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Filed Pursuant to Rule 424(b)(1)
Registration No.333-52549
PROSPECTUS
BIG CITY RADIO, INC.
OFFER TO EXCHANGE ITS 11 1/4% SENIOR DISCOUNT NOTES DUE 2005 WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR
ANY AND ALL OF ITS OUTSTANDING 11 1/4% SENIOR DISCOUNT NOTES DUE 2005
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON JULY 6, 1998,
UNLESS EXTENDED.
Big City Radio, Inc., a Delaware corporation ("Big City Radio" or the
"Company"), hereby offers to exchange up to $174.0 million aggregate principal
amount of its 11 1/4% Senior Discount Notes due 2005 (the "New Notes") for a
like principal amount of its 11 1/4% Senior Discount Notes due 2005 outstanding
on the date hereof (the "Existing Notes") upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal (which together constitute the "Exchange Offer"). The terms of the
New Notes are identical in all material respects to those of the Existing Notes,
except for certain transfer restrictions and registration rights relating to the
Existing Notes. The New Notes will be issued pursuant to, and entitled to the
benefits of, the indenture, dated as of March 17, 1998 (the "Indenture"), among
the Company, Odyssey Traveling Billboards, Inc., Big City Radio--NYC, L.L.C.,
Big City Radio--LA, L.L.C., Big City Radio--CHI, L.L.C. and WRKL Rockland Radio,
L.L.C. as subsidiary guarantors (the "Subsidiary Guarantors"), and U.S. Bank
Trust National Association (formerly known as First Trust National Association)
as trustee (the "Trustee"), governing the Existing Notes. The Existing Notes and
the New Notes outstanding under the Indenture at any time are referred to
collectively as the "Notes."
The New Notes are being issued at a discount to their aggregate principal
amount at maturity. The New Notes will accrete in value until March 15, 2001 at
a rate of 11 1/4% PER ANNUM, compounded semi-annually, to an aggregate principal
amount of $174.0 million. Interest on the New Notes is payable semi-annually in
cash on March 15 and September 15 of each year, commencing on September 15,
2001, at a rate of 11 1/4% PER ANNUM.
The New Notes will mature on March 15, 2005 and will be redeemable, in whole
or in part, at the option of the Company at any time on or after March 15, 2002,
in whole or in part, at the redemption prices set forth herein, plus accrued and
unpaid interest, if any, to the redemption date. In addition, at any time on or
prior to March 15, 2001, the Company may, at its option, use the Net Cash
Proceeds (as defined) of one or more Equity Offerings (as defined) received by
the Company so long as there is a Public Market (as defined) for the Company's
Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), at
the time to redeem up to 33 1/3% of the original principal amount of the New
Notes at a redemption price equal to 111.25% of the Accreted Value (as defined)
thereof to be redeemed; provided, however, that at least 66 2/3% of the original
principal amount of the New Notes remains outstanding immediately after any such
redemption. See "Description of the New Notes--Redemption." Upon a Change of
Control (as defined), each holder of New Notes will have the rights to require
the Company to make an offer to purchase the New Notes at a price equal to 101%
of the Accreted Value of such New Notes prior to March 15, 2001, or 101% of the
principal amount thereafter, plus accrued and unpaid interest, if any, to the
purchase date. See "Description of the New Notes-- Change of Control."
(CONTINUED ON NEXT PAGE)
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SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN RISKS
THAT HOLDERS OF EXISTING NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE
OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
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.
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The date of this Prospectus is June 3, 1998.
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(CONTINUED FROM PREVIOUS PAGE)
The New Notes will be general unsecured senior obligations of the Company,
will rank PARI PASSU in right of payment with all other existing and future
senior indebtedness of the Company (including the Revolving Credit Facility (as
defined)), and will rank senior in right of payment to all existing and future
subordinated indebtedness of the Company. The New Notes will be guaranteed on a
senior unsecured, full and unconditional, joint and several, basis by each of
the Restricted Subsidiaries (as defined). Currently, the Company's only
Subsidiaries (as defined) are special purpose subsidiaries formed to hold the
Company's radio licenses and certain other assets, each of which is classified
as a Restricted Subsidiary. After giving pro forma effect to the issuance and
sale of the Existing Notes (the "Offering") and the application of the net
proceeds therefrom, as of December 31, 1997, the Company and its Restricted
Subsidiaries would have had no indebtedness outstanding other than the Notes.
See "Use of Proceeds" and "Capitalization."
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company and the Subsidiary Guarantors contained in the
Exchange and Registration Rights Agreement, dated as of March 17, 1998 (the
"Registration Rights Agreement"), among the Company, the Subsidiary Guarantors
and Chase Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation,
BT Alex Brown Incorporated and ING Baring (U.S.) Securities, Inc. as the initial
purchasers (the "Initial Purchasers") of the Existing Notes.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of
Existing Notes pursuant to the Exchange Offer may be withdrawn at any time prior
to the Expiration Date (as defined) for the Exchange Offer. The Company
expressly reserves the right to terminate or amend the Exchange Offer and not to
accept for exchange any Existing Notes not theretofore accepted for exchange
upon the occurrence of any of the events specified under "The Exchange
Offer--Conditions to the Exchange Offer." If any such termination or amendment
occurs, the Company will notify U.S. Bank Trust National Association (formerly
known as First Trust National Association) in its capacity as exchange agent in
the Exchange Offer (the "Exchange Agent") and will either issue a press release
or give oral or written notice to the holders of the Existing Notes as promptly
as practicable. The Exchange Offer will expire at 5:00 P.M., New York City time,
on July 6, 1998 (the "Expiration Date"), unless the Company, in its sole
discretion, has extended the period of time for which the Exchange Offer is
open. In the event the Company terminates the Exchange Offer and does not accept
for exchange any Existing Notes with respect to the Exchange Offer, the Company
will promptly return such Existing Notes to the holders thereof. See "The
Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"), and must
acknowledge that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivery of a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Existing Notes where such
Existing Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company and the Subsidiary
Guarantors have agreed that, for a period of 180 days after the Expiration Date,
they will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
The Existing Notes are currently trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") market. Following commencement
of the Exchange Offer but prior to its consummation, the Existing Notes may
continue to be traded in the PORTAL market. Following consummation of the
Exchange Offer, the New Notes will not be eligible for PORTAL trading.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange pursuant to the Exchange Offer.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Company filed with
the Commission a Registration Statement on Form S-4 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") under the Securities Act with respect to the New Notes being offered
hereby. This Prospectus, which forms a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement. For
further information with respect to the Company and the New Notes, reference is
made to the Registration Statement. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily complete,
and, where such contract or other document is an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions in
such exhibit, to which reference is hereby made. Reports, proxy and information
statements and other information filed by the Company and copies of the
Registration Statement may be examined and copied without charge at the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and the Commission's Regional Offices located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained upon written request from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
upon payment of certain fees prescribed by the Commission. In addition, the
Commission maintains a site on the World Wide Web at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Such
materials may also be inspected and copied at the offices of the American Stock
Exchange (the "AMEX") on which the Company's Class A Common Stock is listed,
Corporate Relations Department, 86 Trinity Place, New York, NY 10006.
Pursuant to the Indenture, the Company has agreed to provide the Trustee and
holders of the Notes with annual, quarterly and other reports at the times and
containing in all material respects the information specified in Sections 13(a)
and 15(d) of the Exchange Act and to continue to file such reports with the
Commission, notwithstanding that the Company may not be subject to the reporting
requirements of the Exchange Act. In the event the Company is not permitted to
file such reports, documents and information with the Commission pursuant to the
Exchange Act, the Company will be required under the Indenture to continue to
provide the Trustee and holders of the Notes with the reports, information,
documents or other reports which would be required pursuant to the informational
requirements of the Exchange Act. All such reports will be prepared in
accordance with generally accepted accounting principles ("GAAP"). The Company
will also furnish such other reports as may be required by law.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus, including those employing the phrases
"will," "expects," "intends," "estimates," "contemplates," and similar phrases,
are "forward-looking" statements (as such term is defined in Section 27A of the
Securities Act, and Section 21E of the Exchange Act) including statements
regarding, among other items, (i) the Company's growth strategy, (ii) the
Company's intention to acquire additional radio stations and to enter additional
markets, including its ability to do so at attractive valuations, (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.
Certain, but not necessarily all, of such forward-looking statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance and achievements of the Company and its
subsidiaries to be materially different from any future results, performance or
achievements expressed or implied by such
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forward-looking statements. Such factors include, but are not limited to, the
following: (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 does not
undertake and specifically declines any obligation to publicly release the
results of any revisions which may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY AND SHOULD BE READ IN
CONJUNCTION WITH THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS OF
THE COMPANY, AND RELATED NOTES THERETO, AND OTHER DATA APPEARING ELSEWHERE IN
THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION INCLUDED IN THIS
PROSPECTUS HAS BEEN ADJUSTED TO GIVE EFFECT TO THE CHANGE BY THE COMPANY OF ITS
FISCAL YEAR-END FROM SEPTEMBER 30 TO DECEMBER 31. FOR A DEFINITION AND
EXPLANATION OF INDUSTRY TERMS AND THE SOURCE OF MARKET DATA CITED HEREIN, SEE
"MARKET DATA AND CERTAIN DEFINITIONS" ON PAGE 108.
THE COMPANY
Big City Radio 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-TM- ("STMC-TM-"). STMC-TM- 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-TM-, 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 stations' broadcast antennas closer to the metropolitan
market ("move-ins") and acquiring high-power stations adjacent to major
metropolitan markets and focusing such stations' broadcast signals 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 is typically required to acquire a major market Class B
station. Class B radio stations are defined by the Federal Communications
Commission (the "FCC") as those facilities whose signal is predicted to cover a
regional urban area. 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'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 initially
covered approximately 75% of the Arbitron diaries in the Los Angeles Arbitron
Metro Survey Area ("MSA") and, as a result of an increase in its transmission
power pursuant to the FCC Power Increase (as defined), which the Company has
recently implemented, Y-107 LA has increased its coverage to approximately 90%.
The Company has demonstrated the success of its strategy in Los Angeles where
Y-107 LA has consistently ranked as one of the top five most listened-to modern
rock radio stations in America over the past year and achieved a significant
share of 0.8% in the 12+ category as of the Winter 1998 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 0.8 in the six-month period ended March 1997 to 1.3 in
the six-month period ended December 1997. The Company's three Los Angeles
stations (the "Los Angeles Stations") were acquired in May 1996 for a combined
purchase price significantly lower than the reported purchase prices 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 (as defined) in
1996. See "Business Strategy" below.
The Company's three stations in the New York MSA collectively broadcast as
Y-107 ("Y-107 NY") on the 107.1-FM frequency. Y-107 NY commenced operations in
December 1996 as the only country music station covering the New York City
market. Y-107 NY earned a 0.9% share in the 12+category as of the Winter 1998
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 the planned increase in
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its transmission power pursuant to the FCC Power Increase and completion of
other technical improvements, which the Company is currently implementing. See
"Risk Factors--Regulatory Matters and Dependence on Licenses." 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 reported purchase
prices of Class B stations in the New York MSA, as evidenced by transactions
consummated since the passage of the Telecom Act. In order to improve Y-107 NY's
listenable signal, the Company has recently signed an agreement to acquire a
combined AM/FM radio station in the New York MSA for an aggregate purchase price
of approximately $6.3 million and has entered into a LMA (as defined) that
enables it to immediately begin broadcasting Y-107 NY's country music on this
station (the "NY Station Acquisition"). Simultaneously with the consummation of
this acquisition, the Company intends to resell the assets of the AM radio
station for approximately $1.0 million. Following the consummation of this
acquisition, the FM radio station will be simulcasted using STMC-TM- to
broadcast on the 107.1-FM frequency with the Company's Y-107 NY radio stations.
The consummation of this acquisition remains subject to a number of significant
conditions to closing, including the consent of the FCC to the transfer of
control from this station's operating entity to the Company. See
"Business--Acquisitions" and "Business Strategy."
The Company's two stations in the Chicago MSA collectively broadcast as
FM-103.1 ("FM-103.1") on the 103.1-FM frequency. FM-103.1 commenced operations
in February 1998, broadcasting an adult contemporary format. FM-103.1 currently
covers approximately 70% of the Arbitron diaries in the Chicago MSA and will
increase its coverage to approximately 90% as a result of the planned increase
in its transmission power pursuant to the FCC Power Increase and other technical
improvements, which the Company plans to implement in 1998 pending receipt of
FCC approval. See "Risk Factors--Regulatory Matters and Dependence on Licenses."
The Company's two Chicago stations (the "Chicago Stations") were acquired for a
combined purchase price which is significantly less than the reported purchase
prices of Class B stations in the Chicago MSA, as evidenced by transactions
consummated since the passage of the Telecom Act. The Company has recently
signed agreements to purchase the assets of two FM radio stations and a combined
AM/FM radio station in the Chicago MSA for an aggregate purchase price of
approximately $24.0 million (the "Chicago Station Acquisition"). Immediately
following the consummation of these acquisitions, the Company intends to resell
the assets of the combined AM/FM radio station and simulcast the two FM radio
stations using STMC-TM- to broadcast collectively on the 92.7-FM frequency. The
consummation of these acquisitions remains subject to a number of significant
conditions to closing, including the consent of the FCC to the assignment of
these stations' FCC licenses to the Company. See "Business--Acquisitions,"
"Business--Proposed Radio Station Disposition" and "Business Strategy."
The Company is controlled by Stuart Subotnick, a general partner of
Metromedia Company, and Anita Subotnick, who own approximately 59% of the
Company's common stock, representing 94% of the voting power of the Company's
common stock (without giving effect to the exercise of any options to acquire
shares of the Class A Common Stock).
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-TM- and other innovative acquisition and
engineering strategies to gain low-cost entry into major metropolitan radio
markets and achieve market coverage, which the Company believes is equivalent to
the market coverage of Class B metropolitan stations.
- LOW ACQUISITION COST. Industry research indicates that the prices of Class
B radio stations in major MSAs have increased significantly since the
passage of the Telecom Act. The Company has created
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radio stations which it believes will achieve Arbitron market coverage
equivalent to the Arbitron market coverage of Class B radio stations in
the three largest radio markets, for a substantially lower capital
investment. For example, in the Los Angeles MSA, prices have ranged from
$113.0 million to $312.0 million while the Company has created for $26.8
million a Los Angeles station which, following the implementation of the
FCC Power Increase, has an Arbitron market coverage that the Company
believes is equivalent to the Arbitron market coverage of Class B radio
stations in the Los Angeles MSA. 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 (exclusive of the NY Station Acquisition), a
New York station which, following the FCC Power Increase and completion of
other technical improvements, will have an Arbitron market coverage that
the Company believes is equivalent to the Arbitron market coverage of
Class B radio stations in the New York MSA. In the Chicago MSA, prices
have ranged from $22.0 million to $225.0 million while the Company has
created, for $10.6 million, a Chicago station which, following the FCC
Power Increase and other technical improvements, will have an Arbitron
market coverage that the Company believes is equivalent to the Arbitron
market coverage of Class B radio stations in the Chicago MSA. The purchase
price for the Chicago Station Acquisition will be $24.0 million, but the
Company anticipates that it will recoup part of this price through the
disposition of the combined AM/FM radio station. 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. All of the foregoing information regarding
price ranges of Class B stations has been derived from published industry
reports of sales of Class B radio stations in the MSAs where the Company
operates. The Company has recently entered into agreements for the
purchase of several radio stations in the New York and Chicago MSAs and
continues to explore opportunities to acquire additional stations in its
existing markets to increase its signal strength or Arbitron diary
coverage area and 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-TM-, "move-ins" and acquisitions of
high power stations adjacent to major metropolitan markets. See
"Business--Acquisitions."
