prescribed rates
from the Public Reference Section of the Commission at such address and at the
Commission's regional offices located at 7 World Trade Center, 13th Floor, New
York, New York 10048, and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. In addition, registration statements and certain other filings
made with the Commission through its Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system are publicly available through the Commission's site
on the Internet's World Wide Web, located at http://www.sec.gov.
67
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ODYSSEY COMMUNICATIONS, INC. PAGE
-----
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Auditors............................... F-2
Report of Holtz Rubenstein & Co., LLP, Independent Auditors......................... F-3
Balance Sheets as of December 31, 1995 and 1996..................................... F-4
Statements of Operations for the year ended September 30, 1994, the three months
ended December 31, 1994 and the years ended December 31, 1995 and 1996............ F-5
Statements of Cash Flows for the year ended September 30, 1994, the three months
ended December 31, 1994 and the years ended December 31, 1995 and 1996............ F-6
Statements of Stockholders' Deficit................................................. F-7
Notes to Financial Statements....................................................... F-8
Balance Sheet as of December 31, 1996 and June 30, 1997 (unaudited)................. F-17
Statements of Operations for the six month periods ended June 30, 1996 and 1997
(unaudited)....................................................................... F-18
Statements of Cash Flows for the six month periods ended June 30, 1996 and 1997
(unaudited)....................................................................... F-19
Statement of Stockholders' deficit (unaudited)...................................... F-20
Notes to Financial Statements (unaudited)........................................... F-21
<CAPTION>
K&K RADIO BROADCASTING, L.L.C.
<S> <C>
Independent Auditors' Report........................................................ F-24
Combined Balance Sheet as of December 31, 1996 (audited) and May 31, 1997
(unaudited)....................................................................... F-25
Combined Statement of Operations and Members' Capital for the year ended December
31, 1996 (audited), for the five months ended May 31, 1996 and for the five months
ended May 31, 1997 (unaudited).................................................... F-26
Combined Statement of Cash Flows for the year ended December 31, 1996 (audited) and
for the five months ended May 31, 1996 and for the five months ended May 31, 1997
(unaudited)....................................................................... F-27
Notes to Combined Financial Statements.............................................. F-28
<CAPTION>
WVVX-FM, INC.
<S> <C>
Independent Auditors' Report........................................................ F-32
Balance Sheets as of December 31, 1996 (audited) and July 31, 1997 (unaudited)...... F-33
Statements of Operations for the period January 1, 1996 to June 13, 1996 (audited),
June 14, 1996 to December 31, 1996 (audited) and for the seven months ended July
31, 1997 (unaudited).............................................................. F-34
Statements of Cash Flows for the period January 1, 1996 to June 13, 1996 (audited),
June 14, 1996 to December 31, 1996 (audited) and for the seven months ended July
31, 1997 (unaudited).............................................................. F-35
Statement of Station Equity (Deficit) for the period January 1, 1996 to June 13,
1996 (audited), June 14, 1996 to December 31, 1996 (audited) and for the seven
months ended July 31, 1997 (unaudited)............................................ F-36
Notes to Financial Statements....................................................... F-37
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Odyssey Communications, Inc.:
We have audited the accompanying balance sheet of Odyssey Communications,
Inc. as of December 31, 1996, and the related statements of operations,
stockholders' deficit 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 Odyssey Communications, Inc.
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
New York, New York
September 10, 1997
KPMG Peat Marwick LLP
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Odyssey Communications, Inc.:
We have audited the accompanying balance sheet of Odyssey Communications,
Inc. as of December 31, 1995 and the related statements of operations,
stockholders' deficit and cash flows for the years ended December 31, 1995 and
September 30, 1994 and the three months ended December 31, 1994. 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 Odyssey Communications, Inc.
as of December 31, 1995, and the results of its operations and its cash flows
for the years ended December 31, 1995 and September 30, 1994 and the three
months ended December 31, 1994, in conformity with generally accepted accounting
principles.
Melville, New York
September 19, 1997
Holtz Rubenstein & Co., LLP
Certified Public Accountants
F-3
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------------------- DECEMBER 31,
1995 1996 ------------
------------- ------------- 1996
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................................... $ 1,066,000 $ 234,000
Cash held in escrow (note 3)....................................... -- 500,000
Accounts receivable, net of allowance of $58,000 and $212,000 in
1995 and 1996, respectively...................................... 1,081,000 1,537,000
Prepaid expenses and other current assets.......................... 72,000 42,000
------------- -------------
Total current assets............................................. 2,219,000 2,313,000
Property and equipment, net (note 4)................................. 1,084,000 1,477,000
Intangibles, net (note 5)............................................ 6,040,000 29,230,000
Deferred financing fees.............................................. -- 473,000
Other assets......................................................... 90,000 36,000
Advance to purchase stations (note 3)................................ -- 5,434,000
------------- -------------
Total assets..................................................... $ 9,433,000 $ 38,963,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................................... $ 372,000 $ 830,000
Accrued expenses................................................... 370,000 454,000
Other current liabilities.......................................... 35,000 735,000
------------- -------------
Total current liabilities........................................ 777,000 2,019,000
Notes payable (note 6)............................................... 1,000,000 --
Long-term debt (note 7).............................................. -- 28,200,000
Notes payable to stockholders (note 8)............................... 13,477,000 12,544,000
------------- -------------
Total liabilities................................................ 15,254,000 42,763,000
Stockholders' deficit (note 11):
Common stock, $0.01 par value. Authorized 1,000 shares and 2,000
shares in 1995 and 1996, respectively; issued and outstanding 800
shares and 1,232 shares in 1995 and 1996, respectively -- --
Additional paid-in capital......................................... 1,370,000 6,489,000
------------
------------
Accumulated deficit................................................ (7,191,000) (10,289,000) $ --
------------- ------------- ------------
------------
Total stockholders' deficit...................................... (5,821,000) (3,800,000)
------------- -------------
Total liabilities and stockholders' deficit...................... $ 9,433,000 $ 38,963,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, -----------------------------
1994 1994 1995 1996
------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Gross revenue........................................ $ 2,267,000 $ 654,000 $ 5,655,000 $ 8,567,000
Less: commissions and fees........................... 193,000 50,000 430,000 623,000
------------- ------------ ------------- --------------
Net revenue...................................... 2,074,000 604,000 5,225,000 7,944,000
Operating expenses:
Station operating expenses, excluding depreciation
and amortization................................. 2,326,000 687,000 7,185,000 12,253,000
Depreciation and amortization...................... 524,000 113,000 798,000 1,388,000
Corporate, general and administrative expenses..... -- -- 425,000 1,201,000
------------- ------------ ------------- --------------
Total operating expenses....................... 2,850,000 800,000 8,408,000 14,842,000
------------- ------------ ------------- --------------
Operating loss................................. (776,000) (196,000) (3,183,000) (6,898,000)
Other income (expenses):
Gain on sale of stations........................... -- -- -- 6,608,000
Interest expense, net (notes 6, 7 and 8)........... (439,000) (120,000) (842,000) (2,827,000)
Other, net......................................... 52,000 18,000 20,000 19,000
------------- ------------ ------------- --------------
Total other.................................... (387,000) (102,000) (822,000) 3,800,000
------------- ------------ ------------- --------------
Net loss....................................... $(1,163,000) $ (298,000) $ (4,005,000) $ (3,098,000)
------------- ------------ ------------- --------------
------------- ------------ ------------- --------------
Pro forma net loss per share......................... $
--------------
--------------
Pro forma weighted average shares outstanding........
--------------
--------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED THREE MONTHS YEARS ENDED
SEPTEMBER ENDED DECEMBER 31,
30, DECEMBER 31, -----------------------
1994 1994 1995 1996
------------ ------------- ---------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,163,000) $ (298,000) $(4,005,000) $(3,098,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 524,000 113,000 798,000 1,388,000
Loss on abandonment................................... -- -- 150,000 --
Contributed services.................................. -- -- 20,000 --
Gain on sale of stations.............................. -- -- -- (6,608,000)
Changes in operating assets and liabilities net of
acquisitions:
(Increase) decrease in assets:
Accounts receivable............................. (369,000) 24,000 (429,000) (456,000)
Prepaid expenses and other current assets....... -- (9,000) (18,000) 30,000
Other assets.................................... (25,000) -- (33,000) 54,000
Increase (decrease) in liabilities:
Accounts payable................................ 14,000 (40,000) 302,000 458,000
Accrued expenses................................ 12,000 (17,000) 257,000 84,000
Other liabilities............................... -- -- 16,000 700,000
------------ ------------- ---------- -----------
Net cash used in operating activities......... (1,007,000) (227,000) (2,942,000) (7,448,000)
Cash flows from investing activities:
Purchase of property and equipment...................... (23,000) (1,000) (333,000) (653,000)
Cash paid for assets of radio stations acquired......... -- -- (3,550,000) (38,173,000)
Cash received for radio stations sold................... -- 20,025,000
Net advances to purchase stations....................... -- -- -- (5,434,000)
------------ ------------- ---------- -----------
Net cash used in investing activities........... (23,000) (1,000) (3,883,000) (24,235,000)
Cash flows from financing activities:
Loans from stockholders................................. 1,112,000 175,000 7,522,000 4,186,000
Drawdown on credit facility, net of fees paid of
$535,000 in May 1996.................................. -- -- -- 38,865,000
Repayment of Existing Credit Facility................... -- -- -- (11,200,000)
Repayment of note payable............................... -- -- -- (1,000,000)
Capital contributions................................... -- -- 350,000 --
Other................................................... (46,000) (3,000) (93,000) --
------------ ------------- ---------- -----------
Net cash provided by financing activities..... 1,066,000 172,000 7,779,000 30,851,000
------------ ------------- ---------- -----------
Change in cash and cash equivalents........... 36,000 (56,000) 954,000 (832,000)
Cash and cash equivalents at beginning of period.......... 20,000 56,000 56,000 1,066,000
Adjustment for duplicate three-month period............... 56,000
------------ ------------- ---------- -----------
Cash and cash equivalents at end of period................ $ 56,000 $ -- $1,066,000 $ 234,000
------------ ------------- ---------- -----------
------------ ------------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1993....................... -- $ -- $ 1,000,000 $ (2,023,000) $ (1,023,000)
Net loss......................................... -- -- -- (1,163,000) (1,163,000)
----- ----- ------------- -------------- -------------
Balance at September 30, 1994.................... -- -- 1,000,000 (3,186,000) (2,186,000)
Net loss......................................... -- -- -- (298,000) (298,000)
----- ----- ------------- -------------- -------------
Balance at December 31, 1994..................... -- -- 1,000,000 (3,484,000) (2,484,000)
Capital contribution............................. 800 -- 370,000 -- 370,000
Net loss......................................... -- -- -- (4,005,000) (4,005,000)
Adjustment for change in fiscal year end (note
2)............................................. -- -- -- 298,000 298,000
----- ----- ------------- -------------- -------------
Balance at December 31, 1995..................... 800 -- 1,370,000 (7,191,000) (5,821,000)
Contribution of stockholders' loans to equity.... 432 -- 5,119,000 -- 5,119,000
Net loss......................................... -- -- -- (3,098,000) (3,098,000)
----- ----- ------------- -------------- -------------
Balance at December 31, 1996..................... 1,232 $ -- $ 6,489,000 $ (10,289,000) $ (3,800,000)
----- ----- ------------- -------------- -------------
----- ----- ------------- -------------- -------------
Pro forma effect of Equity Contribution and
Reclassification............................... $ 12,544,000 --
Reinstatement of deferred income taxes relating
to conversion to C-Corporation status.......... -- (3,350,000)
Reclassification of accumulated deficit to
paid-in capital in connection with the
termination of S-Corporation status............ (13,639,000) 13,639,000
------------- --------------
Pro forma balance at December 31, 1996........... $ 5,394,000 $ 0
------------- --------------
------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
Odyssey Communications, Inc. ("Odyssey") was incorporated in Delaware on
August 2, 1994 and commenced operations on January 1, 1995. On May 30, 1996,
Odyssey merged with Q Broadcasting, Inc. ("Q", and together with Odyssey, the
"Company") with Odyssey being the surviving company. Odyssey and Q were owned
94% and 100% by Stuart and Anita Subotnick (the "Principal Stockholders").