- 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 the Company believes is equivalent to the
coverage typically provided by Class B radio 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 engineering staff tailors an engineering solution to
optimize the Arbitron diary coverage of each station. Equivalent Arbitron
diary coverage is determined by comparing the coverage of the Company's
targeted STMC-TM- stations and typical Class B radio stations located in
the same MSAs. This comparison considers the actual received signal
strength of the selected station(s) and the actual number of Arbitron
diaries covered that are predicted to receive a listenable signal. The
coverage of any one station compared to another station within any MSA
will vary due to locations of the transmitter. Generally, most Class B
radio stations within a targeted MSA will cover between 90% and 100% of
the Arbitron diaries. See "Risk Factors--Risks Associated with the
Company's Strategy."
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
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format in Los Angeles, unique country music format in New York City and
its innovative adult contemporary format in Chicago provide it with a
competitive advantage and enhanced listenership in the respective markets.
The Company believes that its strong listenership has translated into
significant revenue as exemplified by the increase in its power ratio from
0.8 in the six-month period ended March 1997 to 1.3 in the six-month
period ended December 1997 in the Los Angeles market.
- MAXIMIZE BROADCAST CASH FLOW. Another key aspect of the Company's
operating strategy is 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.
MANAGEMENT
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. Mr. 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, the Company 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.
RECENT DEVELOPMENTS
INITIAL PUBLIC OFFERING
The Company successfully completed the initial public offering (the "Initial
Public Offering" or "IPO") of 4,600,000 shares of Class A Common Stock on
December 24, 1997 at an offering price of $7.00 per share, generating $28.5
million of net proceeds for the Company which were used by the Company to repay
outstanding indebtedness under the Old Credit Facility (as defined). In
connection with the consummation of the Initial Public Offering, the Company
changed its fiscal year-end from September 30 to December 31. In addition,
simultaneously with the consummation of the Initial Public Offering, Stuart and
Anita Subotnick (the "Principal Stockholders") contributed approximately $13.3
million of stockholder loans to the Company (the "Equity Contribution"), the
Company reclassified each share of its then-existing common stock (the "Old
Common Stock") into 7,610 shares of Class A Common Stock and, and the Principal
Stockholders exchanged their shares of Class A Common Stock for shares of Class
B Common Stock, par value $.01 per share (the "Class B Common Stock")
(collectively, the "Reclassification"). 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. The Principal Stockholders own all of the
outstanding shares of Class B Common Stock.
The principal executive offices of the Company and the Subsidiary Guarantors
are located at 11 Skyline Drive, Hawthorne, New York 10532. Their telephone
number is (914) 592-1071.
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THE EXCHANGE OFFER
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<S> <C>
Securities Offered.................. $174,000,000 aggregate principal amount of 11 1/4%
Senior Discount Notes due 2005 (the "New Notes"). The
terms of the New Notes and those of the Company's
outstanding 11 1/4% Senior Discount Notes due 2005
(the "Existing Notes" and, together with the New
Notes, the "Notes") are identical in all material
respects, except for certain transfer restrictions
and registration rights relating to the Existing
Notes.
The Exchange Offer.................. The New Notes are being offered in exchange for a
like principal amount at maturity of Existing Notes.
Existing Notes may be exchanged only in integral
multiples of $1,000. The issuance of the New Notes is
intended to satisfy the obligations of the Company
and the Subsidiary Guarantors contained in the
Registration Rights Agreement.
Expiration Date;
Withdrawal of Tender.............. The Exchange Offer will expire at 5:00 p.m., New York
City time, on July 6, 1998, or such later date and
time to which it is extended by the Company. The
tender of Existing Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to the
Expiration Date. Any Existing Notes not accepted for
exchange for any reason will be returned without
expense to the tendering holder thereof as promptly
as practicable after the expiration or termination of
the Exchange Offer.
Conditions to the Exchange Offer.... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. The
Exchange Offer is not conditioned upon any minimum
number of Existing Notes being tendered for exchange.
The Company currently expects that each of the
conditions will be satisfied and that no waivers will
be necessary. See "The Exchange Offer--Conditions to
the Exchange Offer."
Procedures for Tendering
Existing Notes.................... Each holder of Existing Notes wishing to accept the
Exchange Offer must complete, sign and date a Letter
of Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with such
Existing Notes or a Notice of Guaranteed Delivery in
compliance with the specified procedures for
guaranteed delivery of Existing Notes, and any other
required documentation, to the Exchange Agent at the
address set forth herein. Holders of Existing Notes
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee are
urged to contact such person promptly if they wish to
tender Existing Notes pursuant to the Exchange Offer.
See "The Exchange Offer--Procedures for Tendering
Existing Notes."
</TABLE>
5
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<TABLE>
<S> <C>
Letters of Transmittal and certificates representing
Existing Notes should not be sent to the Company.
Such documents should only be sent to the Exchange
Agent. Questions regarding how to tender and requests
for information should be directed to the Exchange
Agent. See "The Exchange Offer--Exchange Agent."
Use of Proceeds..................... There will be no proceeds to the Company from the
exchange of Notes pursuant to the Exchange Offer.
Exchange Agent...................... U.S. Bank Trust National Association (formerly known
as First Trust National Association) is serving as
the Exchange Agent in connection with the Exchange
Offer.
Federal Income Tax Consequences..... In the opinion of Paul, Weiss, Rifkind, Wharton &
Garrison, counsel to the Company, the exchange of
Existing Notes pursuant to the Exchange Offer will
not be a taxable event for Federal income tax
purposes. See "Certain Federal Income Tax
Considerations."
</TABLE>
CONSEQUENCES OF EXCHANGING EXISTING NOTES
PURSUANT TO THE EXCHANGE OFFER
Based on certain no-action letters issued by the staff of the Commission to
third parties in unrelated transactions, the Company believes that the New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any holder who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or (ii) any broker-dealer that purchases New Notes from the Company to
resell pursuant to Rule 144A ("Rule 144A") under the Securities Act (or any
other available exemption)) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of the holders' business and such
holders have no arrangement or understanding with any person to participate in a
distribution of such New Notes and are not participating in, and do not intend
to participate in, the distribution of such New Notes. The Company has not
sought, and does not intend to seek, its own no-action letter with regard to the
Exchange Offer. Accordingly, there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer. By tendering, each holder will represent to the Company and the
Subsidiary Guarantors in the Letter of Transmittal that, among other things, the
New Notes acquired pursuant to the Exchange Offer are being acquired in the
ordinary course of business of the person receiving such New Notes, whether or
not such person is the holder, that neither the holder nor any such other person
has an arrangement or understanding with any person to participate in the
distribution of such New Notes within the meaning of the Securities Act, that
neither the holder nor any such other person is participating in or intends to
participate in the distribution of such New Notes within the meaning of the
Securities Act and that neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company or
the Subsidiary Guarantors or an Exchanging Dealer (as defined). Each
broker-dealer that receives New Notes for its own account in exchange for
Existing Notes, where such Existing Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities (an "Exchanging
Dealer") may be deemed to be an "underwriter" within the meaning of the
Securities Act and must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such New
Notes. See "Plan of Distribution." In addition, to comply with the securities
laws of certain jurisdictions, if applicable, the New Notes may not be offered
or sold unless they have been registered or qualified for sale in such
jurisdiction or an exemption from registration or qualification is available and
has been complied with. The Company and the Subsidiary Guarantors have agreed,
pursuant to the Registration Rights Agreement and subject to certain specified
limitations therein,
6
<PAGE>
to use their reasonable best efforts to register or qualify the New Notes for
offer or sale under the securities or blue sky laws of such jurisdictions within
the United States as any holder of the Existing Notes reasonably requests in
writing and do all other acts necessary or advisable to enable the offer and
sale in such jurisdictions of the New Notes. If a holder of Existing Notes does
not exchange such Existing Notes for New Notes pursuant to the Exchange Offer,
such Existing Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon. In general, the Existing Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. See "The Exchange Offer--Consequences of
Failure to Exchange; Resales of New Notes."
The Existing Notes are currently eligible for trading in the PORTAL market.
Following commencement of the Exchange Offer but prior to its consummation, the
Existing Notes may continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the New Notes will not be eligible for
PORTAL trading.
The New Notes will initially be issued in the form of one or more registered
New Notes in global form without coupons and will be deposited with or on behalf
of The Depositary Trust Company ("DTC") and registered in the name of Cede &
Co., as nominee of DTC, or will remain in the custody of the Trustee. See "Book
Entry; Delivery and Form."
7
<PAGE>
THE NEW NOTES
<TABLE>
<S> <C>
Issuer................................. Big City Radio, Inc.
Securities Offered..................... $174,000,000 aggregate principal amount of 11 1/4%
Senior Discount Notes due 2005.
Maturity............................... March 15, 2005.
Interest Rate and Payment Dates........ The New Notes will accrete in value until March 15,
2001 at a rate of 11 1/4% PER ANNUM, compounded
semi-annually, to an aggregate principal amount of
$174,000,000. Cash interest will not accrue on the
New Notes prior to March 15, 2001. Thereafter,
interest on the New Notes will accrue at a rate of
11 1/4% PER ANNUM and will be payable in cash
semi-annually on March 15 and September 15 of each
year, commencing on September 15, 2001.
Sinking Fund........................... None.
Original Issue Discount................ The New Notes are being offered at an original
issue discount for United States federal income tax
purposes. Thus, although cash interest will not be
payable on the New Notes prior to September 15,
2001, original issue discount will accrue from the
Issue Date of the New Notes and will be included as
interest income periodically (including for periods
ending prior to March 15, 2001) in a holder's gross
income for United States federal income tax
purposes in advance of receipt of the cash payments
to which the income is attributable. See "Certain
Federal Income Tax Considerations."
Optional Redemption.................... Except as described below, the Company may not
redeem the New Notes prior to March 15, 2002. On or
after such date, the Company may redeem the New
Notes, in whole or in part, at the redemption
prices set forth herein together with accrued and
unpaid interest, if any, to the date of redemption.
In addition, at any time prior to March 15, 2001,
the Company may, at its option, redeem in the
aggregate up to 33 1/3% of the original principal
amount of the New Notes with the Net Cash Proceeds
of one or more Equity Offerings received by the
Company so long as there is a Public Market for the
Class A Common Stock at the time of such
redemption, at a redemption price equal to 111.25%
of the Accreted Value of the New Notes to be
redeemed, to the date of redemption; PROVIDED that
at least 66 2/3% of the original principal amount
of the New Notes remains outstanding immediately
after each such redemption. See "Description of the
New Notes-- Optional Redemption."
Change of Control...................... Upon a Change of Control, each holder will have the
right to require the Company to make an offer to
purchase the New Notes at a price equal to 101% of
the Accreted Value
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
of such New Notes prior to March 15, 2001 or 101%
of the principal amount of such New Notes
thereafter, together with accrued and unpaid
interest, if any, to the date of purchase. See
"Description of the New Notes--Change of Control."
Ranking................................ The New Notes will be unsecured, senior obligations
of the Company and will rank PARI PASSU in right of
payment to all existing and future senior
indebtedness of the Company (including the
Revolving Credit Facility), and will rank senior in
right of payment to all existing and future
subordinated indebtedness of the Company. The New
Notes will be effectively subordinated to all
existing and future indebtedness of the Company's
Restricted Subsidiaries. At March 31, 1998, the
Company and its Restricted Subsidiaries had no
indebtedness outstanding (other than the Notes).
Guarantees............................. The Indenture provides that each of the Restricted
Subsidiaries of the Company will guarantee the New
Notes. The Restricted Subsidiaries' guarantees (the
"Subsidiary Guarantees") will be general unsecured,
full and unconditional, joint and several,
obligations of each of the Restricted Subsidiaries
and will rank PARI PASSU in right of payment with
all existing and future senior indebtedness of the
Restricted Subsidiaries and senior in right of
payment to all existing and future subordinated
indebtedness of the Restricted Subsidiaries. The
Subsidiary Guarantees will be effectively
subordinated in right of payment to all secured
indebtedness of the Restricted Subsidiaries, to the
extent of the value of the assets securing such
indebtedness. Currently, the Company's only
Subsidiaries are special purpose subsidiaries
formed to hold the Company's radio licenses and
certain other assets, each of which is classified
as a Restricted Subsidiary. Substantially all of
the assets of the Restricted Subsidiaries are
pledged as security under the Revolving Credit
Facility. See "Description of the New
Notes--Certain Covenants--Subsidiary Guarantors."
Restrictive Covenants.................. The Indenture limits: (i) the incurrence of
additional indebtedness, (ii) investments, (iii)
the payment of dividends on, and redemption of,
capital stock and the redemption of certain
subordinated obligations, (iv) sales of assets, (v)
certain transactions with affiliates, (vi) the
creation and existence of liens, (vii) the types of
businesses that the Company may operate, (viii)
asset swaps, (ix) restrictions on distributions
from Restricted Subsidiaries, (x) the sale of
capital stock of Restricted Subsidiaries, and (xi)
consolidations, mergers and transfers of all or
substantially all of the Company's assets. However,
all of these limitations and prohibitions are
subject to a number
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
of important qualifications and exceptions. See
"Description of the New Notes--Certain Covenants."
Use of Proceeds........................ There will be no proceeds to the Company from the
exchange of Existing Notes pursuant to the Exchange
Offer.
</TABLE>
RISK FACTORS
Holders of Existing Notes and prospective purchasers of New Notes should
carefully consider all of the information set forth in this Prospectus and, in
particular, should evaluate the specific factors set forth under "Risk Factors"
for risks associated with the Exchange Offer and an investment in the New Notes.
10
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table presents selected financial 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 consummation of the
Offering and the application of the net proceeds therefrom; and (b) the
acquisitions of the assets of WZVU-FM and WVVX-FM, Inc. 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>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
---------------------------------------------- -----------------------------------
PRO FORMA PRO FORMA
1995 1996(1)(2) 1997(3) 1997 1997 1998 1998
--------- ---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net revenues........................ $ 5,225 $ 7,944 $ 10,460 $ 11,120 $ 1,870 $ 2,399 $ 2,399
Station operating expenses.......... 7,185 12,253 12,979 12,951 3,430 3,502 3,502
Corporate general and administrative
expenses.......................... 425 1,201 1,745 2,134 334 570 570
Employment incentives(4)............ -- -- 3,863 3,863 -- -- --
Reimbursement of operating expenses
under LMA......................... -- -- -- (151) -- -- --
Depreciation and amortization....... 798 1,388 1,931 2,250 319 576 576
Operating (loss).................... (3,183) (6,898) (10,058) (9,927) (2,213) (2,249) (2,249)
Gain on sale........................ -- 6,608 -- -- -- -- --
Interest (expense), net............. (842) (2,827) (4,348) (15,153) (818) (995) (3,717)
Other income (expense), net......... 20 19 101 101 28 (37) (37)
Provision for (benefit from) income
taxes............................. -- -- 2,300 2,300 -- (490) (898)
Extraordinary loss.................. -- -- 313 711 -- 495 495
Net (loss).......................... $ (4,005) $ (3,098) $ (16,918) $ (27,990) $ (3,003) $ (3,286) $ (5,600)
OTHER FINANCIAL DATA:
Broadcast cash flow(5).............. $ (1,960) $ (4,309) $ (2,519) $ (1,560) $ (1,103)
EBITDA(6)........................... (2,385) (5,510) (4,264) (1,894) (1,673)
Net cash used in operating
activities........................ (2,942) (7,448) (8,661) (2,646) (1,488)
Net cash used in investing
activities........................ (3,883) (24,235) (21,942) (183) (545)
Net cash provided by financing
activities........................ 7,779 30,851 30,449 2,802 90,708
Capital expenditures................ 333 653 488 183 545
Ratio of earnings to fixed
charges(7)........................ -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash................................................................................ $ 80 $ 88,755
Intangibles, net.................................................................... 54,115 53,733
Total assets........................................................................ 60,108 152,405
Long-term debt, including current portion........................................... 30,100 125,900
Stockholders' equity................................................................ 25,032 21,746
</TABLE>
11
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- ------------------------
(1) 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.