Accordingly, the merger has been accounted for as a combination of entities
under common control. As a result, the combination of Odyssey and Q was effected
utilizing historical costs.
The Company owns and operates radio broadcasting stations. As of December
31, 1996, the Company owned three FM stations in Southern California, KLYY-FM
Arcadia, KVYY-FM Ventura and KSYY-FM Fallbrook (programmed as "Y-107 LA"). In
the New York area, the Company owns two radio properties, WRGX-FM Westchester
County, New York, and WRKL-AM Rockland, New York (the "Original New York
Stations").
During November 1996, the Company contracted to acquire WZVU-FM Monmouth,
New Jersey, and WWHB-FM Hampton Bays, New York. During December 1996, both of
these stations commenced operations under the Company's management pursuant to
local marketing agreements ("LMAs"). WWHB-FM and WZVU-FM, together with WRGX-FM
Westchester, broadcast in the New York and New Jersey area as Y-107 NY."
The accompanying financial statements have been prepared on a going-concern
basis which contemplates continuity of operations, realization of assets and
liquidation of liabilities in the ordinary course of business. Since inception
the Company has not generated significant revenue, has incurred substantial
losses and has never generated positive cash flows from operations. The
Company's recent purchases and reformatting of radio stations in its markets are
currently contributing to the Company's losses. The Company believes that losses
will continue while the Company pursues its strategy of acquiring and developing
radio stations. The ability of the Company to continue as a going concern is
dependent upon: (a) the continued support of its stockholders; (b) additional
sources of financing; and (c) the Company's ability to generate positive cash
flows from operations. The Company has obtained a support letter from a
Principal Stockholder guaranteeing his financial support through the earlier of
a successful minimum initial public offering of $37,500,000 of equity securities
to the public or June 30, 1998.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
In connection with the merger discussed in note 1, Odyssey and Q are deemed
to be combined since inception for financial reporting purposes. Odyssey reports
on the basis of a December 31 year-end and Q reported on the basis of a
September 30 year-end. As a result, the December 31, 1995 and 1996 financial
statements include the operations of Q on the basis of an eight month period
ended May 30, 1996 (the date of sale of the Q Stations) and twelve month period
ended September 30, 1995, respectively. Periods prior to January 1, 1995, the
commencement of Odyssey's operations, reflect the operations of Q on the basis
of a September 30 year-end. The Company has presented Q's operations for the
period October 1, 1994 to December 31, 1994 to transition from a September 30 to
a December 31 year-end.
The financial statements for the twelve months ended December 31, 1995
include three months of Q (October, November and December 1994) that were
included in the three month transition period ended December 31, 1994. The net
revenues and net loss for the three month duplicate period are $604,000 and
F-8
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$298,000, respectively. The December 31, 1995 accumulated deficit has been
adjusted to eliminate the duplication of the October, November and December 1994
net losses.
(B) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets ranging from
5 to 7 years for transmission equipment, vehicles and furniture and office
equipment to 39 years for buildings.
(C) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," on January 1, 1996. This Statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position results of operations, or liquidity.
(D) INTANGIBLE ASSETS
Intangible assets include the portion of the purchase price allocable to FCC
broadcast licenses, which are amortized over 40 years. Covenants not to compete
signed as part of station acquisition agreements, are amortized over the period
of the agreements, generally 3 years. Organization costs are amortized over 5
years.
It is the Company's policy to account for intangible assets at the lower of
amortized cost or fair market value. As part of an ongoing review of the
valuation and amortization of intangible assets, management assesses the
carrying value of the Company's intangible assets if facts and circumstances
suggest that they are impaired. If this review indicates that the intangibles
will not be recoverable as determined by a nondiscounted cash flow analysis over
the remaining amortization period, the carrying value of the Company's
intangibles will be reduced to their estimated realizable value. The Company has
determined that intangibles are fairly stated at December 31, 1996.
(E) DEFERRED FINANCING FEES
Deferred finance costs and loan origination fees incurred in connection with
the long-term debt (see note 7) are amortized over five years, the period of the
Existing Credit Facility.
(F) REVENUE RECOGNITION
Broadcasting revenue is recognized when commercials are aired.
(G) INCOME TAXES
The Company has elected to be treated as an S-Corporation for federal and
certain state income tax purposes. As an S-Corporation, the earnings and losses
of the Company are reported by the individual
F-9
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
stockholders and the Company is not responsible for federal or certain state
income taxes. Accordingly, no provision for income taxes is included in the
accompanying financial statements.
The Company will terminate its S-Corporation election in connection with the
Offering discussed in note 11.
(H) 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 at 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.
(I) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used in estimating the fair value
disclosures for financial instruments:
The carrying amounts reported in the balance sheets for cash, current
receivables, accounts payable and accrued expenses approximate fair value.
The carrying value of the long-term and stockholder debt, including the
current portion at December 31, approximates fair value because they are
floating rate instruments.
(J) BARTER TRANSACTIONS
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and a
liability are recorded at the fair market value of the goods or services
received. Barter revenue is recorded at the fair market value of the goods or
services received. Barter revenue is recorded and the liability is relieved when
the commercials are broadcast, and barter expense is recorded and the assets are
relieved when the goods or services are received or used.
(K) ADVERTISING
The Company charges advertising costs, as incurred, to expense. Advertising
costs amounted to $41,000, $320,000, and $550,000 for the year ended September
30, 1994, and the years ended December 31, 1995 and 1996, respectively. For the
three months ended December 31, 1994 advertising expense amounted to $28,000.
(3) ACQUISITIONS AND DISPOSITIONS
On November 22, 1996, the Company entered into an agreement to acquire the
assets of WWHB-FM Hampton Bays, New York, for a purchase price of $4,000,000. In
addition, on the same date, a letter of credit issued under the Existing Credit
Facility (see note 7) in the amount of $3,200,000 was delivered to the seller,
which was canceled upon consummation of the acquisition. Simultaneously with the
signing of the asset purchase agreement, the Company signed a LMA with the
seller under which it had the right to manage the operations of the station for
a fee. The Company exercised this right effective December 31, 1996 as part of
its operation of Y107-NY. The Company acquired WWHB-FM on April 1, 1997.
F-10
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) ACQUISITIONS AND DISPOSITIONS (CONTINUED)
On November 7, 1996, the Company entered into an agreement to acquire the
assets of WZVU-FM Monmouth, New Jersey, for a purchase price of $12,000,000.
Upon execution of the asset purchase agreement, $5,434,000 was advanced to the
seller, under a loan agreement which bore interest at prime rate plus 2%,
collateralized by substantially all the assets of the seller and the Company
signed a LMA with the seller under which it has the right to manage the
operations of the station for a fee. The Company exercised this right effective
December 5, 1996 when it commenced the operation of Y-107 NY. Revenue,
programming expenses and other reimbursable expenses pursuant to the LMA were
included in the accompanying financial statements from December 5, 1996 as have
LMA fees of approximately $131,000. The Company acquired WZVU-FM on June 5,
1997.
On May 30, 1996, the Company acquired substantially all of the assets of
KLYY-FM, Arcadia, KVYY-FM, Ventura, KSYY-FM, Fallbrook (the "Los Angeles
Stations"), and KWIZ-FM, Santa Ana, in a simultaneous purchase and multi-party,
tax-free exchange through the use of a third party serving as a "qualified
intermediary." The aggregate purchase price of the four stations was
approximately $38,000,000. The acquisitions were recorded using the purchase
method of accounting. In connection with the acquisition of the Los Angeles
Stations and KWIZ-FM, the Company borrowed $31,000,000 under the Existing Credit
Facility (see note 7). On December 20, 1996, the Company completed the sale of
KWIZ-FM, Santa Ana, California, for a sale price of $11,200,000 and
simultaneously paid down the Existing Credit Facility in the same amount. No
gain or loss was recorded in connection with the sale of KWIZ-FM.
Immediately before the simultaneous purchase and multi-party tax-free
exchange, Q was merged into Odyssey (see note 1). Two Connecticut radio stations
(WSTC-AM and WKHL-FM), which comprised the sole operating assets of Q (the "Q
stations") were transferred to the acquirer of the Q stations for $9,500,000, of
which $500,000 was held in escrow until May 31, 1997. Substantially all of the
cash received from such acquirer plus cash provided by Odyssey was transferred
by the "qualified intermediary" to the third party disposing of the Los Angeles
Stations in connection with the tax-free exchange of the Q stations for the Los
Angeles Stations and the purchase of the assets of KWIZ-FM. For financial
reporting purposes, the Company accounted for the transfer of the Q stations as
a sale and recorded a gain of $6,608,000. In connection with the merger of Q and
Odyssey, the stockholders contributed $5,119,000 of loans payable by the Company
to equity and received 432 additional shares of Common Stock.
The Company managed the operations of the Los Angeles Stations and KWIZ-FM
for a fee from March 26, 1996 up to the effective acquisition date under the
LMA. Revenue, programming expenses and other reimbursable expenses pursuant to
the LMA, including rent and utilities have been included in the accompanying
financial statements from March 26, 1996 as have LMA fees of approximately
$593,000. The acquisitions were recorded using the purchase method of
accounting. Management's estimate of the fair value of the Los Angeles Stations'
assets acquired is as follows:
<TABLE>
<S> <C>
Fixed assets................................................... $ 437,000
FCC broadcast licenses......................................... 26,085,000
Covenant not to compete........................................ 68,000
</TABLE>
Effective December 31, 1994, the Company acquired substantially all the
assets of WRGX-FM and WRKL-AM. The aggregate purchase price totaled $4,550,000,
consisting of cash of $3,550,000 and a note payable to the seller of $1,000,000
(see note 6). The acquisitions were recorded using the purchase method
F-11
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) ACQUISITIONS AND DISPOSITIONS (CONTINUED)
of accounting. The accompanying financial statements include the results of
operations from January 1, 1995. The allocation of purchase price to the assets
acquired is as follows:
<TABLE>
<S> <C>
Fixed assets.................................................... $ 250,000
Land and building............................................... 250,000
FCC broadcast licenses.......................................... 3,300,000
Leasehold and tower............................................. 150,000
Covenant not to compete......................................... 600,000
</TABLE>
LMA fees paid are reflected in the accompanying statement of operations as
station operating expenses.
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Land.............................................................. $ 50,000 $ 50,000
Building and improvements......................................... 200,000 236,000
Transmitter equipment............................................. 755,000 1,152,000
Furniture and office equipment.................................... 976,000 260,000
Vehicles.......................................................... 9,000 163,000
------------ ------------
1,990,000 1,861,000
Less: accumulated depreciation.................................... 906,000 384,000
------------ ------------
$ 1,084,000 $ 1,477,000
------------ ------------
------------ ------------
</TABLE>
Subsequent to December 31, 1995, the Company relocated its WRGX-FM tower,
resulting in a write-off of its initial acquisition cost allocated to the tower
of $150,000. This amount is included in other expenses, net, in the 1995
statement of operations.
(5) INTANGIBLES
Intangibles at December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
FCC broadcast licenses............................................ $ 6,000,000 $ 29,528,000
Covenants not to compete.......................................... 1,050,000 668,000
Organizational costs.............................................. 98,000 --
------------ ------------
7,148,000 30,196,000
Less: accumulated amortization.................................... 1,108,000 966,000
------------ ------------
$ 6,040,000 $ 29,230,000
------------ ------------
------------ ------------
</TABLE>
F-12
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) NOTE PAYABLE
The note payable of $1,000,000 incurred in connection with the purchase of
the Original New York Stations (see note 3), was repaid on May 30, 1996 (see
note 7). Interest expense during the year ended December 31, 1996 amounted to
$25,000.
(7) LONG-TERM DEBT
On May 30, 1996, the Company entered into a credit agreement (the "Existing
Credit Facility") with The Chase Manhattan Bank. The Existing Credit Facility
provides revolving credit commitments in the form of loans and/or letters of
credit in an aggregate principal amount of $40 million. The Existing Credit
Facility is subject to various financial and nonfinancial covenants, including
limitations on additional indebtedness, liens, sale of assets, payment of
dividends and guarantee obligations. Most of the financial covenants are not
applicable until June 1998. A portion of the debt has been guaranteed by a
Principal Stockholder. For the first 18 months of the Existing Credit Facility,
the guaranteed portion was any amount above $13.5 million; and as a result of
certain amendments the guaranteed portion is based on a ratio of total debt to
cash flow. As part of subsequent amendments to the Existing Credit Facility (see
below), the guarantee now extends to all amounts outstanding under the Existing
Credit Facility.
Interest varies for the guaranteed and nonguaranteed portion and fluctuates
based on total debt to cash flow ratio (the "Ratio"). Interest for the
guaranteed debt is payable at the London Interbank Offered Rate ("LIBOR") plus
1.5% to 2.0% (based upon the Ratio); prime plus 0.5% to 1.0% (based upon the
Ratio); or a combination thereof as determined by the borrower. In addition,
there is a 1% increase in all rates related to the nonguaranteed portion of the
debt. The interest rates for the guaranteed and nonguaranteed portions as of and
for the year ended December 31, 1996 were 7.6% and 8.6%, respectively. Interest
expense on the Facility for the year ended December 31, 1996 was $1,794,000. In
addition, the Company has agreed to pay a commitment fee quarterly equal to 0.5%
per annum on the average unused available credit.
The total amount of the Existing Credit Facility is scheduled to reduce as
set forth below. Any additional borrowings would be due on May 31, 2001:
<TABLE>
<CAPTION>
DATE
- -------------------------------------------------------------------------------
<S> <C>
May 31, 1998................................................................... $ 2,985,000
May 31, 1999................................................................... 5,970,000
May 31, 2000................................................................... 10,149,000
May 31, 2001................................................................... 9,096,000
-------------
$ 28,200,000
-------------
-------------
</TABLE>
The Existing Credit Facility is also scheduled to reduce within 90 days
following each year end by an amount equal to 75% of "Excess Cash Flows," as
defined in the credit agreement. The Existing Credit Facility reduces by the
amount of any net sales proceeds from the sale of any assets.
The Existing Credit Facility was subsequently amended on November 22, 1996
to temporarily increase to $42 million through December 20, 1996, after which it
reverted to $40 million following the sale of KWIZ-FM (see note 3). In addition,
the guaranteed amount has been increased to include any portion of the debt
exceeding $2,215,000 for the initial 18-month period. On May 13, 1997, the
Existing Credit Facility was amended to temporarily increase to $46 million
through October 31, 1997. On August 7, 1997, the
F-13
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) LONG-TERM DEBT (CONTINUED)
Existing Credit Facility was further amended to increase the Existing Credit
Facility to $58 million through December 31, 1997.
(8) NOTES PAYABLE TO STOCKHOLDERS
At December 31, 1996, the Company had $12,544,000 outstanding in notes
payable to stockholders at interest rates which fluctuated and ranged during the
year from 5.5% to 8% per annum for the year ended December 31, 1996. The notes
are subordinated to the Existing Credit Facility; however, under the
subordination provisions, the interest accruing on these notes is permitted to
be paid periodically, provided that the stockholders advance net proceeds to
cover such interest payments. Interest expense related to notes payable to
stockholders was $436,000, $781,000 and $1,033,000 at December 31, 1994, 1995
and 1996, respectively.
The stockholders have agreed not to call payment on these notes before July
1, 1998.
(9) COMMITMENTS
(A) LEASES
The Company leases studio and office space, transmitter tower sites and
office equipment under operating leases. Future minimum rental commitments for
the remainder of the operating leases are as follows:
<TABLE>
<S> <C>
1997............................................................ $ 351,000
1998............................................................ 269,000
1999............................................................ 205,000
2000............................................................ 183,000
2001............................................................ 171,000
Thereafter...................................................... 242,000
---------
$1,421,000
---------
---------
</TABLE>
Rent expense for the year ended September 30, 1994 and the years ended
December 31, 1995 and 1996 was approximately $186,000, $301,000, and $325,000,
respectively. For the three months ended December 31, 1994, rent expense
amounted to $55,000.
(B) EMPLOYMENT CONTRACTS
The Company has entered into various employment contracts with eleven
individuals comprised of officers and senior management that provide for minimum
salaries and incentives based upon specified levels of performance. The minimum
payments under these contracts are as follows:
<TABLE>
<S> <C>
1997............................................................ $1,459,000
1998............................................................ 1,401,000
1999............................................................ 326,000
2000............................................................ 182,000
2001 and thereafter............................................. --
---------
$3,368,000
---------
---------
</TABLE>
F-14
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(10) SUPPLEMENTARY INFORMATION--STATEMENT OF CASH FLOWS
The Company acquired vehicles during the year ended December 31, 1996
through issuances of notes payable amounting to $51,386.
Barter transactions resulted in sales of $315,000, $921,000 and $875,000,
and related expenses of $115,000, $951,000 and $773,00, for the years ended
September 30, 1994 and December 31, 1995 and 1996, respectively. For the three
months ended December 31, 1994 barter sales and related expense amounted to
$94,000.
Cash paid for interest during the years ended September 30, 1994 and
December 31, 1995, 1996 and the three months ended December 31, 1994 amounted to
$439,000, $843,000, $2,454,000 and $120,000, respectively.
The capitalization of the Company in January 1, 1995 was effected by the
contribution of $350,000 in cash equity funds and the payment on behalf of the
Company of legal and other start-up expenses of $20,000.
During the year ended December 31, 1996, the Principal Stockholders
contributed notes payable of $5,119,000 to the Company's capital.
(11) INITIAL PUBLIC OFFERING AND RELATED TRANSACTIONS (UNAUDITED)
(A) EQUITY CONTRIBUTION AND RECLASSIFICATION. Immediately prior to the
consummation of the offering of shares of Class A Common Stock (the
"Offering"), the Principal Stockholders will contribute the entire amount of
certain outstanding stockholders' loans made to the Company ($13.0 million at
June 30, 1997) to the Company's capital in return for the issuance of
additional shares of Class B Common Stock (the "Equity Contribution").
Simultaneously with the Equity Contribution, each share of the Company's Common
Stock, par value $.01 per share (the "Old Common Stock"), will be reclassified
into shares of Class A Common Stock and the Principal Shareholders will
exchange each share of Class A Common Stock held by them for one share of Class
B Common Stock (the foregoing reclassification and exchange is hereinafter
referred to as the "Reclassification"). In addition, Odyssey will convert from
an S-Corporation to a C-Corporation.
(B) DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the
Company will upon consummation of the Equity Contribution and the
Reclassification consist of shares of Common Stock, par value $0.01 per
share (the "Common Stock"), of which shares have been designated as Class
A Common Stock and shares have been designated as Class B Common Stock.
Effective upon completion of the Offering, shares of Class A Common Stock
will be issued and outstanding and shares of Class B Common Stock will be
issued and outstanding. In addition, shares of Class A Common Stock will
be reserved for issuance upon conversion of the Class B Common Stock. As of
September, 1997, there were three holders of record of Old Common Stock.
The shares of Class A Common Stock and Class B Common Stock are identical in
all respects, except for voting rights and certain conversion rights and
transfer restrictions in respect to the shares of the Class B Common Stock.
The holders of Class A Common Stock are entitled to one vote per share.
Holders of Class B Common Stock are entitled to ten votes per share. Holders of
all classes of Common Stock entitled to vote will vote together as a single
class on all matters presented to the stockholders for their vote or approval
except for the election and removal of directors as described below and as
otherwise required by applicable law. In addition, with respect to the election
of directors, the Company's Amended and Restated Certificate of Incorporation
provides that holders of Class B Common Stock will vote as a separate class to
F-15
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(11) INITIAL PUBLIC OFFERING AND RELATED TRANSACTIONS (UNAUDITED) (CONTINUED)
elect up to 75% of the members of the Company's Board of Directors. Stockholders
have no cumulative voting rights.
All pro forma per share amounts reflect the changes noted above.
(C) AMENDED CREDIT FACILITY. The Company has received a commitment letter
from a major financial institution to enter into the Credit Facility. The Credit
Facility will replace the Company's Existing Credit Facility (See note 6).
Under the terms of the Credit Facility, the Company will have a $ million
revolving loan facility maturing on . Outstanding amounts under the
Credit Facility will bear interest at a rate based, at the option of the
Company, on the participating bank's prime rate, or the London Interbank
Borrowing Rate, plus an incremental rate.
The Credit Facility will contain certain financial and operational covenants
and other restrictions with which the Company must comply, including, among
others, limitations on capital expenditures, the incurrence of additional
indebtedness, restrictions on the use of borrowings, limitations on paying cash
dividends and redeeming or repurchasing capital stock of the Company, and
requirements to maintain certain financial ratios. The Company will also be
prohibited from making acquisitions without the prior consent of the Bank.