(2) The statement of operations data for the year ended December 31, 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 $6,608,000 in the year ended December 31, 1996
which represents the gain on sale of the Q stations.
(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
Y-107 NY since December 1996.
(4) As of July 1, 1997, the Principal Stockholders transferred 68 shares of Old
Common Stock to the Company's Chief Executive Officer as an employment
incentive. The statement of operations data for the year ended December 31,
1997 reflects an accounting charge of $3,713,000 relating to this award
which has been reflected as a capital contribution in Stockholders' Equity.
The charge represents the approximate fair market value of the stock
transferred.
(5) Broadcast cash flow is defined as operating loss plus depreciation and
amortization plus corporate general and administrative expenses, plus
non-cash charges relating to stock-based compensation expense in the amount
of $3,863,000 for the year ended December 31, 1997 plus reimbursement of
operating expenses under LMA. 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 should 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.
(6) EBITDA is defined as operating loss plus depreciation and amortization and
non-cash charges relating to stock-based compensation expense in the amount
of $3,863,000 for the year ended December 31, 1997 plus reimbursement of
operating expenses under LMA. The Company believes that EBITDA provides
additional information for determining its ability to meet debt service
requirements. Nevertheless, this measure excludes certain items such as
depreciation and amortization, which are significant components in
understanding and assessing the financial performance of the Company. This
measure is not required by generally accepted accounting principles and
should not be considered in isolation or as a substitute for operating loss,
cash flow from operating, investing and financing activities as determined
in accordance with generally accepted accounting principles or any other
measure for determining the Company's operating performance or liquidity
which is calculated in accordance with generally accepted accounting
principles. In addition, the Company's use of EBITDA may not be comparable
to similar titled measures presented by other companies due to the use by
such other companies of different financial statement components in
calculating EBTIDA.
(7) The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings from continuing operations before income taxes and
extraordinary items plus fixed charges. Fixed charges include interest,
expensed or capitalized, including amortization of deferred financing costs
and debt discount and the estimated interest component of rent expense.
Earnings were not sufficient to cover fixed charges by $4,005,000,
$3,098,000 and $14,305,000 for the fiscal years ended December 31, 1995,
1996 and 1997, respectively, and $3,003,000 and $3,281,000 for the three
months ended March 31, 1997 and 1998, respectively.
12
<PAGE>
RISK FACTORS
SET FORTH BELOW ARE THE PRINCIPAL RISK FACTORS INVOLVED IN AN EXCHANGE OF OR
INVESTMENT IN THE NOTES. HOLDERS OF EXISTING NOTES AND PROSPECTIVE PURCHASERS OF
THE NEW NOTES SHOULD CAREFULLY CONSIDER THESE RISK FACTORS AS WELL AS THE OTHER
INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS, WHICH MAY AFFECT A DECISION
TO ACQUIRE THE NEW NOTES. FOR A DISCUSSION OF CERTAIN POTENTIAL TAX CONSEQUENCES
OF SUCH AN INVESTMENT. SEE "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS."
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS; INTEREST RATE FLUCTUATIONS
Upon the consummation of the Offering and the application of the net
proceeds therefrom, the Company continues to be highly leveraged. As of March
31, 1998, the Company had approximately $125.9 million of outstanding long-term
indebtedness (consisting of the Notes) and no amounts were outstanding under the
Revolving Credit Facility.
The Indenture and the Revolving Credit Facility permit the Company to incur
additional indebtedness, subject to certain limitations. The degree to which the
Company is leveraged could have important consequences to holders of the Notes,
including the following: (i) the Company's ability to obtain additional
financing for working capital, capital expenditures, acquisitions or general
corporate purposes may be impaired; (ii) a substantial portion of the Company's
cash flow from operations must be dedicated to the payment of interest on the
Notes and other Indebtedness (as defined), thereby reducing the funds available
to the Company for other purposes; (iii) all of the indebtedness outstanding
under the Revolving Credit Facility is secured by substantially all the assets
of the Company and the Restricted Subsidiaries, and will mature prior to the
Notes; (iv) the Company is substantially more leveraged than certain of its
competitors, which might place the Company at a competitive disadvantage; (v)
the Company may be hindered in its ability to adjust rapidly to changing market
conditions; and (vi) the Company may be more vulnerable in the event of a
downturn in general economic conditions or in its industry or business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Capitalization," "Description of
Revolving Credit Facility" and "Description of the New Notes."
The Company's ability to pay the interest on and retire principal of the
Notes and the Revolving Credit Facility is dependent upon its future operating
performance, which in turn is subject to general economic conditions and to
financial, business and other factors, many of which are beyond the Company's
control. In the event that the Company is unable to generate cash flow that is
sufficient to service its obligations in respect of the Notes and the Revolving
Credit Facility, the Company may be forced to adopt one or more alternatives,
such as reducing or delaying the acquisition of radio stations, attempting to
refinance or restructure its indebtedness, selling material assets or operations
or selling equity. There can be no assurance that any of such actions could be
effected on satisfactory terms or at all, that they would enable the Company to
satisfy its debt service requirements or that they would be permitted by the
Revolving Credit Facility or the Indenture. The failure to generate such
sufficient cash flow or to achieve such alternatives could significantly
adversely affect the market value of the Notes and the Company's ability to pay
the principal of and interest on the Notes.
Any increase in the interest rates on the Company's indebtedness will reduce
funds available to the Company for its operations and future business
opportunities as well as for meeting its debt servicing obligations.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture restricts, among other things, the Company's ability to incur
additional indebtedness, pay dividends or make certain other restricted
payments, consummate certain asset sales, create liens on assets, enter into
transactions with affiliates, make investments, loans or advances, consolidate
or merge with or into any other person or convey, transfer or lease all or
substantially all of its assets or change the
13
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business conducted by the Company. In addition, the Revolving Credit Facility
contains certain other and more restrictive covenants and prohibits the Company
from prepaying certain indebtedness, including the Notes. A breach of any of
these covenants could result in a default under the Revolving Credit Facility or
the Indenture. Upon the occurrence of an event of default under the Revolving
Credit Facility, the lenders could elect to declare all amounts outstanding
under the Revolving Credit Facility to be due and payable, together with accrued
and unpaid interest, and could terminate their commitments to make further
extensions of credit under the Revolving Credit Facility. If the Company were
unable to repay its indebtedness under the Revolving Credit Facility, the
lenders could proceed against the collateral securing such indebtedness. If the
indebtedness under the Revolving Credit Facility were accelerated, there could
be no assurance that the assets of the Company would be sufficient to repay in
full such indebtedness and the Company's other indebtedness, including the
Notes. Substantially all of the assets of the Company and the Restricted
Subsidiaries are pledged as security under the Revolving Credit Facility. See
"Description of Revolving Credit Facility" and "Description of the New
Notes--Certain Covenants."
LIMITED HISTORY OF OPERATIONS; 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 the Notes. The Company's prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stages of development.
Since its 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 $16.9 million, $3.1 million and $4.0
million for the years ended December 31, 1997, 1996 and 1995, respectively, and
$3.3 million for the three months ended March 31, 1998. 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 ACQUISITION STRATEGY; FUTURE CAPITAL REQUIREMENTS
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, including
candidates that broadcast on the same frequencies, 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." 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 is restricted by
the terms of the Indenture and the Revolving Credit Facility and such ability
and the cost of such financing are dependent upon numerous factors, including
14
<PAGE>
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. 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 will increase with the
execution recently of agreements to purchase additional radio stations in the
New York and Chicago MSAs and the Company is currently seeking out additional
acquisition opportunities. See "Business--Acquisitions." Management will be
required to devote significant time to assimilating 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."
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-TM- to create value. There are no
significant barriers preventing other persons from implementing strategies
similar to STMC-TM-and otherwise creating value by applying engineering
solutions to radio stations. Also, there can be no assurance that the broadcast
engineering techniques used by the Company enable it to provide clear and
listenable signal in the entire Arbitron diary coverage areas covered by the
broadcast signals of its radio stations. In addition, while the Company's
purchase price for the Los Angeles Stations, New York Stations and Chicago
Stations is significantly lower than the reported purchase prices of Class B
stations in those markets since the passage of the Telecom Act, the Company did
not have access to detailed data as to the financial performance, signal
characteristics, listener profiles and consumer satisfaction of the radio
stations used for comparison to the Company's broadcast properties. Prospective
purchasers of the Notes are urged to consider this limitation on available
information in evaluating the success of the Company's acquisition strategy and
its prospects. In addition, recent consolidation in the radio broadcasting
industry has resulted in an increase in the reported purchase prices paid for
Class B radio stations and may limit the availability of Class B radio stations,
which may subsequently increase the acquisition costs of Class A radio stations.
REGULATORY MATTERS AND DEPENDENCE ON LICENSES
Each of the Company's radio stations operates pursuant to one or more
broadcast licenses issued by the FCC, that presently have a maximum term of
eight years. The Company's broadcast licenses expire at various times from 1998
to 2005. Although the Company may apply to renew these licenses, third parties
may challenge the Company's renewal applications. While the Company does not
anticipate any material difficulty in ultimately obtaining license renewals for
full terms, there can be no assurance that the licenses will be renewed. See
"Business--Federal Regulation of Radio Broadcasting--License Grants and
Renewals." The Company must also comply with certain reporting, notification and
technical requirements imposed by the Federal Aviation Administration ("FAA")
with respect to the installation, painting and lighting of the transmitter
antennas used by the Company's radio stations. 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 or FAA
requirements for the construction of required facilities or modification of
technical parameters or specifications for operations may have a material
adverse effect on the Company. Moreover, while the Company believes that recent
changes to FCC rules and policies will enable it to obtain FCC authorizations to
increase the operating power of several of the Company's radio stations, the
applications to the FCC for such power increases, which the Company has filed or
plans to file, are subject to prior FCC
15
<PAGE>
approval, and there can be no assurance that the FCC will approve these
applications. Failure of the FCC to approve these applications may have a
material adverse effect on the Company by limiting the Company's ability to
expand its coverage. See "Business--Federal Regulation of Radio Broadcasting--
FCC Power Increase." 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. In addition, the FCC has the ability upon the occurrence of certain
events to revoke outstanding licenses.
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
Company's 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 "Business--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 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,
16
<PAGE>
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 Mr. Kakoyiannis to compete against the
Company in certain circumstances. In addition, the Company maintains "key-man"
insurance on the life of Mr. Kakoyiannis in the amount of $2.0 million. See
"Management--Employment Agreements."
17
<PAGE>
OBLIGATION TO PURCHASE THE NOTES UPON CHANGE OF CONTROL
A Change of Control could require the Company to refinance substantial
amounts of its indebtedness. Upon the occurrence of a Change of Control, the
holders of the Notes would be entitled to require the Company to repurchase the
Notes at a purchase price equal to 101% of the Accreted Value of such Notes
prior to March 15, 2001 or 101% of the principal amount of such Notes
thereafter, plus accrued and unpaid interest, if any, to the date of purchase.
The exercise by the holders of their right to require the Company to repurchase
the New Notes could cause a default under future Indebtedness, even if the
Change of Control itself does not, due to the financial effect of such
repurchase on the Company. Finally, the Company's ability to pay cash to the
holders upon a repurchase may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases. The inability to
repurchase all of the tendered Notes would constitute an Event of Default (as
defined) under the Indenture. The provisions of the Indenture may not afford
holders of the Notes the right to require the Company to repurchase the Notes in
the event of a highly-leveraged transaction that may adversely affect the
holders of the Notes if such transaction is not a transaction defined as a
Change of Control. See "Description of Revolving Credit Facility" and
"Description of the New Notes--Change of Control."
ORIGINAL ISSUE DISCOUNT; LIMITATIONS ON HOLDER'S CLAIMS
The New Notes will be issued at a discount from their principal amount at
maturity. Consequently, purchasers of the New Notes will be required to include
amounts in gross income for federal income tax purposes in advance of receipt of
the cash payments to which the income is attributable. See "Certain Federal
Income Tax Consequences" for a more detailed discussion of the federal income
tax consequences to the purchasers of the Notes resulting from the purchase,
ownership or disposition thereof.
Under the Indenture, in the event of an acceleration of the maturity of the
Notes upon the occurrence of an Event of Default, the holders of the Notes may
be entitled to recover only the amount which may be declared due and payable
pursuant to the Indenture, which will be less than the principal amount at
maturity of such Notes. See "Description of the New Notes--Events of Default."
If a bankruptcy case is commenced by or against the Company under the
Bankruptcy Code (as defined), the claim of a holder of Notes with respect to the
principal amount thereof may be limited to an amount equal to the sum of (i) the
issue price of the Notes as set forth on the cover page hereof and (ii) that
portion of the original issue discount (as determined on the basis of such issue
price) which is not deemed to constitute "unmatured interest" for purposes of
the Bankruptcy Code. Any original issue discount that was not amortized as of
any such bankruptcy filing would constitute "unmatured interest."
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES
The New Notes are new securities for which there is currently no market.
Although the Initial Purchasers have informed the Company that they currently
intend to make a market in the New Notes, they are not obligated to do so and
any such market making may be discontinued at any time without notice. The
Existing Notes are currently eligible for trading in the PORTAL market.
Following commencement of the Exchange Offer but prior to its consummation, the
Existing Notes may continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the New Notes will not be eligible for
PORTAL trading. The Company does not intend to apply for listing of the New
Notes on any securities exchange or for quotation through the Nasdaq Stock
Market, Inc. Accordingly, there can be no assurance as to the development or
liquidity of any market for the New Notes (or any Existing Notes not exchanged).
See "Plan of Distribution."
The liquidity of, and trading market for, the New Notes or the Existing
Notes may also be adversely affected by a general decline in the market or by
declines in the market for similar securities. Such declines
18
<PAGE>
may adversely affect such liquidity and trading markets independent of the
financial performance of, and prospects for, the Company.
FRAUDULENT TRANSFER CONSIDERATIONS
The Restricted Subsidiaries' obligations under the Subsidiary Guarantees may
be subject to review under state or Federal fraudulent transfer laws in the
event of a Restricted Subsidiary's bankruptcy or other financial difficulty.
Under those laws, if in a lawsuit by an unpaid creditor or representative of
creditors of a Restricted Subsidiary, such as a trustee in bankruptcy or the
Restricted Subsidiary as a debtor in possession under the Bankruptcy Code, a
court were to find that (a) the Restricted Subsidiary received less than fair
consideration or reasonably equivalent value for its Guarantee, and (b) when it
entered into its Subsidiary Guarantee (or in some jurisdictions, when it became
obligated to make payments thereunder), it either (i) was rendered insolvent,
(ii) was engaged in a business or transaction for which its remaining
unencumbered assets constituted unreasonably small capital, or (iii) intended to
incur or believed (or reasonably should have believed) that it would incur debts
beyond its ability to pay as they matured, the court could avoid its obligations
under its Subsidiary Guarantee, or subordinate those obligations to its other
obligations, and in either case direct the return of any amounts paid thereunder
to the Restricted Subsidiary or to a fund for the benefit of its creditors. It
should be noted that a court could avoid a Restricted Subsidiary's obligations
under its Subsidiary Guarantee without regard to factors (a) and (b) above, if
it found that it entered into its Subsidiary Guarantee with actual intent to
hinder, delay, or defraud its creditors.
A court will likely find that a Restricted Subsidiary did not receive fair
consideration or reasonably equivalent value for its Subsidiary Guarantee to the
extent that it did not benefit directly from the proceeds of the sale of the
Existing Notes.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, an entity
would be considered insolvent if the sum of its debts (including contingent or
unliquidated debts) is greater than all of its property at a fair valuation or
if the present fair saleable value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and matured.
ADVERSE CONSEQUENCES OF FAILURE TO ADHERE TO EXCHANGE OFFER PROCEDURES
Issuance of the New Notes in exchange for Existing Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent of
such Existing Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of Existing
Notes desiring to tender such Existing Notes in exchange for New Notes should
allow sufficient time to ensure timely delivery. A tender will not be deemed to
have been timely received if the tendering holder's properly completed and duly
signed Letter of Transmittal accompanied by the Existing Notes is mailed prior
to the Expiration Date but is received by the Exchange Agent after the
Expiration Date. All questions as to the validity, form, eligibility (including
time of receipt) and acceptance of Existing Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination will be
final and binding on all parties. Neither the Company nor the Exchange Agent is
under any duty to give notification of defects or irregularities with respect to
the tenders of Existing Notes for exchange.
Existing Notes that are not tendered or are tendered but not accepted will,
following the consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof and therefore may not be offered,
sold or otherwise transferred except in compliance with the registration
requirements of the Securities Act and any other applicable securities laws, or
pursuant to an exemption therefrom or in a transaction not subject thereto, and
in each case in compliance with certain conditions
19
<PAGE>
and restrictions. Upon consummation of the Exchange Offer certain registration
rights of the Existing Notes under the Registration Rights Agreement will
terminate.
The Registration Rights Agreement provides that, if the Exchange Offer is
not consummated on or prior to the 180th day after the Issue Date (as defined);
or the Shelf Registration Statement (as defined in the Registration Rights
Agreement) is filed and declared effective on or prior to the 150th day after
the Issue Date but shall thereafter cease to be effective (at any time that the
Company is obligated to maintain the effectiveness thereof) without being
succeeded within 30 days by an additional Registration Statement filed and
declared effective (each such event, a "Registration Default"), the Company will
be obligated to pay liquidated damages (the "Liquidated Damages") to each holder
of Notes that are Transfer Restricted Securities (as defined in the Registration
Rights Agreement), during the period of one or more such Registration Defaults,
in an amount equal to $0.192 per week per $1,000 principal amount (or Accreted
Value as the case may be) of the Notes constituting outstanding Transfer
Restricted Securities held by such holder until the Exchange Offer is
consummated or the Shelf Registration Statement is declared effective or again
becomes effective, as the case may be. All accrued Liquidated Damages shall be
paid to holders in the same manner as interest payments on the Notes on
semi-annual payment dates which correspond to interest payment dates for the
Notes. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
The New Notes and any Existing Notes which remain outstanding after
consummation of the Exchange Offer will constitute a single class of Notes under
the Indenture and, accordingly, will vote together as a single class for
purposes of determining whether holders of the requisite percentage in
outstanding principal amount thereof have taken certain actions or exercised
certain rights under the Indenture.
RECEIPT OF RESTRICTED SECURITIES UNDER CERTAIN CIRCUMSTANCES
Any holder of Existing Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the New Notes may be deemed to
have received restricted securities and, if so, will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Failure of any holder to comply with
such registration and prospectus delivery requirements will subject such holder
to potentially both civil and criminal liability under the Securities Act. See
"The Exchange Offer--Consequences of Failure to Exchange; Resales of New Notes."
ADVERSE EFFECT ON MARKET FOR EXISTING NOTES
To the extent that Existing Notes are tendered and accepted in the Exchange
Offer, the trading market for the untendered and tendered but unaccepted
Existing Notes could be adversely affected. See "The Exchange Offer."
20
<PAGE>
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Existing Notes
pursuant to the Exchange Offer. This Exchange Offer is intended to satisfy
certain obligations of the Company and the Subsidiary Guarantors under the
Registration Rights Agreement. The net proceeds of approximately $125.4 million
from the Offering were used by the Company to repay approximately $32.8 million
indebtedness outstanding as of March 17, 1998 under the Company's Amended and
Restated Credit Facility (the "Old Credit Facility") with The Chase Manhattan
Bank ("Chase"), with the balance being used to finance the acquisition costs of
radio station properties and for general working capital purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business--Acquisitions."
21
<PAGE>
CAPITALIZATION
The following table sets forth the Company's capitalization as of March 31,
1998. The information set forth below should be read in conjunction with the
"Selected Financial and Operating Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
of the Company and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
ACTUAL
----------
<S> <C>
Cash and cash equivalents............................................................................. $ 88,755
----------
Debt (including current maturities):
Revolving Credit Facility(1)........................................................................ --
Senior Discount Notes due 2005...................................................................... 125,900
----------
Total debt...................................................................................... 125,900
Stockholders' equity.................................................................................. 21,746
----------
Total capitalization............................................................................ $ 147,646
----------
----------
</TABLE>
- ------------------------
(1) For a description of the $15.0 million Revolving Credit Facility, see
"Description of Revolving Credit Facility."
22
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma statement of operations for the three months ended
March 31, 1998 is presented as if, at the beginning of the period, 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, 1997 is presented as if, at the beginning of the period, (i) the Company had
completed the acquisition of the assets of WZVU-FM (which acquisition was
completed in June 1997), (ii) the Company had completed the acquisition of the
assets of WVVX-FM, Inc. (which acquisition was completed in August 1997), and
(iii) the Offering and the application of the net proceeds therefrom had been
consummated. A pro forma balance sheet as of March 31, 1998 has been omitted
since all of the aforementioned transactions have been reflected in the
historical financial statements included elsewhere herein.
These pro forma financial statements should be read in conjunction with the
Company's financial statements and the related notes thereto and the financial
statements and the related notes thereto of WZVU-FM, and WVVX-FM included
elsewhere in this Prospectus. The pro forma financial 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.
23
<PAGE>
BIG CITY RADIO, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
(3) ADJUSTMENTS PRO FORMA
------------ ----------- -----------
<S> <C> <C> <C>
Gross revenue......................................................... $ 2,658 $ 0 $ 2,658
Less: commissions and fees............................................ 259 0 259
------------ ----------- -----------
Net revenues.......................................................... 2,399 0 2,399
Station operating expenses, excluding depreciation and amortization... 3,502 0 3,502
------------ ----------- -----------
Station operating (loss), excluding depreciation and amortization..... (1,103) 0 (1,103)
Corporate, general and administrative expenses........................ 570 0 570
Depreciation and amortization......................................... 576 0 576
------------ ----------- -----------
Operating (loss)...................................................... (2,249) 0 (2,249)
Interest expense...................................................... 995 2,722(1) 3,717
Other (income) expense................................................ 37 0 37
------------ ----------- -----------
(Loss) before income taxes............................................ (3,281) (2,722) (6,003)
(Benefit from) income taxes........................................... (490) (408)(2) (898)
------------ ----------- -----------
(Loss) before extraordinary item...................................... (2,791) (2,314) (5,105)
Extraordinary loss, net of income taxes............................... 495 0 495
------------ ----------- -----------
Net (loss)............................................................ $ (3,286) $ (2,314) $ (5,600)
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
(1) Reflects the pro forma adjustment required to report Pro Forma interest
expense as interest expense on $126,375,700 at 11.25%, compounded
semi-annually, plus the amortization of the deferred financing fees of the
Notes.
(2) Reflects the tax benefit associated with the Pro Forma adjustments.
(3) Historical operations for the period include the operations of WZVU-FM and
WVVX-FM.
24
<PAGE>
BIG CITY RADIO, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITION OF
ACQUISITION OF WVVX-FM, PRO
HISTORICAL WZVU-FM(1) INC.(2) ADJUSTMENTS FORMA
---------- --------------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Gross revenue................................. $ 11,731 $ 414 $ 623 $ (375)(3) $ 12,393
Less: commissions and fees.................... 1,271 1 1 -- 1,273
---------- ----- ----- ----------- ----------
Net revenues................................ 10,460 413 622 (375) 11,120
Station operating expenses excluding
depreciation and amortization................ 12,979 92 255 (375)(3) 12,951
---------- ----- ----- ----------- ----------
Station operating income (loss) excluding
depreciation and amortization................ (2,519) 321 367 -- (1,831)
Corporate, general and administrative
expenses..................................... 1,745 220 169 -- 2,134
Employment incentive.......................... 3,863 -- -- -- 3,863
Reimbursement of operating expenses under
LMA.......................................... -- (151) -- -- (151)
Depreciation and amortization................. 1,931 51 169 99(4) 2,250
---------- ----- ----- ----------- ----------
Operating income (loss)....................... (10,058) 201 29 (99) (9,927)
Interest expense.............................. 4,348 180 231 10,394(5) 15,153
Other (income) expense........................ (101) -- -- -- (101)
---------- ----- ----- ----------- ----------
(Loss) before income taxes.................... (14,305) 21 (202) (10,493) (24,979)
Provision for (benefit from) income taxes..... 2,300 -- (66) 66(6) 2,300
---------- ----- ----- ----------- ----------
(Loss) before extraordinary items............. (16,605) 21 (136) (10,559) (27,279)
Extraordinary loss, net of income taxes....... 313 -- -- 398(7) 711
---------- ----- ----- ----------- ----------
Net income (loss)............................. $ (16,918) $ 21 $ (136) $ (10,957) $ (27,990)
---------- ----- ----- ----------- ----------
---------- ----- ----- ----------- ----------
</TABLE>
See notes to unaudited pro forma statement of operations.
25
<PAGE>
BIG CITY RADIO, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
- ------------------------
(1) Reflects historical results of operation for the period January 1, 1997 to
May 31, 1997 of WZVU-FM, Long Branch, New Jersey, acquired from K&K Radio
Broadcasting, LLC. on June 5, 1997.
(2) Reflects historical results of operation for the period January 1, 1997 to
July 31, 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 of operations as station
operating expenses and in the historical results of operations 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 pro forma adjustment required to report Pro Forma interest
expense as interest on $126,375,700 at 11.25%, compounded semi-annually,
plus the amortization of the deferred financing fees of the Notes.
(6) Pro forma adjustment raising to the elimination of taxes due to net
operating losses.
(7) Reflects the write-off of deferred financing fees, net of tax effect on the
Old Credit Facility due to the repayment of amounts outstanding under the
facility from the proceeds of the Offering.
26
<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected financial data and should be read in
conjunction with the Company's financial statements and the related notes
thereto 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 1993 and
statement of operations data for the year ended December 31, 1995, the three
months ended December 31, 1994 and the years ended September 30, 1994 and 1993
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 1997 and statement of operations data for
the year ended December 31, 1996 and 1997 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
March 31, 1997 and 1998 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.
<TABLE>
<CAPTION>
THREE
MONTHS
YEARS ENDED THREE MONTHS ENDED
SEPTEMBER 30, ENDED YEARS ENDED DECEMBER 31, MARCH 31,
-------------------- DECEMBER 31, ----------------------------------- ---------
1993 1994 1994(1) 1995(1)(2) 1996(3)(4) 1997(5) 1997
--------- --------- --------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Gross revenues........................ $ 1,511 $ 2,267 $ 654 $ 5,655 $ 8,567 $ 11,731 $ 2,098
Net revenues.......................... 1,383 2,074 604 5,225 7,944 10,460 1,870
Station operating expenses............ 2,325 2,326 687 7,185 12,253 12,979 3,430
Corporate, general and administrative
expenses............................ -- -- -- 425 1,201 1,745 334
Employment incentives................. -- -- -- -- -- 3,863 --
Depreciation and amortization......... 622 524 113 798 1,388 1,931 319
Operating loss........................ (1,563) (776) (196) (3,183) (6,898) (10,058) (2,213)
Gain on sale.......................... -- -- -- -- (6,608) -- --
Interest expense...................... 258 439 120 842 2,827 4,348 818
Income tax benefit.................... -- -- -- -- -- 1,050 --
Deferred income taxes resulting from
conversion to C corporation
status.............................. -- -- -- -- -- (3,350) --
Extraordinary loss on extinguishment
of debt, net of income taxes
.............................. -- -- -- -- -- (313) --
Net (loss)............................ (1,807) (1,163) (298) (4,005) (3,098) (16,918) (3,003)
BASIC INCOME (LOSS) PER COMMON
SHARE:.............................. (0.30) (0.19) (0.05) (0.66) (0.39) (1.77) (0.32)
OTHER FINANCIAL DATA:
Broadcast cash flow(6)................ $ (942) $ (252) $ (83) $ (1,960) $ (4,309) $ (2,519) $ (1,560)
EBITDA(7)............................. (942) (252) (83) (2,385) (5,510) (4,264) (1,894)
Net cash used in operating
activities.......................... (1,228) (1,007) (227) (2,942) (7,448) (8,661) (2,646)
Net cash used in investing
activities.......................... (92) (23) (1) (3,883) (24,235) 21,942 (183)
Net cash provided by financing
activities.......................... 1,296 1,066 172 7,779 30,851 30,449 2,802
Capital expenditures.................. 92 23 1 333 653 488 183
Ratio of earnings to fixed
charges(8).......................... -- -- -- -- -- -- --
BALANCE SHEET DATA:
Cash.................................. $ 20 $ 56 $ -- $ 1,066 $ 234 $ 80 $ 707
Intangibles, net...................... 2,942 2,666 2,600 6,040 29,230 54,115 28,974
Total assets.......................... 4,037 4,044 3,863 9,433 38,963 60,108 39,307
Notes payable to stockholders......... 4,923 6,028 6,219 13,477 12,544 12,797
Long-term debt, including current
portion............................. -- -- -- -- 28,200 30,100 30,800
Stockholder's equity (deficit)........ (1,022) (2,185) (3,484) (5,821) (3,800) 25,032 (6,803)
<CAPTION>
1998
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Gross revenues........................ $ 2,658
Net revenues.......................... 2,399
Station operating expenses............ 3,502
Corporate, general and administrative
expenses............................ 570
Employment incentives................. --
Depreciation and amortization......... 576
Operating loss........................ (2,249)
Gain on sale.......................... --
Interest expense...................... 995
Income tax benefit.................... 490
Deferred income taxes resulting from
conversion to C corporation
status.............................. --
Extraordinary loss on extinguishment
of debt, net of income taxes
.............................. (495)
Net (loss)............................ (3,286)
BASIC INCOME (LOSS) PER COMMON
SHARE:.............................. (0.24)
OTHER FINANCIAL DATA:
Broadcast cash flow(6)................ $ (1,103)
EBITDA(7)............................. (1,673)
Net cash used in operating
activities.......................... (1,488)
Net cash used in investing
activities.......................... (545)
Net cash provided by financing
activities.......................... 90,708
Capital expenditures.................. 545
Ratio of earnings to fixed
charges(8).......................... --
BALANCE SHEET DATA:
Cash.................................. $ 88,755
Intangibles, net...................... 53,733
Total assets.......................... 152,405
Notes payable to stockholders......... --
Long-term debt, including current
portion............................. 125,900
Stockholder's equity (deficit)........ 21,746
</TABLE>
27
<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 loss for the duplicate period
are $604,000 and $298,000, respectively.