The Credit Facility will contain customary events of default, including
material misrepresentations, payment defaults and default in the performance of
other covenants, certain bankruptcy defaults, events having a material and
adverse effect on the Company and revocation of any of the Company's broadcast
licenses.
(D) PRO FORMA AMOUNTS The unaudited pro forma amounts included in
accompanying balance sheet as of December 31, 1996 and the statement of
stockholders' deficit for the year ended December 31, 1996 reflect pro forma
adjustments which give effect to the Equity Contribution and Reclassification
immediately prior to the Offering and the conversion of the Company from
S-Corporation status to C-Corporation status.
The following is a description of the unaudited pro forma adjustments.
(1) The effect of the Equity Contribution and Reclassification.
(2) Deferred tax liabilities of $3,350,000 will be reinstated as a result of
the Company's conversion to C-Corporation status.
(3) The $13,639,000 reduction of accumulated deficit represents the
reclassification of the deficit to paid-in capital in connection with the
termination of the S-Corporation status.
The number of shares of Existing Common Stock outstanding, which has been
used to calculate pro forma net earnings per share, is the sum of the shares
immediately prior to the Offering (and after the Equity Contribution and
Reclassification) and shares deemed to be sold by the Company in the
Offering. In accordance with Staff Accounting Bulletin No. 55 issued by the
Securities and Exchange Commission, earnings per share data is not presented for
any period prior to the Company's most recent year end.
(E) STOCK OPTION PLAN.
F-16
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, JUNE 30, JUNE 30,
ASSETS 1996 1997 1997
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash........................................................... $ 234,000 $ 163,000
Restricted cash................................................ 500,000 --
Accounts receivable, net of allowance of $212,000 and $275,000
in 1996 and 1997, respectively............................... 1,537,000 2,525,000
Prepaid expenses and other current assets...................... 42,000 349,000
-------------- --------------
Total current assets......................................... 2,313,000 3,037,000
Property and equipment, net (note 3)............................. 1,477,000 2,601,000
Intangibles, net (note 4)........................................ 29,230,000 44,120,000
Deferred financing fees.......................................... 473,000 528,000
Advances to purchase stations (note 2)........................... 5,434,000 603,000
Other assets..................................................... 36,000 79,000
-------------- --------------
Total assets................................................. $ 38,963,000 $ 50,968,000
-------------- --------------
-------------- --------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.................................. $ 830,000 $ 774,000
Accrued expenses.................................. 454,000 905,000
Other current liabilities......................... 735,000 694,000
----------- -----------
Total current liabilities....................... 2,019,000 2,373,000
Long-term debt (note 5)............................. 28,200,000 44,700,000
Notes payable to stockholders (note 6).............. 12,544,000 12,952,000
----------- -----------
Total liabilities............................... 42,763,000 60,025,000
Stockholders' deficit:
Common stock, $0.01 par value. Authorized 2,000
shares; issued and outstanding 1,232 shares..... -- --
Additional paid-in capital........................ 6,489,000 6,489,000
-----------
-----------
Accumulated deficit............................... (10,289,000) (15,546,000) $
----------- ----------- -----------
-----------
Total stockholders' deficit..................... (3,800,000) (9,057,000)
----------- -----------
Total liabilities and stockholders' deficit..... $38,963,000 $50,968,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
(UNAUDITED)
Gross revenue....................................................................... $ 4,520,000 $ 5,283,000
Less: commissions and fees.......................................................... 306,000 583,000
------------- -------------
Net revenue......................................................................... 4,214,000 4,700,000
Operating expenses:
Station operating expenses excluding depreciation and amortization................ 7,215,000 6,820,000
Depreciation and amortization..................................................... 627,000 776,000
Corporate, general and administrative expenses.................................... 477,000 744,000
------------- -------------
Total operating expenses........................................................ 8,319,000 8,340,000
------------- -------------
Operating loss.................................................................. (4,105,000) (3,640,000)
Other income (expenses):
Interest expense (notes 6 and 7).................................................. (920,000) (1,663,000)
Gain on sale of stations.......................................................... 6,608,000 --
Other, net........................................................................ 95,000 46,000
------------- -------------
Total other................................................................... 5,783,000 (1,617,000)
------------- -------------
Net income (loss)............................................................... $ 1,678,000 $ (5,257,000)
------------- -------------
------------- -------------
Pro forma net loss per share........................................................ $ $
------------- -------------
------------- -------------
Pro forma weighted average shares outstanding.......................................
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1996 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................. $ 1,678,000 $ (5,257,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization..................................................... 627,000 776,000
Gain on sale of stations.......................................................... (6,608,000) --
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable........................................................... 103,000 (988,000)
Prepaid expenses and other current assets..................................... (108,000) (307,000)
Other assets.................................................................. 70,000 (43,000)
Increase (decrease) in liabilities:
Accounts payable................................................................ 40,000 (56,000)
Accrued expenses................................................................ 196,000 1,028,000
Other liabilities............................................................... 50,000 (107,000)
------------- -------------
Net cash used in operating activities....................................... (3,952,000) (4,954,000)
Cash flows from investing activities:
Purchase of property and equipment................................................ (258,000) (389,000)
Cash paid and advanced for assets of radio stations acquired...................... (38,173,000) (16,938,000)
Net cash received for radio station sold.......................................... 8,825,000 --
Repayment of advances to purchase stations........................................ -- 5,434,000
------------- -------------
Net cash used in investing activities....................................... (29,606,000) (11,893,000)
Cash flows from financing activities:
Loans from stockholders........................................................... 3,385,000 408,000
Drawdown on credit facility, net of fees paid of $535,000 and $121,000 in 1996 and
1997, respectively.............................................................. 30,465,000 16,379,000
Repayment of note payable......................................................... (1,000,000) (11,000)
------------- -------------
Net cash provided by financing activities................................... 32,850,000 16,776,000
------------- -------------
Change in cash and cash equivalents................................................. (708,000) (71,000)
Cash and cash equivalents at beginning of period.................................... 1,066,000 234,000
------------- -------------
Cash and cash equivalents at end of period.......................................... $ 358,000 $ 163,000
------------- -------------
------------- -------------
</TABLE>
See accompanying unaudited notes to financial statements.
F-19
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON
STOCK ADDITIONAL
-------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996................... 1,232 $ -- $ 6,489,000 $ (10,289,000) $ (3,800,000)
Net loss....................................... -- -- -- (5,257,000) (5,257,000)
--------- --------- -------------- -------------- -------------
Balance at June 30, 1997....................... 1,232 $ -- $ 6,489,000 $ (15,546,000) $ (9,057,000)
--------- --------- -------------- -------------- -------------
--------- --------- -------------- -------------- -------------
Pro Forma effect of Equity Contribution and
Reclassification............................. $ 12,952,000
Reinstatement of deferred income taxes relating
to C-Corporation status...................... (3,350,000)
Reclassification of accumulated deficit to
paid-in capital in connection with
termination of S-Corporation status.......... (18,896,000) 18,896,000
-------------- --------------
Pro Forma balance at June 30, 1997............. $ 545,000 $ 0
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying interim financial statements include the accounts of
Odyssey Communications, Inc.
The accompanying financial statements have been prepared on a going-concern
basis which contemplates continuity of operations, realization of assets and
liquidation of liabilities in the ordinary course of business. Since inception,
the Company has not generated significant revenue, has incurred substantial net
losses and has never generated positive cash flows from operations. The
Company's recent purchases and reformatting of radio stations in its markets is
currently contributing to the Company's losses. The Company believes that losses
will continue while the Company pursues its strategy of acquiring and developing
radio stations. The ability of the Company to continue as a going concern is
dependent upon: (a) the continued support of its stockholders, (b) additional
sources of financing, and (c) the Company's ability to generate positive cash
flows from operations. The Company has obtained a support letter from a
Principal Stockholder guaranteeing his financial support through the earlier of
a successful minimum initial public offering of $37,500,000 of equity securities
to the public or June 30, 1998.
The accompanying interim financial statements have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures made
are adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the latest audited financial
statements and related footnotes included elsewhere herein. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company as of June 30,
1997, the results of its operations and its cash flows for the six month periods
ended June 30, 1996 and 1997 have been included. The results of operations for
the interim periods are not necessarily indicative of the results which may be
realized for the full year.
(2) ACQUISITIONS
On June 5, 1997, the Company acquired substantially all of the assets of
WZVU-FM Monmouth, New Jersey, for a purchase price of $12,000,000. At that date
the sellers' loan payable to the Company in the amount of $5,434,000 plus
accrued interest of $103,000 was paid in full. The Company managed the
operations of WZVU-FM for a fee from December 5, 1996 up to the effective
acquisition date under a local marketing agreement ("LMA"). Revenue, programming
expenses and other reimbursable expenses pursuant to the LMA have been included
in the accompanying financial statements as have LMA fees of approximately
$375,000 from January 1, 1997 to June 5, 1997. Management's preliminary estimate
of the fair value of WZVU-FM assets acquired subject to further review and
appraisal is as follows:
<TABLE>
<S> <C>
Fixed assets................................................... $ 833,000
FCC broadcast license.......................................... 11,157,000
Covenant not to compete........................................ 10,000
</TABLE>
On April 1, 1997, the Company acquired substantially all the assets of
WWHB-FM Hampton Bays, New York, for a purchase price of $4,000,000. The Company
managed the operations of WWHB-FM for a fee from December 31, 1996 up to the
effective acquisition date under a LMA. Revenue, programming expenses and other
reimbursable expenses pursuant to the LMA have been included in the accompanying
F-21
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(2) ACQUISITIONS (CONTINUED)
financial statements as have LMA fees of $165,000 from January 1, 1997 to April
1, 1997. Management's preliminary estimate of the fair value of WWHB-FM assets
acquired subject to further review and appraisal is as follows:
<TABLE>
<S> <C>
Fixed assets.................................................... $ 55,000
FCC broadcast license........................................... 3,795,000
Consulting agreement............................................ 150,000
</TABLE>
LMA fees are reflected in the accompanying financial statements as station
operating expenses.
On April 1, 1997 the Company entered into asset purchase agreements to
acquire the assets of WVVX-FM Chicago for a purchase price of $9,500,000 and
WJDK-FM Chicago for a purchase price of $1,100,000. At that date, the Company
deposited $600,000 of the purchase price into escrow. These acquisitions were
consummated on August 8, 1997.
The following unaudited pro forma results of operations illustrate the
effect of the acquisition of WZVU-FM and WVVX-FM and assumes that the
acquisitions occurred at the beginning of each of the periods presented:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
<S> <C> <C>
1996 1997
------------ -------------
Net revenues................................................. $ 6,068,000 $ 5,271,000
Income (loss) from continuing operations..................... 1,062,000 (4,254,000)
Pro forma loss per share.....................................