(2) The Company acquired substantially all of the assets of WRGX-FM and WRKL-AM
effective December 31, 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 20, 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) Broadcast cash flow is defined as operating loss plus depreciation and
amortization plus corporate, general and administrative expenses, plus
non-cash charges related to stock-based compensation expense in the amount
of $3,863,000 for the year ended December 31, 1997 plus reimbursement of
operating expenses under LMA. 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, 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.
(7) EBITDA is defined as operating loss plus depreciation, amortization and
non-cash charges relating to stock based compensation expense in the amount
of $3,863,000 for the year ended December 31, 1997 plus reimbursement of
operating expenses under LMA. The Company believes that EBITDA provides
additional information for determining its ability to meet debt service
requirements. Nevertheless, this measure excludes certain items such as
depreciation and amortization, which are significant components in
understanding and assessing the financial performance of the Company. This
measure is not required by GAAP and should not be considered in isolation or
as a substitute for operating loss, cash flow from operating, investing and
financing activities as determined in accordance with GAAP, or any other
measure for determining the Company's operating performance or liquidity
which is calculated in accordance with generally accepted accounting
principles. In addition, the Company's use of EBITDA may not be comparable
to similar titled measures presented by other companies due to the use by
such other companies of different financial statement components in
calculating EBITDA.
(8) The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings from continuing operations before income taxes and
extraordinary items plus fixed charges. Fixed charges include interest,
expensed or capitalized, including amortization of deferred financing costs
and debt discount and the estimated interest component of rent expense.
Earnings were not sufficient to cover fixed charges by $1,807,000 and
$1,163,000 for the fiscal years ended September 30, 1993 and 1994,
respectively, by $4,005,000, $3,098,000 and $14,305,000 for the fiscal years
ended December 31, 1995, 1996 and 1997, respectively, by $298,000 for the
three months ended December 31, 1994, and by $3,003,000 and $3,281,000 for
the three months ended March 31, 1997 and 1998, respectively.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with "Selected
Financial Data" and the other financial data appearing elsewhere in this
Prospectus. Certain information included herein contains statements that
constitute "forward-looking statements" containing certain risks and
uncertainties. See "Special Note Regarding Forward-Looking Statements."
GENERAL
The Company was incorporated in August 1994 and commenced operations on
January 1, 1995, having acquired WRGX-FM, Briarcliff Manor, New York, and
WRKL-AM, Pomona, New York (together, the "Original New York Stations"), on
December 31, 1994. On May 30, 1996 the Company 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 the Company. The Company
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), Long Branch, New Jersey, under a LMA, changing its format to country
music. On that date, WWXY-FM (formerly WRGX-FM), Briarcliff Manor, New York,
which the Company had operated as a stand-alone FM station 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, New York, 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. In order to improve Y-107 NY's listenable signal,
the Company has recently signed an agreement to acquire a combined AM/FM radio
station in the New York MSA for an aggregate purchase price of approximately
$6.3 million and has entered into a LMA that enables it to immediately begin
broadcasting Y-107 NY's country music on this station. Simultaneously with the
consummation of this acquisition, the Company intends to resell the assets of
the AM radio station for approximately $1.0 million. Following the consummation
of this acquisition, the FM radio station will be simulcasted using STMC-TM- to
broadcast on the 107.1-FM frequency with the Company's Y-107 NY radio stations.
The consummation of this acquisition remains subject to a number of significant
conditions to closing, including the consent of the FCC to the transfer of
control from this station's
29
<PAGE>
operating entity to the Company. See "Business--Acquisitions" and
"Business--Proposed Radio Station Disposition."
On August 8, 1997 the Company acquired WVVX-FM, Highland Park, Illinois, and
WJDK-FM, Morris, Illinois. Since February 1998, the Chicago Stations have
operated as FM-103.1, broadcasting an adult contemporary format. The Company has
recently signed agreements to purchase the assets of two FM radio stations and a
combined AM/FM radio station in the Chicago MSA for an aggregate purchase price
of approximately $24.0 million. Immediately following the consummation of these
acquisitions, the Company intends to resell the assets of the combined AM/FM
radio station and simulcast the two FM radio stations using STMC-TM- to
broadcast collectively on the 92.7-FM frequency. The consummation of these
acquisitions remains subject to a number of significant conditions to closing,
including the consent of the FCC to the assignment of these stations' FCC
licenses to the Company. See "Business--Acquisitions" and "Business--Proposed
Radio Station Disposition."
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
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 brand new
metropolitan area radio stations, 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.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997.
NET REVENUES in the three months ended March 31, 1998 were $2,399,000 as
compared to $1,870,000 for the three months ended March 31, 1997, an increase of
$529,000, or 28%. This increase was due primarily to increases in the net
revenues of Y-107 LA and Y-107 NY in the three months ended March 31, 1998 when
compared to the corresponding period of the prior year.
STATION OPERATING EXPENSES EXCLUDING DEPRECIATION AND AMORTIZATION in the
three months ended March 31, 1998 were $3,502,000 as compared to $3,430,000 for
the three months ended March 31, 1997, an increase of $72,000, or 2%. This
increase was due principally to (i) FM 103.1 Chicago Heart and Soul commencing
operations in early February 1998 resulting in $319,000 of station operating
expenses in Chicago for the three months ended March 31, 1998, and (ii) small
increases in station operating expenses at Y-107 LA and WRKL-AM. These increases
were offset by a reduction in the station operating expenses
30
<PAGE>
of Y-107 NY in the three months ended March 31, 1998, primarily due to the fact
that Y-107 NY incurred $355,000 of LMA fees in the three months ended March 31,
1997.
CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES in the three months ended
March 31, 1998 were $570,000 as compared to $334,000 for the three months ended
March 31, 1997, an increase of $236,000 or 71%. This increase was due primarily
to increased administrative expenses to support the growth of the Company.
DEPRECIATION AND AMORTIZATION EXPENSES in the three months ended March 31,
1998 were $576,000 as compared to $319,000 for the three months ended March 31,
1997, an increase of $257,000 or 81%. This increase was due primarily to the
amortization of intangibles and depreciation of capital assets of the Chicago
stations and two of the three Y-107 NY stations, all of which were acquired
after March 31, 1997.
INTEREST EXPENSE NET OF INTEREST INCOME in the three months ended March 31,
1998 was $995,000 as compared to $818,000 for the three months ended March 31,
1997, an increase of $177,000, or 22%. This increase reflects increased
borrowings under the Old Credit Facility made to fund the Company's Chicago and
New York acquisitions, and the replacement of these borrowings by the funds
raised with the issuance of the Notes on March 17, 1998. In the three months
ended March 31, 1998 and 1997, the average outstanding total debt for the
Company was $46,664,000 and $42,377,000 respectively. The average rate of
interest on the outstanding debt was 9.4% and 7.9% respectively. The Company
expects interest expense to increase substantially in the future due to the
issuance of the Notes.
NET LOSSES in the three months ended March 31, 1998 were $3,286,000 as
compared to $3,003,000 for the three months ended March 31, 1997. The increase
in the net loss of $283,000 was primarily attributable to (a) higher
depreciation and amortization expenses, corporate general and administrative
expenses, and interest expense incurred as part of the radio station
acquisitions and growth of the Company and (b) the extraordinary loss on the
extinguishment of debt net of income taxes of $495,000, offset by increased net
revenues and a tax benefit in the three months ended March 31, 1998 of $490,000.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET REVENUES in the year ended December 31, 1997 were $10,460,000 as
compared to $7,944,000 for the year ended December 31, 1996, an increase of
$2,516,000, or 32%. This increase was due primarily to an increase of $4,647,000
in the net revenues of Y-107 LA compared to the prior year and an increase of
the Y-107 NY net revenues in the year ended December 31, 1997 of $1,120,000, or
67%, compared to the net revenues of the stand-alone WWXY-FM in 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 year ended December 31, 1997
compared to $2,050,000 and $1,106,000 net revenues, respectively, for the year
ended December 31, 1996, and (b) the fact that WRKL-AM net revenues in the year
ended December 31, 1997 were down $249,000, or 16%, when compared to 1996. The
Y-107 LA increase was principally due to the fact that (a) the 1997 net revenues
include twelve months of Y-107 LA operations, whereas the 1996 net revenues
include only nine months of Y-107 LA operations, and (b) the 1996 period net
revenues were the first nine 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
year ended December 31, 1997 were $12,979,000, as compared to $12,253,000 in the
year ended December 31, 1996, an increase of $726,000, or 6%. This increase was
due to the inclusion of the expenses of Y-107 LA and Y-107 NY offset by the
absence of operating expenses of the Q Stations. The increase in Y-107 LA
operating expenses reflects the fact that (a) the 1997 station operating
expenses represent twelve months of operations as compared to nine months
operations reported in 1996, and (b) the nine month operations in 1996 were the
first nine months of operation of the station, reflecting incomplete staffing
and the absence of significant
31
<PAGE>
marketing initiatives, offset by the expense of LMA fees and expenses of
$593,000 incurred in 1996. The increase in the Y-107 NY operating expenses when
compared to the prior year operating expenses of the stand-alone WWXY-FM were
due to (a) $540,000 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.
DEPRECIATION AND AMORTIZATION EXPENSES for the year ended December 31, 1997
were $1,931,000, as compared to $1,388,000 for the prior year, an increase of
$543,000, or 39%. 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 year ended December
31, 1997 were $1,745,000, as compared to $1,201,000 for the prior year, an
increase of $544,000, or 45%. This increase was primarily due to increases in
administrative staff to support the growth of the Company.
INTEREST EXPENSE for the year ended December 31, 1997 was $4,348,000 as
compared to $2,827,000 for the prior year, an increase of $1,521,000, or 54%.
This increase reflects borrowings under the Old Credit Facility made to fund the
Company's acquisitions, and (b) increased stockholders' loans throughout 1997
compared to 1996. In the years ended December 31, 1997 and 1996, the average
outstanding total debt for the Company was $56,898,000 and $37,026,000,
respectively. The average rate of interest on the outstanding debt was 7.6% and
7.6%, respectively.
NET LOSSES for the year ended December 31, 1997 were $16,918,000, as
compared to $3,098,000 for the prior year. The increase in the net loss of
$13,820,000 was primarily attributable to (a) 1996 period gain of $6,608,000 on
the sale of the Q stations, (b) higher interest expense and depreciation and
amortization expenses incurred as part of the radio station acquisitions of the
Company, (c) a charge of $3,863,000 in 1997 relating to awards under the
employment incentive arrangements, and (d) a one-time income tax charge of
$3,350,000 relating to the change in taxable status of the Company from an S
corporation to a C corporation, offset by the absence of the Q stations
operations in 1997 and 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 $593,000 of non-recurring LMA expenses
incurred 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.
32
<PAGE>
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 Old 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 and increased net revenue, 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 station operating
expenses as the Company reconfigured and developed the Los Angeles 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. In addition, because its broadcast 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 were contributed to the capital of
the Company immediately prior to the consummation of the Initial Public
Offering) and borrowings under the Old Credit Facility. The Company has entered
into employment contracts with thirteen individuals comprised mainly 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 $1,725,000 in 1998, $470,000 in 1999 and $300,000 in 2000.
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 December 31, 1995, 1996 and 1997 and in the most
recent three months ended March 31, 1998, the Company reported cash used in
operations. In the year ended December 31, 1996 these negative cash flows were
predominantly due to the funding of start-up operations at Y-107 LA, together
with an increase in interest expense in both periods, as borrowings under the
Old Credit Facility were used to fund the Y-107 LA radio station acquisition. In
the year ended December 31, 1997, the deficit was predominantly due to the
start-up operating losses of Y-107 NY and increased interest expense for
borrowings under the Old Credit Facility to finance the Y-107 NY and Chicago
Stations acquisitions.
33
<PAGE>
In the three months ended March 31, 1998 the deficit was predominantly due
to the start-up operating losses of Y-107 NY and FM 103.1 Chicago, together with
interest expense on borrowings under the Old Credit Facility to finance the
Company's radio station acquisitions. The reduction in cash used in operations
for the three months ended March 31, 1998 when compared to the three months
ended March 31, 1997 was due primarily to (i) a reduction in net cash interest
expense as a result of issuance of the Notes on March 17, 1998 to retire the Old
Credit Facility, and (ii) a net reduction of approximately $700,000 in the
funding of accounts receivable between the periods.
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (excluding acquisitions of radio stations) were
$333,000, $653,000 and $488,000 in the years ended December 31, 1995, 1996 and
1997, respectively, and $545,000 in the most recent three months ended March 31,
1998. These expenditures primarily reflect costs associated with the FCC Power
Increases and other technical improvements at the Company's stations, the
upgrade and expansion of the studio and broadcast facilities, computer support
equipment, and the purchase of promotional vehicles for the newly formed
trimulcast stations. The Company has to date spent less than $250,000 per
station group for the upgrades and other technical improvements associated with
the implementation of its STMC-TM- concept for power increases at such station
groups.
CASH FLOWS FROM FINANCING ACTIVITIES
Under the terms of the Old Credit Facility, the Company had a $35.0 million
reducing revolving loan facility, of which amount Mr. Subotnick had guaranteed
the payment of up to $6.0 million. The amounts outstanding under the Old Credit
Facility were repaid with the proceeds of the Offering on March 17, 1998.
The Company completed a private placement of $174.0 million aggregate
principal amount of Existing Notes on March 17, 1998, generating approximately
$125.4 million of gross proceeds for the Company of which the Company used
approximately $32.8 million to repay outstanding indebtedness under its Old
Credit Facility with the balance being used to finance the acquisition costs of
radio station properties and for general working capital purposes. See
"Business--Acquisitions."
The Existing Notes were issued and the New Notes will be issued at an
original issue discount and will accrete in value until March 15, 2001 at a rate
of 11 1/4% per annum, compounded semi-annually, to an aggregate principal amount
of $174.0 million. Cash interest will not accrue on the Notes prior to March 15,
2001. Thereafter, interest on the Notes will accrue at a rate of 11 1/4% per
annum and will be payable in cash semi-annually, commencing September 15, 2001.
The Notes will mature on March 15, 2005 but may be redeemed after March 15, 2001
at the option of the Company, in whole or in part at a redemption price of
105.625%, 102.813% or 100.000% if redeemed during the 12-month period commencing
on March 15 of 2002, 2003 and on and after 2004, respectively. In addition, up
to 33 1/3% of the original principal amount of the Notes may be redeemed at the
option of the Company prior to March 15, 2001 at a redemption price equal to
111.25% of the accreted value of the Notes with net cash proceeds of one or more
equity offerings of the Company so long as there is a public market for the
Class A Common Stock at the time of such redemption and provided that at least
66 2/3% of the original principal amount of the Notes remains outstanding.
Holders of the Notes have the right to require the Company to repurchase
their Notes upon a Change of Control of the Company, at a price equal to 101% of
the accreted value of the Notes if such repurchase occurs prior to March 15,
2001 or 101% of the principal amount of such Notes if such repurchase occurs
thereafter, plus accrued and unpaid interest, if any, to the purchase date. A
Change of Control for purposes of the Notes is deemed to occur (i) when any
person other than the Principal Stockholders, the management and their
affiliates (the "Permitted Holders"), becomes the owner of more than 35% of the
total voting power of the Company's stock and the Permitted Holders own in the
aggregate a lesser
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percentage of such voting power and do not have the right or ability to elect a
majority of the Board of Directors, (ii) when the Board of Directors does not
consist of a majority of continuing directors, (iii) upon the occurrence of a
sale or transfer of all or substantially all of the assets of the Company taken
as a whole, or (iv) upon the adoption by the stockholders of a plan for the
liquidation or dissolution of the Company.
Payments under the Notes are guaranteed on a senior unsecured, full and
unconditional, joint and several, basis by the Company's Restricted
Subsidiaries. As of the date of this Prospectus, all of the Company's
subsidiaries are Restricted Subsidiaries. The Notes contain certain financial
and operational covenants and other restrictions with which the Company and its
Restricted Subsidiaries must comply, including restrictions on the incurrence of
additional indebtedness, investments, payment of dividends on and redemption of
capital stock and the redemption of certain subordinated obligations, sales of
assets and the use of proceeds therefrom, transactions with affiliates, creation
and existence of liens, the types of businesses in which the Company may
operate, asset swaps, distributions from Restricted Subsidiaries, sales of
capital stock of Restricted Subsidiaries and consolidations, mergers and
transfers of all or substantially all of the Company's assets. The covenants in
the Notes, the Indenture and the Revolving Credit Facility do not restrict the
ability of the Company's Restricted Subsidiaries to make cash distributions to
the Company. The Company is currently in compliance with all covenants and other
restrictions under the Notes and anticipates that it will continue to meet the
requirements of the Notes.
The Notes contain customary events of default including payment defaults and
default in the performance of other covenants, certain bankruptcy defaults,
judgment and cross defaults, and failure of a subsidiary guarantee to be in full
force and effect.
In connection with the consummation of the Offering, the Company entered
into a Second and Amended Restated Credit Agreement with Chase (the "Revolving
Credit Facility") providing for up to $15.0 million of availability, based upon
a multiple of the Company's Los Angeles Stations' cash flow. See "Description of
Revolving Credit Facility." The Revolving Credit Facility will mature on the
fifth anniversary of the date of original issuance of the Existing Notes and
amounts outstanding under the Revolving Credit Facility will bear interest at an
applicable margin plus, at the Company's option, Chase's prime rate (in which
case the applicable margin will initially be 2.00% subject to reduction upon
obtaining performance criteria based on the Company's leverage ratio) or the
London Interbank Borrowing Rate (in which case the applicable margin will
initially be 3.00% subject to reduction upon obtaining performance criteria
based on the Company's leverage ratio). The Company's obligations under the
Revolving Credit Facility are secured by a pledge of substantially all of the
Company's and its Restricted Subsidiaries' assets. The Company will pay a fee of
0.5 percent per annum on the aggregate unused portion of the facility.
The Revolving Credit Facility contains 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 sales of assets, restrictions on the use of
borrowings, limitations on paying cash dividends and redeeming or repurchasing
capital stock of the Company or the Notes, and requirements to maintain certain
minimum interest coverage ratios. The Company is currently in material
compliance with all covenants and other restrictions under the Revolving Credit
Facility and anticipates that it will continue to meet the requirements of the
Revolving Credit Facility.
The Revolving Credit Facility contains customary events of default,
including material misrepresentations, payment defaults and default in the
performance of other covenants, certain bankruptcy and ERISA defaults, judgment
and cross defaults, revocation of any of the Company's broadcast licenses and
change in control. The Revolving Credit Facility also provides that an event of
default will occur upon the occurrence of a "change of control" as defined in
the Revolving Credit Facility. For purposes of the Revolving Credit Facility, a
"change of control" will occur when (i) any person or group other than the
Principal Stockholders and their affiliates obtains the power to elect a
majority of the Board of Directors, (ii) the
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Company fails to own 100% of the capital stock of its subsidiaries owning any of
the FCC broadcast licenses, or (iii) the Board of Directors does not consist of
a majority of continuing directors.
The Company is actively reviewing potential STMC-TM-, and other station
acquisition candidates. See "Business--Acquisitions." After giving effect to the
Offering and application of the net proceeds therefrom, the Company had
available approximately $88.8 million of cash on hand at March 31, 1998 and up
to $15.0 million of borrowing capacity under the Revolving Credit Facility,
which can be used for working capital purposes, including financing these
acquisitions. Cash on hand and amounts available under the Revolving 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 that 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 will be required for debt service.
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 successfully to implement its strategy, the Company may be required to
obtain additional financing through public or private sale of debt or equity
securities of the Company or otherwise restructure its capitalization.
YEAR 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the application year. As a result, those computer
programs each have time-sensitive softwares that recognize a date using "00" as
the year 1900 rather than the year 2000. This could cause system failure or
miscalculations causing disruptions of operations, including, among other
things, temporary inability to process transactions, send invoices, or engage in
similar normal business activities.
The Company has completed the review of its systems and has initiated formal
communications with all of its significant suppliers and large customers to
determine the extent to which the Company's interface systems are vulnerable to
those third parties' failure to remedy their own year 2000 issues. All of the
systems tested and a majority of the third parties reviewed to date are year
2000 compliant. Year 2000 costs are not expected to have a material impact on
the Company's ongoing results of operations. There is no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted and would not have an adverse effect on the Company's systems.
REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement, which establishes standards for reporting and
disclosure of comprehensive income, is effective for interim and annual periods
beginning after December 15, 1997, although earlier adoption is permitted.
Reclassification of financial information for earlier periods presented for
comparative purposes is required under SFAS No. 130. As this statement only
requires additional disclosures in the Company's consolidated financial
statements, its adoption will not have any impact on the Company's consolidated
financial position or results of operations. The Company has adopted SFAS No.
130 effective January 1, 1998.
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THE EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $174.0 million
aggregate principal amount at maturity of New Notes for a like aggregate
principal amount at maturity of Existing Notes properly tendered on or prior to
the Expiration Date and not withdrawn as permitted pursuant to the procedures
described below. The Exchange Offer is being made with respect to all of the
Existing Notes. The total aggregate principal amount of Existing Notes and New
Notes will in no event exceed $174.0 million.
As of the date of this Prospectus, $174.0 million aggregate principal amount
at maturity of the Existing Notes was outstanding. This Prospectus, together
with the Letter of Transmittal, is first being sent on or about June 5, 1998, to
all holders of Existing Notes known to the Company. The Company's obligation to
accept Existing Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth under "--Conditions to the Exchange Offer"
below.
PURPOSE OF THE EXCHANGE OFFER
The Existing Notes were issued by the Company on March 17, 1998 in a
transaction exempt from the registration requirements of the Securities Act.
Accordingly, the Existing Notes may not be reoffered, resold, or otherwise
transferred in the United States unless so registered or unless an applicable
exemption from the registration and prospectus delivery requirements of the
Securities Act is available.
In connection with the issuance and sale of the Existing Notes, the Company
entered into the Registration Rights Agreement, which requires the Company to
file with the Commission on or before May 16, 1998 (60 days after the date of
issuance of the Existing Notes) a registration statement relating to the
Exchange Offer (or use its reasonable best efforts to file a shelf registration
statement relating to the offer and sale of the Existing Notes that are Transfer
Restricted Securities) and to use its best efforts to cause the registration
statement relating to the Exchange Offer or the shelf registration statement to
become effective on or before August 14, 1998 (150 days after the date of
issuance of the Existing Notes). The Exchange Offer is being made by the Company
to satisfy its obligations with respect to the Registration Rights Agreement.
Based on certain no-action letters issued by the staff of the Commission to
third parties in unrelated transactions, the Company believes that the New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases New Notes from the
Company to resell pursuant to Rule 144A or any other available exemption)
without compliance with the registration and prospectus delivery requirements of
the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement or
understanding with any person to participate in the distribution of such New
Notes and are not participating in, and do not intend to participate in, the
distribution of such New Notes. The Company has not sought, and does not intend
to seek, its own no-action letter with regard to the Exchange Offer.
Accordingly, there can be no assurance that the staff of the Commission would
make a similar determination with respect to the Exchange Offer. Any holder of
Existing Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the New Notes may be deemed to have received
restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Thus, any New Notes acquired by
such holders will not be freely transferable except in compliance with the
registration requirements of the Securities Act or pursuant to an exemption
therefrom. Each broker-dealer that receives New Notes for its own account in
exchange for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, may
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be deemed to be an "underwriter" within the meaning of the Securities Act and
must acknowledge that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Notes. See "Plan of
Distribution." A secondary resale transaction in the United States by a holder
using the Exchange Offer to participate in a distribution of Existing Notes must
be covered by an effective registration statement containing the selling
security holder information required by Item 507 of Regulation S-K. See
"--Consequences of Failure to Exchange; Resale of New Notes."
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 P.M., New York City time, on July 6,
1998, unless the Company, in its reasonable discretion, has extended the period
of time for which the Exchange Offer is open (such date, as it may be extended,
is referred to herein as the "Expiration Date"). The Expiration Date will be at
least 20 business days after the commencement of the Exchange Offer in
accordance with Rule 14e-1(a) under the Exchange Act. In addition, the Company
has agreed in the Registration Rights Agreement to keep the Exchange Offer open
for not less than 30 days (or longer if required by applicable law) after the
date that notice thereof is first mailed to the holders of the Existing Notes.
The Company expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and thereby
delay acceptance for exchange of any Existing Notes, by giving oral notice
(promptly confirmed in writing) or written notice to the Exchange Agent and by
giving written notice of such extension to the holders thereof or by press
release or other public announcement communicated, unless otherwise required by
applicable law or regulation, in each case, no later than 9:00 A.M. New York
City time, on the next business day after the previously scheduled Expiration
Date. During any such extension, all Existing Notes previously tendered will
remain subject to the Exchange Offer unless properly withdrawn.
In addition, the Company expressly reserves the right to terminate or amend
the Exchange Offer and not to accept for exchange any Existing Notes not
theretofore accepted for exchange upon the occurrence of any of the events
specified below under "--Conditions to the Exchange Offer." If any such
termination or amendment occurs, the Company will notify the Exchange Agent and
will either issue a press release or give oral or written notice to the holders
of the Existing Notes as promptly as practicable.
For purposes of the Exchange Offer, the term "business day" has the meaning
set forth in Rule 14d-1(c)(6) under the Exchange Act.
PROCEDURES FOR TENDERING EXISTING NOTES
The tender to the Company of Existing Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal.
A holder of Existing Notes may tender the same by (i) properly completing
and signing the Letter of Transmittal or a facsimile thereof (all references in
this Prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof) and delivering the same, together with the certificate or
certificates representing the Existing Notes being tendered and any required
signature guarantees, to the Exchange Agent at its address set forth below on or
prior to the Expiration Date (or complying with the procedure for book-entry
transfer described below) or (ii) complying with the guaranteed delivery
procedures described below. A tender will not be deemed to have been timely
received if the tendering holder's properly completed and duly signed Letter of
Transmittal accompanied by the Existing Notes is mailed prior to the Expiration
Date but is received by the Exchange Agent after the Expiration Date.
THE METHOD OF DELIVERY OF EXISTING NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED,
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WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO INSURE TIMELY DELIVERY. NO EXISTING NOTES OR LETTERS OF TRANSMITTAL
SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Existing Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Existing Notes
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined). In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a clearing agency, an insured
credit union, a savings association or a commercial bank or trust company having
an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Existing Notes are registered in the name of a person other
than a signer of the Letter of Transmittal, the Existing Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered holder with the
signature thereon guaranteed by an Eligible Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the
Existing Notes at the book-entry transfer facility, The Depository Trust
Company, for the purpose of facilitating the Exchange Offer, and subject to the
establishment thereof, any financial institution that is a participant in the
book-entry transfer facility's system may make book-entry delivery of Existing
Notes by causing such book-entry transfer facility to transfer such Existing
Notes into the Exchange Agent's account with respect to the Existing Notes in
accordance with the book-entry transfer facility's procedures for such transfer.
Although delivery of Existing Notes may be effected through book-entry transfer
into the Exchange Agent's account at the book-entry transfer facility, an
appropriate Letter of Transmittal with any required signature guarantee and all
other required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth below on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Existing Note to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its address set forth below on or prior to the Expiration Date a letter,
telegram or facsimile transmission from an Eligible Institution setting forth
the name and address of the tendering holder, the names in which the Existing
Notes are registered and, if possible, the certificate numbers of the Existing
Notes to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three business days after the Expiration Date the
Existing Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Existing Notes into the Exchange Agent's account at the
book-entry transfer facility), will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless Existing Notes being tendered by the
above-described method are deposited with the Exchange Agent within the time
period set forth above (accompanied or preceded by a properly completed Letter
of Transmittal and any other required documents), the Company may, at its
option, reject the tender. Copies of a Notice of Guaranteed Delivery which may
be used by Eligible Institutions for the purposes described in this paragraph
are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Existing Notes (or a confirmation of book-entry transfer of
such Existing Notes into the Exchange Agent's account at the book-entry transfer
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facility) is received by the Exchange Agent, or (ii) a Notice of Guaranteed
Delivery or letter, telegram or facsimile transmission to similar effect (as
provided above) from an Eligible Institution is received by the Exchange Agent.
Issuances of New Notes in exchange for Existing Notes tendered pursuant to a
Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to
similar effect (as provided above) by an Eligible Institution will be made only
against deposit of the Letter of Transmittal (and any other required documents)
and the tendered Existing Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Existing Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Existing Notes not timely or properly tendered or to
not accept any particular Existing Notes which acceptance might, in the judgment
of the Company or its counsel, be unlawful. The Company also reserves the
absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Existing Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Existing Notes in the Exchange Offer). The interpretation of
the terms and conditions of the Exchange Offer as to any particular Existing
Notes either before or after the Expiration Date (including the Letter of
Transmittal and the instructions thereto) by the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Existing Notes for exchange must be cured within such
reasonable period of time as the Company shall determine. Neither the Company,
the Exchange Agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of
Existing Notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Existing Notes, such Existing Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names of the registered holder or holders appear on the
Existing Notes.
If the Letter of Transmittal or any Existing Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted.
By tendering, each holder will represent to the Company in the Letter of
Transmittal that, among other things, the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the holder, that
neither the holder nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such New Notes within the
meaning of the Securities Act, that neither the holder nor any such other person
is participating in or intends to participate in the distribution of such New
Notes within the meaning of the Securities Act and that neither the holder nor
any such other person is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company or if such holder or such other person is an
"affiliate," such holder or such other person will comply with the registration
and prospectus delivery requirements of the Securities Act, to the extent
applicable.
Each broker-dealer that receives New Notes for its own account in exchange
for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, may be deemed to be an "underwriter" within the meaning of the
Securities Act and must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such New
Notes; however, by so acknowledging and by delivering a prospectus, such
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. See "Plan of Distribution."
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WITHDRAWAL RIGHTS
Tenders of Existing Notes may be withdrawn at any time prior to the close of
business, New York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent prior to the Expiration Date at its address
set forth below. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Existing Notes to be withdrawn (the "Depositor"),
(ii) identify the Existing Notes to be withdrawn (including the certificate
number or numbers and principal amount of such Existing Notes), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Existing Notes were tendered or as otherwise described
above (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee under the Indenture
register the transfer of such Existing Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Existing
Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. Any Existing Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Existing Notes which have been tendered for
exchange and which are properly withdrawn will be returned to the holder thereof
without cost to such holder as soon as practicable after such withdrawal.