</TABLE>
(3) PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1997 is as follows:
<TABLE>
<S> <C>
Land............................................................ $ 302,000
Building and improvements....................................... 560,000
Transmitter equipment........................................... 1,640,000
Furniture and office equipment.................................. 389,000
Vehicles........................................................ 219,000
---------
3,110,000
Less: accumulated depreciation.................................. 509,000
---------
$2,601,000
---------
---------
</TABLE>
F-22
<PAGE>
ODYSSEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(4) INTANGIBLES
Intangible Assets at June 30, 1997 are as follows:
<TABLE>
<S> <C>
FCC broadcast licenses......................................................... $44,875,000
Covenants not to compete....................................................... 678,000
----------
Total intangible assets...................................................... 45,553,000
Less: accumulated amortization................................................. 1,433,000
----------
$44,120,000
----------
----------
</TABLE>
(5) LONG-TERM DEBT
The Existing Credit Facility was subsequently amended on August 7, 1997 (the
"fourth amendment") to temporarily increase it to $58 million through December
31, 1997 after which it reverts to $40 million. In addition, the guaranteed
amount has been increased to include all amounts outstanding.
(6) NOTES PAYABLE TO STOCKHOLDERS
At June 30, the Company had $12,952,000 outstanding in notes payable to
stockholders at interest rates which fluctuated and ranged from 5.5% to 8% per
annum for the six months ended June 30, 1997. The notes are subordinated to the
Existing Credit Facility; however, under the subordination provisions, the
interest accruing on these notes is permitted to be paid periodically, provided
that the stockholders advance net proceeds to cover such interest payments.
Interest expense related to notes payable to stockholders was $645,000 and
$408,000 for the six months ended June 30, 1996 and 1997, respectively.
The Principal Stockholders have agreed not to demand payment on these notes
before July 1, 1998.
(7) SUPPLEMENTARY INFORMATION--STATEMENT OF CASH FLOWS
Barter transactions resulted in sales of $583,000 and $381,000 and related
expenses of $657,000 and $309,000 for the six months ended June 30, 1996 and
1997, respectively.
Cash paid for interest during the six months ended June 30, 1996 and 1997
amounted to $875,000 and $1,670,000, respectively.
During the six months ended June 30, 1996, the Principal Stockholders
contributed notes payable of $5,119,000 to the Company's capital.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Members
K&K Radio Broadcasting, L.L.C.:
We have audited the accompanying combined balance sheet of K&K Radio
Broadcasting, L.L.C. as of December 31, 1996, and the related combined
statements of operations and members' capital 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of K&K Radio
Broadcasting, L.L.C. as of December 31, 1996 and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
New York, New York
September 24, 1997
F-24
<PAGE>
K&K RADIO BROADCASTING, L.L.C.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MAY 31,
ASSETS 1996 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash.............................................................................. $ 36,739 $ 98,846
Accounts receivable:
Trade........................................................................... 249,452 139,883
Odyssey......................................................................... 113,613 --
Other current assets.............................................................. 14,914 19,536
------------- -------------
Total current assets.......................................................... 414,718 258,265
Property and equipment, net (note 4)................................................ 911,553 874,354
Intangibles, net (note 5)........................................................... 100,482 87,429
------------- -------------
Total assets.................................................................. $ 1,426,753 $ 1,220,048
------------- -------------
------------- -------------
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable.................................................................. $ 108,410 $ 89,699
Accrued expenses (notes 6 and 7).................................................. 568,680 379,631
Notes payable to members (note 7)................................................. 820,930 820,930
Notes payable to Odyssey (note 6)................................................. 5,433,687 5,433,687
Notes payable to banks (note 6)................................................... 34,168 --
Other liabilities................................................................. -- 12,959
------------- -------------
Total current liabilities..................................................... 6,965,875 6,736,906
Members' deficit (note 8)........................................................... (5,539,122) (5,516,858)
------------- -------------
Total liabilities and members' deficit........................................ $ 1,426,753 $ 1,220,048
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to combined financial statements.
F-25
<PAGE>
K&K RADIO BROADCASTING, L.L.C.
COMBINED STATEMENT OF OPERATIONS AND MEMBERS' CAPITAL
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM JANUARY 1,
YEAR JANUARY 1, 1997
ENDED 1996 THROUGH THROUGH
DECEMBER 31, MAY 31, MAY 31,
1996 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
Gross revenue.................................................... $ 3,173,549 $ 1,177,715 $ 413,933
Less: commission and fees........................................ 247,405 96,888 1,054
-------------- -------------- --------------
Net revenue...................................................... 2,926,144 1,080,827 412,879
Operating expenses:
Station operating expenses, excluding depreciation and
amortization................................................. 1,044,024 536,601 91,986
Depreciation and amortization.................................. 140,642 47,203 51,094
Corporate general and administrative expenses.................. 1,650,991 273,211 219,608
Reimbursement of operating expenses under LMA.................. (27,169) -- (151,756)
-------------- -------------- --------------
Total operating expenses..................................... 2,808,488 857,015 210,932
-------------- -------------- --------------
Operating income............................................. 117,656 223,812 201,947
Other income (expenses)
Interest....................................................... (2,498,207) (1,022,274) (179,683)
Other, net..................................................... 29,325 3,750 --
-------------- -------------- --------------
Total other.................................................... (2,468,882) (1,018,524) (179,683)
-------------- -------------- --------------
Loss before extraordinary item............................... (2,351,226) (794,712) 22,264
Extraordinary item--forgiveness of debt (note 6)................. 10,278,492 -- --
-------------- -------------- --------------
Net income (loss)................................................ $ 7,927,266 $ (794,712) $ 22,264
-------------- -------------- --------------
-------------- -------------- --------------
Members' capital at beginning of period (note 8)................. $ (13,466,388) $(13,466,388) $ (5,539,122)
-------------- -------------- --------------
Members' capital at end of period (note 8)....................... $ (5,539,122) $(14,261,100) $ (5,516,858)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to combined financial statements.
F-26
<PAGE>
K&K RADIO BROADCASTING, L.L.C.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
YEAR ENDED JANUARY 1, JANUARY 1,
DECEMBER 31, 1996 THROUGH 1997 THROUGH
1996 MAY 31, 1996 MAY 31, 1997
-------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)............................................. $ 7,927,266 $ (794,712) $ 22,264
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization............................... 140,642 47,203 51,094
Forgiveness of debt......................................... (10,278,492) -- --
Other....................................................... 19,318 -- --
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable....................................... 93,350 (25,855) 109,569
Other receivables......................................... (113,613) -- 113,613
Other current assets...................................... 99,887 33,511 (4,936)
Increase (decrease) in liabilities:
Accounts payable.......................................... 71,505 (33,744) (18,711)
Accrued expenses.......................................... 2,142,378 915,206 (173,118)
Notes payable to members.................................. 168,587 -- --
-------------- -------------- --------------
Net cash provided by operating activities................. 270,828 141,609 99,775
Cash flows from investing activities:
Purchase of property and equipment............................ (157,071) (122,530) (3,500)
Cash flows from financing activities:
Repayment of notes payable to Weiss Bros. and AT&T............ (5,578,444) (65,000) --
Proceeds from notes payable to Odyssey payable................ 5,433,687 -- --
Payments to notes payable to banks............................ (6,441) (2,610) (34,168)
-------------- -------------- --------------
Net cash used in financing activities..................... (151,198) (67,610) (34,168)
-------------- -------------- --------------
Change in cash............................................ (37,441) (48,531) 62,107
Cash at beginning of period..................................... 74,180 74,180 36,739
-------------- -------------- --------------
Cash at end of period........................................... $ 36,739 $ 25,649 $ 98,846
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to combined financial statements.
F-27
<PAGE>
K&K RADIO BROADCASTING, L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
K&K Radio Broadcasting, L.L.C. (K&K Radio) was formed in 1985 as a Limited
Partnership with two majority members owning a combined interest of 95%.
In 1995, K&K Radio changed its legal entity status from a limited
partnership to a limited liability corporation and concurrently transferred its
land, buildings and transmission tower to K&K Tower, L.L.C. (K&K Tower). K&K
Radio and K&K Tower, was owned 50/50 by the majority members of K&K Radio
Limited Partnership. In 1996, one member transferred 5% interest in K&K Radio
and K&K Tower to a family member.
K&K Radio's operations are comprised of the operations of the radio station
WZVU-FM which utilizes the assets and transmission facilities of K&K Tower.
The accompanying financial statements present the combined financial
position and results of operations of K&K Radio and K&K Tower on an historical
cost basis. K&K Radio and K&K Tower collectively herein are referred to as the
"Company".
During November 1996, the Company entered into an agreement to sell
substantially all of the assets and operations of WZVU-FM to Odyssey
Communications, Inc. ("Odyssey") (see note 3).
In the opinion of management the unaudited combined financial statements as
of May 31, 1997 and for the five month periods ended May 31, 1997 and 1996
contained herein include all adjustments necessary for a fair presentation of
such statements. The general principles followed in preparing the combined
financial statements as of December 31, 1996, are similar to those used in
preparing these interim financial statements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets ranging from
31.5 years for buildings, and five to seven years for transmission equipment,
vehicles and furniture and office equipment.
(B) INTANGIBLE ASSETS
Intangible assets include a broadcast license and goodwill which are
amortized over a 40 year period.
(C) IMPAIRMENT OF LONG-LIVE ASSETS AND LONG LIVED ASSETS TO BE DISPOSED OF
It is the Company's policy to account for long-lived intangible assets at
the lower of amortized cost or fair market value. As part of an ongoing review
of the valuation and amortization of long-lived intangible assets, management
assesses the carrying value of the Company's long-lived assets and intangible
assets if facts and circumstances suggest that they are impaired. If this review
indicates that the long-lived intangibles will not be recoverable as determined
by a nondiscounted cash flow analysis over the remaining amortization period,
the carrying value of the Company's long-lived assets and intangibles will be
reduced to their estimated realizable value.
F-28
<PAGE>
K&K RADIO BROADCASTING, L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) REVENUE RECOGNITION
Broadcasting revenue is recognized when commercials are aired. Barter
transactions are recorded at the estimated fair value of the merchandise or
services received. Barter revenue is recognized when the commercial is aired and
barter merchandise or services received are expensed when used.
(E) INCOME TAXES
For Federal and state income tax purpose, the Company is treated as a
partnership. Accordingly, no provision is made for income taxes, as income or
loss is included in the tax returns of the Members.
(F) 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 at 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.
(G) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used in estimating the fair value
disclosures for financial instruments:
The carrying amounts reported in the balance sheets for cash, account
receivables, accounts payable and accrued expenses approximate fair value.
Management believes the carrying value of notes payable approximates its
fair value at December 31, 1996.
(H) ADVERTISING
The Company charges advertising costs, as incurred, to expense. Advertising
costs amounted to $128,781, $5,318, and $43,172 for the year ended December 31,
1996 and the five month periods ended March 31, 1997 and 1996, respectively.
(3) SALE OF WZVU-FM
On November 7, 1996, the Company entered into an agreement to sell
substantially all of the assets of the Company to Odyssey for $12,000,000. At
that date, Odyssey advanced $5,434,000 of the purchase price to the Company in
the form of a loan (see note 7). Simultaneously, with the signing of the
agreement, the Company entered into a local marketing agreement (LMA) with
Odyssey under which Odyssey has the right to manage the operations of the
station for a fee and reimburse the Company for the station's operating costs.