Properly withdrawn Existing Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering Existing Notes" above at
any time on or prior to the Expiration Date.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Existing Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Existing Notes. See "--Conditions to the Exchange Offer" below. For purposes of
the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Existing Notes for exchange when, as and if the Company has given oral
or written notice thereof to the Exchange Agent.
For each Existing Note accepted for exchange, the holder of such Existing
Note will receive a New Note having a principal amount or Accreted Value, as the
case may be, equal to that of the surrendered Existing Note.
In all cases, issuance of New Notes for Existing Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Existing Notes or a timely
Book-Entry Confirmation of such Existing Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility, a properly completed and duly executed
Letter of Transmittal and all other required documents. If any tendered Existing
Notes are not accepted for any reason set forth in the terms and conditions of
the Exchange Offer or if Existing Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged
Existing Notes will be returned without expense to the tendering holder thereof
(or, in the case of Existing Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described below, such non-exchanged Existing
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility) as promptly as practicable after the expiration of the Exchange Offer.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Existing Notes and may terminate or
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amend the Exchange Offer if at any time before the acceptance of such Existing
Notes for exchange or the exchange of the New Notes for such Existing Notes any
of the following events shall occur:
(i) any action or proceeding shall have been instituted or threatened in
any court or before any governmental agency or body that in the Company's
judgment would reasonably be expected to prohibit, prevent or otherwise
impair the ability of the Company to proceed with the Exchange Offer;
(ii) there shall occur a change in the current interpretation of the
staff of the Commission which current interpretation permits the New
Notes issued pursuant to the Exchange Offer in exchange for the Existing
Notes to be offered for resale, resold and otherwise transferred by
holders thereof (other than (i) a broker-dealer who purchases such New
Notes directly from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act or (ii) a person that
is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes
are acquired in the ordinary course of such holders' business and such
holders have no arrangement with any person to participate in the
distribution of the New Notes;
(iii) a law, statute, rule or regulation shall have been adopted or
enacted which, in the Company's judgment, would reasonably be expected to
impair the ability of the Company to proceed with the Exchange Offer;
(iv) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement or the qualification of the Indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), or proceedings shall
have been initiated or, to the knowledge of the Company, threatened for
that purpose, or any governmental approval has not been obtained, which
approval the Company shall, in its sole discretion, deem necessary for
the consummation of the Exchange Offer as contemplated hereby; or
(v) any change, or any development involving a prospective change, in the
business or financial affairs of the Company has occurred which, in the
sole judgment of the Company, might materially impair the ability of the
Company to proceed with the Exchange Offer.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company, in whole or in part, at any time or
from time to time, if it determines in its reasonable discretion that any of the
foregoing events or conditions has occurred or exists or has not been satisfied,
subject to applicable law. The failure by the Company at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right and
each such right shall be deemed an ongoing right which may be asserted at any
time and from time to time.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Existing Notes and return
any Existing Notes that have been tendered to the holders thereof, (ii) extend
the Exchange Offer and retain all Existing Notes tendered prior to the
Expiration Date, subject to the rights of such holders of tendered Existing
Notes to withdraw their tendered Existing Notes, or (iii) waive such termination
event with respect to the Exchange Offer and accept all properly tendered
Existing Notes that have not been withdrawn or otherwise amend the terms of the
Exchange Offer in any respect. If such waiver or amendment constitutes a
material change in the Exchange Offer, the Company will disclose such change by
means of a post-effective amendment to the Registration Statement of which this
Prospectus is a part and will distribute an amended or supplemented Prospectus
to each registered holder of Existing Notes, and the Company will extend the
Exchange Offer for a period of five to ten business days, depending upon the
significance of the waiver or amendment and
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the manner of disclosure to the registered holders of the Existing Notes, if the
Exchange Offer would otherwise expire during such period.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange.
EXCHANGE AGENT
U.S. Bank Trust National Association (formerly known as First Trust National
Association) has been appointed as the Exchange Agent for the Exchange Offer.
All executed Letters of Transmittal should be directed to the Exchange Agent at
one of the addresses set forth below. Questions and requests for assistance,
requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notices of Guaranteed Delivery should be directed
to the Exchange Agent addressed if delivered by mail, by hand or by overnight
mail or courier, as follows:
U.S. Bank Trust National Association
U.S. Bank Trust Center
180 East Fifth Street
Saint Paul, MN 55101
Confirm: (612) 244-1197
Fax: (612) 244-1537
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The cash
expenses to be incurred by the Company in connection with the Exchange Offer
will be paid by the Company.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company.
Neither the delivery of this Prospectus nor any exchange made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the respective dates as of which
information is given herein. The Exchange Offer is not being made to (nor will
tenders be accepted from or on behalf of) holders of Existing Notes in any
jurisdiction in which the making of the Exchange Offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Existing Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Existing Notes not tendered or accepted for exchange
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Existing Notes tendered, or if
tendered Existing Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Existing Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other
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persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the carrying value of the Existing Notes
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company upon the exchange of New Notes for Existing Notes. Expenses incurred in
connection with the issuance of the New Notes will be amortized over the term of
the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Existing Notes who do not exchange their Existing Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws.
Existing Notes not exchanged pursuant to the Exchange Offer will continue to
remain outstanding in accordance with their terms. In general, the Existing
Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Existing Notes under the
Securities Act. However, if (i) because of any change in law or applicable
interpretations thereof by the Commission, the Company determines that it and
the Subsidiary Guarantors are not permitted to effect the Exchange Offer, (ii)
any Existing Notes validly tendered pursuant to the Exchange Offer and not
withdrawn are not exchanged for New Notes within 180 days after their date of
original issuance, (iii) any Initial Purchaser so requests with respect to
Existing Notes not eligible to be exchanged for New Notes in the Exchange Offer
or held by it following the consummation of the Exchange Offer, (iv) any
applicable law or interpretation thereof does not permit any holder to
participate in the Exchange Offer, (v) any holder that participates in the
Exchange Offer does not receive freely transferable New Notes in exchange for
tendered Existing Notes or (vi) the Company and the Subsidiary Guarantors so
elect, then the Company is obligated, as promptly as practicable, to use its
reasonable best efforts to file with the Commission a shelf registration
statement (a "Shelf Registration Statement") on the appropriate form under the
Securities Act relating to the then outstanding Existing Notes.
Based on certain no-action letters issued by the staff of the Commission to
third parties in unrelated transactions, the Company believes that the New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases New Notes from the
Company to resell pursuant to Rule 144A or any other available exemption)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement or
understanding with any person to participate in the distribution of such New
Notes and are not participating in, and do not intend to participate in, the
distribution of such New Notes. The Company has not sought, and does not intend
to seek, its own no-action letter with regard to the Exchange Offer.
Accordingly, there can be no assurance that the staff of the Commission would
make a similar determination with respect to the Exchange Offer. If any holder
has any arrangement or understanding with respect to the distribution of the New
Notes to be acquired pursuant to the Exchange Offer, such holder (i) could not
rely on the applicable interpretations of the staff of the Commission and (ii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. A
broker-dealer who holds Existing Notes that were
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acquired for its own account as a result of market making or other trading
activities may be deemed to be an "underwriter" within the meaning of the
Securities Act and must, therefore, deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of New Notes.
Each such broker-dealer that receives New Notes for its own account in exchange
for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, may be deemed to be an "underwriter" within the meaning of the
Securities Act and must acknowledge in the Letter of Transmittal that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. A secondary resale transaction in
the United States by a holder using the Exchange Offer to participate in a
distribution of Existing Notes must be covered by an effective registration
statement containing the selling security holder information required by Item
507 of Regulation S-K. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with. The Company and
the Subsidiary Guarantors have agreed, pursuant to the Registration Rights
Agreement and subject to certain specified limitations therein, to use their
reasonable best efforts to register or qualify the New Notes for offer or sale
under the securities or blue sky laws of such jurisdictions within the United
States as any holder of the Existing Notes reasonably requests in writing.
Participation in the Exchange Offer is voluntary, and holders of Existing
Notes should carefully consider whether to participate. Holders of the Existing
Notes are urged to consult their financial and tax advisors in making their own
decision on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Existing Notes pursuant to the terms of, this Exchange Offer,
the Company and the Subsidiary Guarantors will have fulfilled a covenant
contained in the Registration Rights Agreement. Holders of Existing Notes who do
not tender their Existing Notes in the Exchange Offer will continue to hold such
Existing Notes and will be entitled to all the rights, and limitations
applicable thereto, under the Indenture, except for any such rights under the
Registration Rights Agreement that by their terms terminate or cease to have
further effectiveness as a result of the making of this Exchange Offer. See
"Description of Existing Notes." All untendered Existing Notes will continue to
be subject to the restrictions on transfer set forth in the Indenture. To the
extent that Existing Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered Existing Notes could be adversely affected. See
"Risk Factors--Adverse Consequences of Failure to Adhere to Exchange Offer
Procedures."
The Company may in the future seek to acquire untendered Existing Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The terms of any such purchases or offers may differ from
the terms of the Exchange Offer.
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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-TM-. STMC-TM- 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-TM-, 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 stations' broadcast antennas 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 is typically required to acquire a major market Class B
station. Class B radio stations are defined by the FCC as those facilities whose
signal is predicted to cover a regional urban area. The Company currently owns
and operates STMC-TM- 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'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 covered
approximately 75% of the Arbitron diaries in the Los Angeles MSA and as a result
of an increase in its transmission power pursuant to the FCC Power Increase
which the Company has recently implemented, Y-107 has increased its coverage to
approximately 90%. The Company has demonstrated the success of its strategy in
Los Angeles where Y-107 LA has consistently ranked as one of the top five most
listened to modern rock radio stations in America over the past year and
achieved a significant share of 0.8% in the 12+ category as of the Winter 1998
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 0.8 in the six-month period ended March
1997 to 1.3 in the six-month period ended December 1997. The Company's three Los
Angeles Stations were acquired in May 1996 for a combined purchase price
significantly lower than the reported purchase prices of Class B stations in the
Los Angeles MSA, as evidenced by reported transactions consummated since the
deregulation initiated by the passage of the Telecom Act in 1996. See
"--Business Strategy" below.
The Company's three stations in the New York collectively broadcast as Y-107
on the 107.1-FM frequency. Y-107 NY commenced operations in December 1996 as the
only country music station covering the New York City market. Y-107 NY earned a
0.9% share in the 12+category as of the Winter 1998 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 and completion of
other technical improvements, which the Company is currently implementing. The
Company's three New York Stations were acquired by the Company for a combined
purchase price significantly lower than the reported purchase prices of Class B
stations in the New York MSA, as evidenced by reported transactions consummated
since the passage of the Telecom Act. In order to improve Y-107 NY's listenable
signal, the Company has recently signed an agreement to acquire a combined AM/FM
radio station in the New York MSA for an aggregate purchase price of
approximately $6.3 million and has entered into a LMA that enables it to
immediately begin broadcasting Y-107 NY's country music on this station.
Simultaneously with the consummation of this acquisition, the Company intends to
resell the assets of the AM radio station for approximately $1.0
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million. Following the consummation of this acquisition, the FM radio station
will be simulcasted using STMC-TM- to broadcast on the 107.1-FM frequency with
the Company's Y-107 NY radio stations. The consummation of this acquisition
remains subject to a number of significant conditions to closing, including the
consent of the FCC to the transfer of control from this station's operating
entity to the Company. See "--Acquisitions" and "--Business Strategy."
The Company's two stations in the Chicago MSA collectively broadcast as
FM-103.1 on the 103.1-FM frequency. FM-103.1 commenced operations in February
1998, broadcasting an adult contemporary format. FM-103.1 currently covers
approximately 70% of the Arbitron diaries in the Chicago MSA and will increase
its coverage to approximately 90% as a result of the planned increase in its
transmission power pursuant to the FCC Power Increase and other technical
improvements, which the Company plans to implement in 1998 pending receipt of
FCC approval. The Chicago Stations were acquired for a combined purchase price
which is significantly less than the reported purchase prices of Class B
stations in the Chicago MSA, as evidenced by transactions consummated since the
passage of the Telecom Act. The Company has recently signed agreements to
purchase the assets of two FM radio stations and a combined AM/FM radio station
in the Chicago MSA for an aggregate purchase price of approximately $24.0
million. Immediately following the consummation of these acquisitions, the
Company intends to resell the assets of the combined AM/FM radio station and
simulcast the two FM radio stations using STMC-TM- to broadcast collectively on
the 92.7-FM frequency. The consummation of these acquisitions remains subject to
a number of significant conditions to closing, including the consent of the FCC
to the assignment of these stations' FCC licenses to the Company. See
"--Acquisitions," "--Proposed Radio Station Disposition" and "--Business
Strategy."
The Company is controlled by Stuart Subotnick, a general partner of
Metromedia Company ("Metromedia"), and Anita Subotnick, who own approximately
59% of the Company's common stock, representing 94% of the voting power of the
Company's common stock (without giving effect to the exercise of any options to
acquire shares of the Company's Class A Common Stock).
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-TM- and other innovative acquisition and
engineering strategies to gain low-cost entry into major metropolitan radio
markets and achieve market coverage, which the Company believes is equivalent to
the market coverage of Class B metropolitan stations.
- LOW ACQUISITION COST. Industry research indicates that the prices of Class
B radio stations in major MSAs have increased significantly since the
passage of the Telecom Act. The Company has created radio stations which
it believes will achieve Arbitron market coverage equivalent to the
Arbitron market coverage of Class B radio stations in the three largest
radio markets, for a substantially lower capital investment. For example,
in the Los Angeles MSA, prices have ranged from $113.0 million to $312.0
million while the Company has created for $26.8 million a Los Angeles
station which, following the implementation of the FCC Power Increase, has
an Arbitron market coverage that the Company believes is equivalent to the
Arbitron market coverage of Class B radio stations in the Los Angeles MSA.
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 (exclusive
of the NY Station Acquisition), a New York station which, following the
FCC Power Increase and completion of other
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technical improvements, will have an Arbitron market coverage that the
Company believes is equivalent to the Arbitron market coverage of Class B
radio stations in the New York MSA. In the Chicago MSA, prices have ranged
from $22.0 million to $225.0 million while the Company has created, for
$10.6 million, a Chicago station which, following the FCC Power Increase
and other technical improvements, will have an Arbitron market coverage
that the Company believes is equivalent to the Arbitron market coverage of
Class B radio stations in the Chicago MSA. The purchase price for the
Chicago Station Acquisition will be $24.0 million, but the Company
anticipates that it will recoup part of this price through the disposition
of the combined AM/FM radio station. 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. All of the foregoing information regarding
price ranges of Class B stations has been derived from published industry
reports of sales of Class B radio stations in the MSAs where the Company
operates. The Company has recently entered into agreements for the
purchase of several radio stations in the New York and Chicago MSAs and
continues to explore opportunities to acquire additional stations in its
existing markets to increase its signal strength or Arbitron diary
coverage area and 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-TM-, "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 the Company believes is equivalent to the
coverage typically provided by Class B radio 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 engineering staff tailors an engineering solution to
optimize the Arbitron diary coverage of each station. Equivalent Arbitron
diary coverage is determined by comparing the coverage of the Company's
targeted STMC-TM- stations and typical Class B radio stations located in
the same MSAs. This comparison considers the actual received signal
strength of the selected station(s) and the actual number of Arbitron
diaries covered that are predicted to receive a listenable signal. The
coverage of any one station compared to another station within any MSA
will vary due to locations of the transmitter. Generally, most Class B
radio stations within a targeted MSA will cover between 90% and 100% of
the Arbitron diaries.
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, unique country music format in New York City and
its innovative adult contemporary format in Chicago provide it with a
competitive advantage and enhanced listenership in the respective markets.