Monthly LMA fees, exclusive of reimbursement of station's operating costs, range
from $100,000 to a percentage of earnings before interest, taxes, depreciation
and amortization, as defined. As of December 31, 1996 and May 31, 1997, the
Company received LMA fees from Odyssey of $87,097 and $378,421, respectively.
The station operated under the LMA agreement from December 6, 1996 through June
5, 1997.
F-29
<PAGE>
K&K RADIO BROADCASTING, L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(3) SALE OF WZVU-FM (CONTINUED)
The members of the Company also entered into a three year
covenant-not-compete.
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and May 31, 1997 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 31,
1996 1997
------------ -----------
<S> <C> <C>
Land.............................................................. $ 150,332 $ 150,332
Building and improvements......................................... 710,307 710,307
Transmitter equipment............................................. 250,000 250,000
Furniture and office equipment.................................... 769,301 772,801
Vehicles.......................................................... 3,750 3,750
------------ -----------
1,883,690 1,887,190
Less: accumulated depreciation.................................... 972,137 1,012,836
------------ -----------
$ 911,553 $ 874,354
------------ -----------
------------ -----------
</TABLE>
(5) INTANGIBLES
Intangibles at December 31, 1996 and May 31, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 31,
1996 1997
------------ -----------
<S> <C> <C>
FCC broadcast licenses............................................ $ 300,644 $ 300,644
Goodwill.......................................................... 50,441 50,441
------------ -----------
351,085 351,085
Less: accumulated amortization.................................... 250,603 263,656
------------ -----------
$ 100,482 $ 87,429
------------ -----------
------------ -----------
</TABLE>
(6) NOTES PAYABLE
As of December 31, 1995, the Company had $5,578,444 of notes payable to
Weiss Bros. and AT&T and related accrued interest expense of $8,207,156.
On November 7, 1996, concurrent with the Company entering into the Asset
Purchase Agreement with Odyssey (as described in note 3), the Company entered
into a loan agreement with Odyssey for approximately $5,434,000. The loan bears
interest at prime plus 2% and is collateralized by substantially all of the
Company's assets. Interest accrues beginning February 1, 1997. Interest expense
as of May 31, 1997 was $179,683 (unaudited). The proceeds from the loan were
used to repay the outstanding notes payable at December 31, 1995. Upon repayment
of the notes payable, the noteholders forgave the outstanding accrued interest
on notes payable totaling $10,278,492. Accrued interest forgiven has been
reflected in the 1996 statement of operations as an extraordinary item.
On June 5, 1997, the date of sale of the Company to Odyssey, the note
payable to Odyssey was repaid.
F-30
<PAGE>
K&K RADIO BROADCASTING, L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(6) NOTES PAYABLE (CONTINUED)
During 1996 and at May 31, 1997, the Company had a line of credit with a
commercial bank to borrow up to $100,000 at 10% interest. As of December 31,
1996, total borrowings under the line of credit were $34,168.
(7) NOTES PAYABLE TO MEMBERS
At December 31, 1996 and May 31, 1997, the Company had $820,930 outstanding
in notes payable to members of the Company which are subordinated to the note
payable to Odyssey as described in note 7. The notes payable to members were
comprised of $465,012, which bears interest at 7.5%. The remaining notes payable
balance represents accrued interest outstanding on this loan. Also, included in
accrued expenses is $428,750 of accrued wages payable to one Member.
(8) MEMBERS' CAPITAL
The affairs of the Company are managed by the Members with decisions and
actions decided by a majority interest of the Members. Company profits, losses,
cash distributions and capital proceeds are distributed according to each
members interest, as defined in the Amended and Restricted Operating Agreement.
As defined in the Amended and Restated Operating Agreement, the Company
shall be dissolved upon the earlier of March 1, 2025, the sale, exchange or
complete disposition of the station, bankruptcy, dissolution on withdrawal of
any Member (unless remaining Members consent to continue the Company) or the
happening of any other event causing the dissolution of the Company.
(9) EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) Defined Contribution Plan (Plan) in which all
full-time employees are eligible to participate. Under the terms of the Plan,
employees could contribute a percentage of their base pay up to the annual
Internal Revenue Service (IRS) limit. Employee contributions of up to 6% are
matched 50% by the Company.
For the year ended December 31, 1996, total expense for the plan amounted to
$18,856. Effective December 31, 1996, the Plan was terminated.
(10) SUPPLEMENTARY INFORMATION--STATEMENT OF CASH FLOWS
Barter transactions resulted in sales and related expenses of $452,158,
$3,127 and $163,916 for the year ended December 31, 1996 and the five month
periods ending May 31, 1997 and May 31, 1996, respectively.
F-31
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
WVVX:
We have audited the accompanying balance sheet of WVVX (the Company) as of
December 31, 1996 (Successor), and the related statements of operations, station
equity, and cash flows for the period January 1, 1996 to June 13, 1996
(Predecessor) and the period from June 14, 1996 to December 31, 1996
(Successor). 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 WVVX as of December 31, 1996
(Successor), and the results of its operations and its cash flows for the period
January 1, 1996 to June 13, 1996 (Predecessor) and the period from June 14, 1996
to December 31, 1996 (Successor) in conformity with generally accepted
accounting principles.
As discussed in note 2 to the financial statements, on June 14, 1996, PAR
Radio Holdings, Inc., acquired Douglas Broadcasting, Inc. As a result of the
change in control, the financial information for the period after the change in
control is presented on a different cost basis than that for the period before
the change in control and, therefore, is not comparable.
KPMG Peat Marwick LLP
Oakland, CA
September 18, 1997
F-32
<PAGE>
WVVX
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1996 1997
------------- -------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
SUCCESSOR SUCCESSOR
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................. $ 19,816 $ 31,957
Trade accounts receivable, less allowance for doubtful accounts of $10,122 in
1996 and $10,000 in 1997....................................................... 38,008 51,539
Prepaid expenses and other current assets........................................ 10,964 11,451
------------- -------------
Total current assets......................................................... 68,788 94,947
Property and equipment, net........................................................ 176,372 161,572
Intangible assets, net............................................................. 10,509,805 10,393,649
Allocated debt issuance costs...................................................... 204,627 177,948
------------- -------------
Total assets................................................................. $ 10,959,592 $ 10,828,116
------------- -------------
------------- -------------
LIABILITIES AND STATION EQUITY
Current liabilities:
Trade accounts payable........................................................... $ 18,910 $ 11,161
Accrued expenses................................................................. 47,120 35,209
------------- -------------
Total current liabilities.................................................... 66,030 46,370
Allocated long term debt........................................................... 2,728,700 2,728,700
Deferred income taxes.............................................................. 3,717,555 3,651,007
Station equity..................................................................... 4,447,307 4,402,039
------------- -------------
Total liabilities and station equity......................................... $ 10,959,592 $ 10,828,116
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
WVVX
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, PERIOD FROM SEVEN
1996 JUNE 14, 1996 MONTHS
TO TO ENDED
JUNE 13, DECEMBER 31, JULY 31,
1996 1996 1997
------------ -------------- -----------
(PREDECESSOR) (SUCCESSOR) (SUCCESSOR)
(UNAUDITED)
<S> <C> <C> <C>
Net revenues....................................... $ 499,254 $ 638,012 $ 621,620
Operating expenses:
Station operating expenses....................... 179,241 219,432 255,493
Allocated corporate general and administrative
expenses....................................... 94,199 148,635 169,485
Depreciation and amortization.................... 151,747 154,611 168,777
------------ -------------- -----------
Total operating expenses..................... 425,187 522,678 593,755
------------ -------------- -----------
Operating income............................. 74,067 115,334 27,865
Allocated interest expense including amortization
of debt issuance costs......................... 150,559 192,265 231,063
Other expenses, net.............................. 7,988 8,242 --
------------ -------------- -----------
Loss before income taxes and extraordinary item.... (84,480) (85,173) (203,198)
Income tax benefit................................. 7,761 27,255 66,548
------------ -------------- -----------
Loss before extraordinary item..................... (76,719) (57,918) (136,650)
Extraordinary item--write-off debt issuance
costs.............................................. (92,676) -- --
------------ -------------- -----------
Net loss..................................... $ (169,395) $ (57,918) $(136,650)
------------ -------------- -----------
------------ -------------- -----------
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
WVVX
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 14, 1996
TO
DECEMBER 31,
PERIOD FROM 1996 SEVEN
JANUARY 1, -------------- MONTHS
1996 ENDED
TO SUCCESSOR JULY 31,
JUNE 13, 1997
1996 -----------
------------
(UNAUDITED)
PREDECESSOR SUCCESSOR
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (169,395) $ (57,918) $(136,650)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 151,747 154,611 168,777
Write-off of debt issuance costs.............. 92,676 -- --
Deferred income taxes......................... (7,761) (27,255) (66,548)
Amortization of debt issuance costs........... 68,608 23,647 26,679
Changes in operating assets and liabilities:
Trade accounts receivable, net.............. 27,200 (13) (13,531)
Prepaid expenses and other current assets... (3,305) (6,271) (487)
Trade accounts payable...................... 1,197 (348) (7,749)
Accrued expenses............................ (98,499) 60,600 (11,911)
Deferred revenue............................ 67,983 (67,983) --
------------ -------------- -----------
Net cash provided by (used in) operating
activities............................ 130,451 79,070 (41,420)
Cash flows from investing activities:
Capital expenditures............................ -- (18,647) (37,821)
------------ -------------- -----------
Net cash used in investing activities............. -- (18,647) (37,821)
Cash flows from financing activities:
Net cash transferred (to) from owners........... (134,881) (46,723) 91,382
------------ -------------- -----------
Net (decrease) increase in cash................... (4,430) 13,700 12,141
Cash at beginning of period....................... 10,546 6,116 19,816
------------ -------------- -----------
Cash at end of period............................. $ 6,116 $ 19,816 $ 31,957
------------ -------------- -----------
------------ -------------- -----------
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE>
WVVX
STATEMENT OF STATION EQUITY
<TABLE>
<CAPTION>
(PREDECESSOR)
- --------------------------------------------------------------------------------
<S> <C>
Balance as of January 1, 1996................................................... $ 409,197
Net loss........................................................................ (169,395)
Repayment of push-down debt by parent........................................... 2,179,489
Net cash transferred to owner................................................... (134,881)
---------
Balance as of June 13, 1996..................................................... $2,284,410
---------
---------
<CAPTION>
- -------------------------------------------------------------------------------------------
(SUCCESSOR)
- --------------------------------------------------------------------------------
<S> <C>
Balance subsequent to change in control as of June 14, 1996..................... $4,551,948
Net loss........................................................................ (57,918)
Net cash transferred to owner................................................... (46,723)
---------
Balance as of December 31, 1996................................................. 4,447,307
Net loss (unaudited)............................................................ (136,650)
Net contribution from owner (unaudited)......................................... 91,382
Balance as of July 31, 1997 (unaudited)......................................... $4,402,039
---------
---------
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE>
WVVX
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SEVEN-MONTH PERIOD ENDED JULY 31, 1997 IS UNAUDITED).
(1) DESCRIPTION OF BUSINESS
OPERATIONS
WVVX (the "Company") conducts radio broadcasting operations in Chicago. The
principal source of revenue is derived from the Company selling block
programming time to users that have unique demands for time (such as foreign
language and religious programming).
The Company is dependent on its parent company for long-term funding and
also in respect of funding to meet cash flow requirements associated with its
operations. Consequently, the net change in amounts due to or from affiliated
radio stations are treated as contributions to or distributions from station
equity.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
For the period January 1, 1996 to June 13, 1996, the Company was owned by
Douglas Broadcasting, Inc. ("DBI") (Predecessor). On June 14, 1996, DBI was
acquired by Par Radio Holdings Inc. ("PRHI") (Successor) and was accounted for
under the purchase method of accounting. Accordingly, the statements of
operations and cash flows for the period January 1, 1996 to June 13, 1996
reflect the operations of the Company as a part of DBI (Predecessor) and the
balance sheet as of December 31, 1996 and the statements of operations and cash
flows for the periods subsequent to June 14, 1996 reflect the Company's
operation and financial position under the ownership of PRHI (Successor).
As a result of the change in control, the financial information for the
periods after the change in control is presented on a different cost basis than
that for the period before the change in control and, therefore, is not
comparable.
The accompanying financial statements include certain corporate general and
administrative expenses incurred on a consolidated basis by DBI for the period
January 1, 1996 to June 13, 1996 and PRHI for the period January 14, 1996 to
December 31, 1996 and the seven months ended July 31, 1997 and have been
allocated to the Company. Such allocations include corporate salaries, health
insurance, professional services and other corporate overhead expenses and are
included in general and administative expenses in the Company's statements of
operations. In management's opinion, the basis of allocation of such costs is
reasonable. However, the expenses allocated to the Company are not necessarily
representative of what the Company would have incurred on a stand alone basis.
Allocated costs are as follows:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM SEVEN
JANUARY 1, JUNE 14, 1996 MONTHS
1996 TO ENDED
TO DECEMBER 31, JULY 31,
JUNE 13, 1996 1996 1997
------------- -------------- -----------
PREDECESSOR SUCCESSOR SUCCESSOR
<S> <C> <C> <C>
Corporate salaries................ $ 59,182 $ 70,684 $ 94,153
Health insurance.................. 2,463 2,910 2,327
Professional services............. 6,946 8,209 20,492
Other corporate overheads......... 25,608 66,832 52,513
------------- -------------- -----------
$ 94,199 $ 148,635 $ 169,485
------------- -------------- -----------
------------- -------------- -----------
</TABLE>
F-37
<PAGE>
WVVX
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SEVEN-MONTH PERIOD ENDED JULY 31, 1997 IS UNAUDITED).
Included in the financial statements is an allocation of interest expense,
including amortization of debt issuance costs for the period January 1, 1996 to
June 13, 1996 and for the period June 14, 1996 to December 31, 1996 and the
seven months ended July 31, 1997 based on the ratio of investment in WVVX to
total investments of the respective owners, in each period. For purposes of
these financial statements, the Company has been allocated a portion of the
total debt and the goodwill in connection with PRHI's acquisition of DBI. In
addition, as part of the acquisition of DBI by PRHI, DBI repaid its total debt
and the Company has been allocated a portion of the write-off of the debt
issuance costs.
Station operating expenses includes an allocation for salaries of WVVX
employees who provide services to a sister station. Approximately $7,000 per
month is allocated to the sister station based on proportional revenues.
The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments necessary for a fair presentation of
financial position, results of operations, and cash flows for the periods
presented. These adjustments consist of normal, recurring items. The results of
operations for any interim period are not necessarily indicative of results for
the full year.
(B) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is calculated on a
straight-line basis over the estimated useful lives of the assets ranging
between 5 and 25 years.
(C) INTANGIBLE ASSETS
Included in intangible assets are goodwill and FCC licenses. Goodwill, which
represents the excess of cost of purchased companies over the fair value of
their net assets at the date of acquisition, and FCC licenses are amortized over
40 years.
(D) REVENUE RECOGNITION
Broadcasting revenue is recognized when the program or advertisement is
aired.
(E) INCOME TAXES
The Company accounts for income taxes using the asset and liability method,
under which deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(F) 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 at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
F-38
<PAGE>
WVVX
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SEVEN-MONTH PERIOD ENDED JULY 31, 1997 IS UNAUDITED).
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 1996
and July 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1996 1997
------------ -----------
<S> <C> <C>
(SUCCESSOR)
Transmitter equipment.............................................. $ 2,714 $ 3,111
Studio and technical equipment..................................... 32,012 32,012
Tower and antenna systems.......................................... 106,957 106,957
Office furniture and equipment..................................... 8,896 8,896
Production library................................................. 2,500 2,500
Other.............................................................. 35,545 35,545
------------ -----------
188,624 189,021
Less: accumulated depreciation and amortization.................... (12,252) (27,449)
------------ -----------
$ 176,372 $ 161,572
------------ -----------
------------ -----------
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets consisted of the following as of December 31, 1996 and
July 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1996 1997
------------ ------------
<S> <C> <C>
(SUCCESSOR)
Goodwill........................................................... $2,477,164 $ 2,477,164
FCC licenses....................................................... 8,175,000 8,175,000
Other.............................................................. -- 37,378
------------ ------------
10,652,164 10,689,542,
Less: accumulated amortization..................................... (142,359) (295,893)
------------ ------------
$10,509,805 $ 10,393,649
------------ ------------
------------ ------------
</TABLE>
(5) ALLOCATED LONG-TERM DEBT
Allocated long-term debt represents the Company's allocated share of a term
loan of $15,000,000 obtained by PRHI, which was used a fund a portion of the
purchase of the common stock of DBI.
Borrowings bear interest at the lender's prime rate plus 2.75% or at the
London Interbank Offering Rate ("LIBOR") plus 4%.
As of December 31, 1996, principal repayments on the term loan were due as
follows: $2,250,000 in 1999, $3,000,000 in 2000, $3,562,500 in 2001, $4,875,000
in 2002 and $1,312,500 in 2003.
At December 31, 1996 and July 31, 1997 the Parent Company was in technical
default of certain covenant compliance requirements, for which a waiver was
received from the lender. On August 15, 1997, an equity contribution by the
Parent Company's controlling owner was used to repay $6,000,000 of the
$15,000,000 outstanding.
(6) AMOUNTS DUE TO/FROM AFFILIATED STATIONS
Amounts due to or from affiliated radio stations have been included in
station equity and would have eliminated on consolidation in the combined
financial statements of Par Radio Holdings, Inc. for the period from June 14,
1996 to December 31, 1996.
F-39
<PAGE>
WVVX
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SEVEN-MONTH PERIOD ENDED JULY 31, 1997 IS UNAUDITED).
(7) LEASE COMMITMENTS
The Company leases various facilities and equipment under noncancelable
operating leases expiring through 2002. Certain operating leases are renewable
at the end of the contract term. Future minimum lease payments under
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
1997.............................................................. $ 20,540
<S> <C>
1998.............................................................. 49,719
1999.............................................................. 50,611
2000.............................................................. 51,631
2001.............................................................. 52,665
Thereafter........................................................ 13,166
---------
$ 238,332
---------
---------
</TABLE>
Rent expense was approximately $51,173 and $31,950 for the year ended
December 31, 1996 and the seven months ended July 31, 1997, respectively.
(8) INCOME TAXES
Federal and state income taxes have been provided as if the Company filed a
separate tax return. On a stand alone basis the Company owes no current taxes
and any allocated income tax expenses (benefit) by DBI or PRHI have been
reflected in station equity as transfers to or contributions from owner.
The reconciliation of the income tax charge computed at the U.S. Federal
statutory income tax rate to the Company's effective income tax rate is as
follows:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, 1996 JUNE 14, 1996 SEVEN MONTHS
TO TO ENDED
JUNE 13, 1996 DECEMBER 31, 1996 JULY 31, 1997
----------------- ----------------- ---------------
PREDECESSOR SUCCESSOR SUCCESSOR
<S> <C> <C> <C>
Tax benefit at U.S. Federal statutory rate...... 34.0% 34.0% 34.0%
Expected state tax benefit...................... 2.5 2.5 5.9
Fully valued unutilized net operating losses.... (26.4) (3.0) (7.8)
Other........................................... (0.9) (0.9) (0.5)
----- --- ---
9.2% 32.6% 31.6%
----- --- ---
----- --- ---
</TABLE>
The net deferred income tax assets/liabilities result from tax effects of
temporary differences as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1996 1997
----------------- -------------
<S> <C> <C>
SUCCESSOR SUCCESSOR
Excess of book basis over tax basis of intangible assets........................ $ (3,900,268) $ (3,831,457)
Excess of book basis over tax basis of tangible assets.......................... (63,047) (59,002)
Other........................................................................... 245,760 239,452
----------------- -------------
$ 3,717,555 $ 3,651,007
----------------- -------------
----------------- -------------
</TABLE>
F-40
<PAGE>
WVVX
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SEVEN-MONTH PERIOD ENDED JULY 31, 1997 IS UNAUDITED).
(9) CONTINGENCIES
The Company is subject to routine claims and litigation incidental to its
business. The Company believes that the results of these matters will not have a
material adverse effect on the Company's financial condition.
(10) SUBSEQUENT EVENT
On August 7, 1997, PHI sold the assets and FCC license of the Company to
Odyssey Communications, Inc. for $9,500,000.
F-41
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 8
Use of Proceeds................................. 14
Dividend Policy................................. 14
Dilution........................................ 14
Capitalization.................................. 16
Pro Forma Financial Statements.................. 17
Selected Financial and Operating Data........... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 25
Business........................................ 32
Management...................................... 46
Principal Stockholders.......................... 55
Certain Relationships and Related
Transactions.................................. 56
Description of Credit Facility.................. 57
Description of Capital Stock.................... 58
Shares Eligible for Future Sale................. 63
Underwriting.................................... 64
Legal Matters................................... 66
Experts......................................... 66
Market Data and Certain Definitions............. 66
Cautionary Note Regarding Forward-Looking
Statements.................................... 66
Additional Information.......................... 67
Index to Financial Statements................... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
SHARES
[LOGO]
ODYSSEY
COMMUNICATIONS, INC.
CLASS A COMMON STOCK
-----------------
PROSPECTUS
-----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, in connection with the issuance and distribution of
the securities registered hereby. All the amounts shown are estimates, except
for the Commission registration fee, the National Association of Securities
Dealers ("NASD") filing fee and the AMEX listing fee. All of the following fees
and expenses will be paid by the Company.
<TABLE>
<S> <C>
Commission registration fee........................................ $ 12,197
NASD filing fee.................................................... 4,525
AMEX listing fee................................................... $
Printing and engraving expenses.................................... --
Legal fees and expenses............................................ --
Accounting fees and expenses....................................... --
Blue Sky fees and expenses (including counsel fees and expenses)... --
Transfer Agent and Registrar fees and expenses..................... --
Miscellaneous...................................................... --
---------
Total.......................................................... $
---------
---------
</TABLE>
- ------------------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he 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
cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the court in which such action or suit was brought shall
determine that, despite the adjudication of liability, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue, or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 of the DGCL shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that the corporation may purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
him or incurred by him in any such capacity or
II-1
<PAGE>
arising out of his status as such whether or not the corporation would have the
power to indemnify him against such liabilities under such Section 145 of the
DGCL.
Section 102(b)(7) of the DGCL provides that a corporation in its original
certificate of incorporation or an amendment thereto validly approved by
stockholders may eliminate or limit personal liability of members of its board
of directors or governing body for breach of a director's fiduciary duty.
However, no such provision may eliminate or limit the liability of a director
for breaching his duty of loyalty, failing to act in good faith, engaging in
intentional misconduct or knowingly violating a law, paying a dividend or
approving a stock repurchase which was illegal, or obtaining an improper
personal benefit. A provision of this type has no effect on the availability of
equitable remedies, such as injunction or rescission, for breach of fiduciary
duty. The Company's Amended and Restated Certificate of Incorporation contains
such a provision.
The Company's Amended and Restated Certificate of Incorporation further
provides that the Company shall indemnify its officers and directors and, to the
extent authorized by the Board of Directors of the Company, employees and agents
of the Company, to the fullest extent permitted by and in the manner permissible
under the laws of the State of Delaware.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its incorporation the Company has issued the following securities,
none of which have been registered under the Securities Act.
On October 17, 1994, the Company issued 360 shares of Old Common Stock to
each of Stuart Subotnick and Anita Subotnick for an aggregate capital
contribution of $350,000. On October 17, 1994, the Company issued 80 shares of
Old Common Stock to Michael Kakoyiannis in consideration for the contribution by
Mr. Kakoyiannis to the Company of his options to acquire all of the assets of
radio stations WRKL (AM) and WWXY (FM).
On May 29, 1996, the Company issued 216 additional shares of Old Common
Stock to each of Stuart Subotnick and Anita Subotnick in connection with the
merger of Q Broadcasting, Inc. with and into the Company.
In connection with the consummation of this Offering, the Company will issue
Class A Common Stock to the Principal Stockholders and Michael Kakoyiannis. The
Principal Stockholders will then exchange all their shares of Class A Common
Stock for a similar number of shares of Class B Common Stock.
In addition, in connection with the consummation of this Offering, the
Principal Stockholders will contribute approximately $13.0 million in
outstanding stockholders' loans made by them to the Company and the Company will
issue the Principal Stockholders additional shares of Class B Common Stock in
consideration for the Equity Contribution.
Each of the foregoing transactions was effected without registration under
the Securities Act in reliance on the exemption from registration provided
pursuant to Section 4(2) and Regulation D promulgated thereunder.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Form of Amended and Restated Certificate of Incorporation of Odyssey Communications, Inc.
3.2* Bylaws of Odyssey Communications, Inc.
4.1* Specimen Class A Common Stock Certificate of Odyssey Communications, Inc.
5.1* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison.
10.1* Odyssey Communications, Inc. 1998 Incentive Stock Plan.
10.2* Employment Agreement, dated , 1997, between Odyssey Communications, Inc. and Michael
Kakoyiannis.
10.3* Employment Agreement, dated , 1997, between Odyssey Communications, Inc. and Paul R.
Thomson.
10.4* Employment Agreement, dated , 1997, between Odyssey Communications, Inc. and Steven G.
Blatter.
10.5* Employment Agreement, dated , 1997, between Odyssey Communications, Inc. and Alan D.
Kirschner.
10.6* Agreement and Plan of Merger, dated May 20, 1996, between Q Broadcasting, Inc. and Odyssey
Communications, Inc.
10.7* Amended and Restated Credit Agreement, dated as of , 1997, between Odyssey Communications,
Inc. and .
11.1* Statements Re Computation of Per Share Earnings.
21.1* List of Subsidiaries of Odyssey Communications, Inc.
23.1* Consent of Paul, Weiss, Rifkind, Wharton & Garrison (contained in the opinion filed as Exhibit 5.1
hereto).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Holtz Rubenstein & Co., LLP.
24.1 Power of Attorney (contained on signature page).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
Schedule II--Combined Financial Statement Schedules Valuation and Qualifying
Accounts.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(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 a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(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.
(3) 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-4
<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 the City of New York,
State of New York, on September 25, 1997.
<TABLE>
<S> <C> <C>
ODYSSEY COMMUNICATIONS, INC.
By: /s/ MICHAEL KAKOYIANNIS
-----------------------------------------
Name: Michael Kakoyiannis
Title: Chief Executive Officer and
President
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below hereby constitutes and appoints Michael Kakoyiannis, Stuart Subotnick and
Paul R. Thomson, and each of them, his or her true and lawful agent, proxy and
attorney-in-fact, each acting alone, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to (i) act on, sign and file with the Securities and
Exchange Commission any and all amendments (including post-effective amendments)
to this Registration Statement together with all schedules and exhibits thereto
and any subsequent registration statement filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, together with all schedules and exhibits
thereto, (ii) act on, sign and file such certificates, instruments, agreements
and other documents as may be necessary or appropriate in connection therewith,
(iii) act on and file any supplement to any prospectus included in this
Registration Statement or any such amendment or any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, and (iv) take any and all actions which may be necessary or appropriate
in connection therewith, granting unto such agents, proxies and
attorneys-in-fact, and each of them, full power and authority to do and perform
each and every act and thing necessary or appropriate to be done, as fully for
all intents and purposes as he or she might or could do in person, hereby
approving, ratifying and confirming all that such agents, proxies and
attorneys-in-fact, any of them or any of his or her or their substitutes may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated, on September 25, 1997.
<TABLE>
<CAPTION>
SIGNATURES TITLE OR CAPACITIES
- ------------------------------------------------------ ---------------------------------------------------------
<C> <S>
/s/ STUART SUBOTNICK
------------------------------------------- Chairman of the Board of Directors
Stuart Subotnick
/s/ MICHAEL KAKOYIANNIS
------------------------------------------- President, Chief Executive Officer and Director
Michael Kakoyiannis (Principal Executive Officer)
/s/ PAUL R. THOMSON
------------------------------------------- Vice President and Chief Financial Officer (Principal
Paul R. Thomson Financial and Accounting Officer
/s/ ANITA SUBOTNICK
------------------------------------------- Director
Anita Subotnick
</TABLE>
II-5
<PAGE>
SCHEDULE II
ODYSSEY COMMUNICATIONS, INC.
COMBINED FINANCIAL STATEMENT SCHEDULES VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED BALANCE AT
BEGINNING TO COSTS OTHER DEDUCTIONS/ END
OF PERIOD AND PURCHASES CHARGES WRITE-OFFS OF PERIOD
----------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Allowances for doubtful accounts, etc.
(deducted from current receivables):
Year ended September 30, 1993.................. $ -- $ 20,000 $ -- $ -- $ 20,000
----------- ------------- ---------- ------------ ----------
Year ended September 30, 1994.................. $ 20,000 $ 76,000 $ -- $ (41,000) $ 55,000
----------- ------------- ---------- ------------ ----------
----------- ------------- ---------- ------------ ----------
Quarter ended December 31, 1994................ $ 55,000 -- -- $ (1,000) $ 54,000
----------- ------------- ---------- ------------ ----------
Year ended December 31, 1995................... $ 54,000 $ 30,000 $ $ (26,000) $ 58,000
----------- ------------- ---------- ------------ ----------
----------- ------------- ---------- ------------ ----------
Year ended December 31, 1996................... $ 58,000 $ 190,000 $ $ (36,000) $ 212,000
----------- ------------- ---------- ------------ ----------
----------- ------------- ---------- ------------ ----------
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
3.1* Form of Amended and Restated Certificate of Incorporation of Odyssey Communications, Inc.
3.2* Bylaws of Odyssey Communications, Inc.
4.1* Specimen Class A Common Stock Certificate of Odyssey Communications, Inc.
5.1* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison.
10.1* Odyssey Communications, Inc. 1998 Incentive Stock Plan.
10.2* Employment Agreement, dated , 1997, between Odyssey Communications, Inc. and Michael
Kakoyiannis.
10.3* Employment Agreement, dated , 1997, between Odyssey Communications, Inc. and Paul R.
Thomson.
10.4* Employment Agreement, dated , 1997, between Odyssey Communications, Inc. and Steven
G. Blatter.
10.5* Employment Agreement, dated , 1997, between Odyssey Communications, Inc. and Alan D.
Kirschner.
10.6* Agreement and Plan of Merger, dated May 20, 1996, between Q Broadcasting, Inc. and Odyssey
Communications, Inc.
10.7* Amended and Restated Credit Agreement, dated as of , 1997, between Odyssey
Communications, Inc. and .
11.1* Statements Re Computation of Per Share Earnings.
21.1* List of Subsidiaries of Odyssey Communications, Inc.
23.1* Consent of Paul, Weiss, Rifkind, Wharton & Garrison (contained in the opinion filed as Exhibit
5.1 hereto).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Holtz Rubenstein & Co., LLP.
24.1 Power of Attorney (contained on signature page).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
EXHIBIT 23.2
The Board of Directors
Odyssey Communications, Inc.:
The audit referred to in our report dated September 10, 1997, included the
related financial statement schedule as of December 31, 1996, and for the year
then ended, included in the registration statement. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statement schedule based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
We consent to the use of our reports included herein related to the audits
of Odyssey Communications, Inc., K&K Radio Broadcasting L.L.C. and WVVX and to
the reference to our firm under the headings "Summary Financial and Operating
Data," "Selected Financial" and "Operating Data" and "Experts" in the
prospectus.
New York, New York
September 26, 1997
KPMG Peat Marwick LLP
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
AND REPORT ON SCHEDULES
We consent to the inclusion in this Registration Statement of Odyssey
Communications, Inc. on Form S-1 of our report dated September 19, 1997, on our
audits of the financial statements of Odyssey Communications, Inc. and to the
references to our firm under the captions "Summary Financial and Operating
Data", "Selected Financial and Operating Date" and "Experts".
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Odyssey Communications, Inc.
listed in Item . This financial statement schedule is the responsibility of
the Corporation's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ HOLTZ RUBENSTEIN & CO., LLP
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
September 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 234 163
<SECURITIES> 500 0
<RECEIVABLES> 1,812 2,737
<ALLOWANCES> 275 212
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,313 3,037
<PP&E> 1,861 3,110
<DEPRECIATION> 384 509
<TOTAL-ASSETS> 38,963 50,968
<CURRENT-LIABILITIES> 2,019 2,373
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (3,800) (9,057)
<TOTAL-LIABILITY-AND-EQUITY> 38,963 50,968
<SALES> 7,944 4,700
<TOTAL-REVENUES> 7,944 4,700
<CGS> 0 0
<TOTAL-COSTS> 14,842 8,340
<OTHER-EXPENSES> (6,627) (1,617)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,827 1,663
<INCOME-PRETAX> (3,098) (5,257)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,098) (5,257)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,098) (5,257)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