The Company believes that its strong listenership has translated into
significant revenue as exemplified by the increase in its power ratio from
0.8 in the six-month period ended March 1997 to 1.3 in the six-month
period ended December 1997 in the Los Angeles market.
- MAXIMIZE BROADCAST CASH FLOW. Another key aspect of the Company's
operating strategy is 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
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compensated on-air personalities. The Company maintains operating costs at
a relatively low level and focuses on core programming content to achieve
high ratings.
RECENT DEVELOPMENTS
INITIAL PUBLIC OFFERING
The Company successfully completed the Initial Public Offering of 4,600,000
shares of Class A Common Stock on December 24, 1997 at an offering price of
$7.00 per share, generating $28.5 million of net proceeds for the Company which
were used by the Company to repay outstanding indebtedness under the Old Credit
Facility. In connection with the consummation of the Initial Public Offering,
the Company changed its fiscal year-end from September 30 to December 31. In
addition, simultaneously with the consummation of the Initial Public Offering,
the Principal Stockholders contributed approximately $13.3 million of
stockholder loans to the Company, the Company reclassified each share of its Old
Common Stock into 7,610 shares of Class A Common Stock, and the Principal
Stockholders exchanged their shares of Class A Common Stock for shares of Class
B 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.
The Principal Stockholders own all of the outstanding shares of Class B Common
Stock.
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 revenues. Y-107 LA and Y-107 NY have each exhibited significant increases
in Arbitron ratings and net revenue since their respective launches. FM-103.1
began broadcasting an adult contemporary format in the Chicago MSA in February
1998.
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 1997 revenues of $562.7 million. From 1991 to 1997, radio
advertising revenue in the Los Angeles MSA grew from $440.0 million to $562.7
million, a compound annual growth rate of 4.2%. Los Angeles is the first market
in which the Company implemented STMC-TM-, with its acquisitions of three radio
stations for an aggregate purchase price of $26.8 million. Y-107 LA initially
covered approximately 75% of the Arbitron diaries in the Los Angeles MSA and, as
a result of an increase in its transmission power, which the Company has
recently implemented, Y-107 LA has increased its coverage to approximately 90%.
The Company believes that 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
achieved a significant share of 0.8% in the 12+ category as of the Winter 1998
Arbitron book. The Company has successfully
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translated its strong listenership into significant revenues as exemplified by
the increase in its power ratio from 0.8 in the six-month period ended March
1997 to 1.3 in the six-month period ended December 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 its first six months of operation.
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 what the
Company believes to be substantially full coverage. In addition to the three
stations, the Company uses a booster located in the San Fernando Valley 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 1997 revenues of $530.0 million. From 1991 to 1997, radio
advertising revenue in the New York MSA grew from $349.0 million to $530.0
million, a compound annual growth rate of 7.2%. 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 (exclusive of the NY
Station Acquisition). The Company has implemented STMC-TM- in New York as well
and believes that it has created the equivalent of a New York Class B station.
Subsequent to the implementation of the planned power increase of the New York
Stations and completion of other technical improvements, which the Company is
currently implementing, the Arbitron diary coverage of Y-107 NY will increase to
approximately 90%. The Company believes that 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 0.9% in the 12+category as of the Winter 1998 Arbitron
book.
The Company has recently entered into an agreement to acquire a combined
AM/FM radio station in the New York MSA. See "--Acquisitions."
CHICAGO
The Chicago market is the third largest Arbitron market in terms of
population and aggregate radio market revenues in the United States with 1997
revenues of $358.4 million. From 1991 to 1997, radio advertising revenue in the
Chicago MSA grew from $252.0 million to $358.4 million, a compound annual growth
rate of 6.0%. The Company has to date acquired two radio stations in the Chicago
MSA for an aggregate purchase price of $10.6 million and FM-103.1 began
broadcasting an adult contemporary format in February, 1998. FM-103.1 currently
cover approximately 70% of the Arbitron diaries in the Chicago MSA. Subsequent
to the implementation of the planned power increase of the Chicago Stations and
other technical improvements, which the Company expects to complete during 1998,
FM-103. 1 will cover approximately 90% of the Arbitron diaries in the Chicago
MSA. The Company has recently entered into agreements to purchase the assets of
two FM radio stations and a combined AM/FM radio station in the Chicago MSA. See
"--Acquisitions."
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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-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, the Company'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 and has entered into an
agreement with an independent firm to represent Y-107 LA in certain of these
national sales markets. 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
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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 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 a new
technology known as 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.
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 and dispositions of radio stations which the Company
has consummated since its incorporation and other planned acquisitions. 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 and the issuance of a
promissory note in the amount of $1.0 million to West-Land. 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. 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 and certain
payments under existing leases of the building facilities. 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. The Company intends to add an
additional station to Y-107 NY following consummation of the acquisition of
WRNJ-FM in Belvidere, New Jersey. See "--Other Planned Acquisitions." Also, in
December 1994, the Company acquired the assets of radio station WRKL-AM, Pomona,
New York, from Rockland Communicators, Inc. for a purchase price of $1.0
million. 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
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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. 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.
CHICAGO
In August 1997, the Company acquired the assets of radio station WVVX-FM
(now WXXY-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 (now WYXX-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. The Company intends to
add a second station group in Chicago, broadcasting on the 92.7-FM frequency.
See "--Other Planned Acquisitions."
OTHER PLANNED ACQUISITIONS
The Company's principal business strategy is to add radio station properties
to its existing station groups in order to augment signal strength and Arbitron
diary coverage in these MSAs and to acquire additional station groups to which
the Company may deploy its STMC-TM- concept in existing markets (Los Angeles,
New York and Chicago) and in other top-20 markets throughout the U.S. The
Company is currently actively seeking out such acquisition opportunities and is
in the process of negotiating several transactions in its existing markets and
in other markets. The Company has recently executed agreements to purchase the
assets of WCBR-FM, Arlington Heights, Illinois, WLRT-FM, Kankakee, Illinois, and
WDEK-FM and WLBK-AM, DeKalb, Illinois, for an aggregate purchase price of
approximately $24.0 million. Immediately following the consummation of these
acquisitions, the Company intends to resell the assets of WDEK-FM and WLBK-AM
and simulcast WCBR-FM and WLRT-FM using STMC-TM- to broadcast collectively on
the 92.7-FM frequency.
The Company has recently signed an agreement to acquire all of the stock of
Radio New Jersey, owner of the FCC licenses of WRNJ-FM, Belvidere, New Jersey,
and WRNJ-AM, Hackettstown, New Jersey a combined AM/FM radio station for an
aggregate purchase price of approximately $6.3 million and has entered into a
LMA that enables it to immediately begin broadcasting Y-107 NY's country music
on this station. Simultaneously with the consummation of this acquisition, the
Company intends to resell the assets of WRNJ-AM for approximately $1.0 million.
Following the consummation of this acquisition, the FM radio station will be
simulcasted using STMC-TM- to broadcast on the 107.1-FM frequency with the
Company's Y-107 NY radio stations. Consummation of these acquisitions remains
subject to a number of significant conditions to closing, including negotiation
and execution of definitive documentation, the consent of the FCC to the
assignment of these stations' licenses and, in the case of the NY Station
Acquisition, the consent of the FCC to the transfer of control from Radio New
Jersey, to the Company and completion of a satisfactory due diligence review.
PROPOSED RADIO STATION DISPOSITION
The Company intends to dispose of the assets of radio station WRKL-AM,
Pomona, New York during 1998. The Company and Polnet Communications, Ltd.
("Polnet") have executed a non-binding letter of intent for the sale by Big City
Radio of the assets of WRKL-AM to Polnet, for a sale price of $1.625 million,
subject to certain adjustments. Consummation of this proposed sale remains
subject to a number of conditions to closing including, but not limited to,
execution of definitive documentation, consent of the FCC to the assignment of
the WRKL-AM license to Polnet and certain other conditions to closing
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including, but not limited to, conveyance of good title to the assets, free and
clear of all liens, claims, mortgages, security interests and encumbrances
except those assumed by Polnet. Immediately following the consummation of the
Chicago Station Acquisition, the Company intends to resell the assets of both
WDEK-FM and WLBK-AM. In addition, simultaneously with the consummation of the
acquisition of WRNJ-FM, Belvidere, New Jersey, the Company intends to resell the
assets of the AM station of this combined AM/FM radio station.
EMPLOYEES
At March 31, 1998, the Company had approximately 114 full-time employees and
92 part-time employees. Nine 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.
PATENTS AND TRADEMARKS
The Company owns registered trademark rights for STMC-TM- and domestic
trademark registrations related to the business of the Company. The Company 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
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 Pomona (approximately 5,100 square feet). The Company leases or licenses
facilities for the Los Angeles Stations in Arcadia, Fallbrook (approximately 355
square feet), Century City (approximately 13,500 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), Hawthorne, 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 of 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 as of the date of this Prospectus:
<TABLE>
<CAPTION>
LOCATION FACILITY
- ------------------------------------- --------------------------------------------------------------------------
<S> <C>
Y-107 LOS ANGELES
Arcadia, CA.......................... FM tower(4)
Fallbrook, CA........................ FM tower, studio, transmitter site(1)
Century City, CA..................... Studio, business offices (1)
Pasadena, CA......................... Studio, business offices(1)
Ventura, CA.......................... FM tower(4), studio, transmitter site(1)
Temecula, CA......................... Translator site(1)
Burbank, CA.......................... Booster site(1)
Los Angeles, CA...................... Transmitter site(1)
Y-107 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)
FM-103.1 CHICAGO
Highland Park, IL.................... FM tower(4), studio(1)
Morris, IL........................... Studio(1), FM tower, transmitter site(2)
WRKL-AM
Pomona, NY........................... Tower, studio(3)
</TABLE>
- ------------------------
(1) Leased.
(2) Owned.
(3) Held for sale. See "--Proposed Radio Station Disposition."
(4) Tower owned by the Company while the property is leased.
LEGAL PROCEEDINGS
On March 18, 1997, Steve Possell, a former employee of WRKL-AM, filed a
complaint with the New York State Division of Human Rights ("SDHR"), alleging
discrimination by WRKL-AM due to physical disability and on July 13, 1997 and
December 17, 1997 respectively, Florence Teich and Renee Dawson-Harel, a/k/a/
Jesse McKenzie, both former employees of WRKL-AM, filed complaints with the SDHR
alleging sexual harrassment. The Company denied the allegations of
discrimination and sexual harassment and set forth verified facts and documents
countering each of these claims in Statements of Position filed with the SDHR.
Mr. Possell has filed an answer and the SDHR has scheduled as investigatory
conference with respect to Mr. Possell's complaint for June 8, 1998. No
investigatory
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conference has yet been scheduled for Ms. Teich and Ms. Dawson-Harel's
complaints. In addition, Mr. Possell and Ms. Teich have filed informal
objections to the renewal of the Company's FCC broadcast license for WRKL-AM.
The Company believes that these claims will not have a material adverse effect
on the Company. See"--Federal Regulation of Radio Broadcasting--License Grants
and Renewals."
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.
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 of 1934, as amended (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) liberalize the local radio ownership limits as specified
in the Telecom Act; (c) issue broadcast licenses for periods of up to eight
years; and (d) eliminate the opportunity for the filing of competing
applications against broadcast license renewal applications.
Congress, via the 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.
The FCC has initiated a rulemaking proceeding to implement these provisions.
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: (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
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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.
The Company's Chicago Stations' broadcast licenses were renewed in 1996 and
will expire in 2003. The Los Angeles Stations' broadcast licenses were renewed
on November 25, 1997 and will expire on December 31, 2005. The New York
Stations' and WRKL-AM's broadcast licenses will expire on June 1, 1998. Renewal
applications were timely filed on February 2, 1998 for the Company's New York
Stations and WRKL-AM. A petition to deny renewal of the Company's broadcast
licenses for all the New York Stations (not including WRKL-AM) was filed with
the FCC on May 1, 1998 by the Rainbow\PUSH Coalition, alleging that the Company
has not used adequate affirmative action efforts under the equal employment
opportunity ("EEO") rules of the FCC. The filing of the petition has delayed the
grant of these renewals. In April 1998, the U.S. Court of Appeals for the D.C.
Circuit held that the FCC's affirmative action policies are unconstitutional.
The FCC has sought rehearing EN BANC of the decision and has informally stated
its intent to continue to enforce its EEO rules pending further court action. In
addition, informal objections to the renewal of the Company's broadcast license
for WRKL-AM were filed by former employees of WRKL-AM seeking the delay of the
grant of such renewal pending the result of existing legal proceedings against
the Company. See "--Federal Regulation of Radio Broadcasting-- Programming
Requirements" and "--Legal Proceedings." The filing of these objections has
delayed the grant by the FCC of the license renewal for WRKL-AM and the FCC
could condition such grant on the ultimate outcome of these legal proceedings.
While the renewal applications are pending, the FCC licenses remain in effect.
The Company does not anticipate any material difficulty in ultimately obtaining
license renewals for the New York Stations and WRKL-AM 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 ("Final Order").
PENDING ACQUISITIONS
In April 1998, the Company entered into asset purchase agreements and filed
applications for FCC consent to the assignments to the Company of the FCC
licenses for stations WCBR-FM, Arlington Heights, Illinois, WLBK(AM) and
WDEK(FM), DeKalb, Illinois, and WLRT(FM), Kankakee, Illinois. In May 1998, the
Company entered into a stock purchase agreement and LMA and filed an application
for FCC consent to the transfer of control to the Company of Radio New Jersey,
the licensee of WWYY(FM) (formerly WRNJ-FM), Belvidere, New Jersey. These
applications, which are still subject to public comment, are pending before the
FCC.
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
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stations provide, as a waivable pre-condition to closing, that the FCC consent
to the transaction has become a Final Order.
In connection with the Company's acquisition of the broadcast licenses of
several radio stations, the Company has recently requested that the FCC issue to
the Company authorizations for auxiliary stations of use to the Company's radio
stations. The Company expects to receive such authorizations during the course
of 1998.
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. 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
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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), 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. 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
the Alien ownership restrictions in slightly 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 limits set in the
Communications Act and the FCC's rules, 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 though their continuing applicability has been
brought into question by an April 1998 decision of the U.S. Court of Appeals, DC
Circuit, which declares the FCC's current affirmative action requirements to be
unconstitutional. The FCC has requested rehearing EN BANC of this decision by
the Court of Appeals. 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.
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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 Company must also comply with certain
technical, reporting, and notification requirements imposed by the FAA with
respect to the installation, location, lighting, and painting of the transmitter
antennas used by the Company's radio stations. 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-TM- uses radio stations that operate on the same or
adjacent frequencies, the STMC-TM- 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.
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 has received approval for its application to the FCC
and the grant by the FCC of a construction permit for the modification of
WRKL-AM, New City, New York. The FCC has also granted applications for
modifications of WWXY-FM, Briarcliff Manor, New York, WWVY-FM, Hampton Bays, New
York, and WWZY-FM, Long Branch, New Jersey. The WWXY-FM, the WWVY-FM and the
WWZY-FM granted modification applications provide for increases in the
authorized power of the stations from the current equivalent three kilowatt to
maximum six kilowatt level permitted for the stations' FCC classification. In
January 1998, KLYY-FM, Arcadia, California, and in May 1998, WWXY-FM, Briarcliff
Manor, New York, and WWZY-FM, Long Branch, New Jersey, each implemented an
increase in ERP from three kilowatts to the maximum six kilowatts level
permitted for such stations' FCC classification (the "FCC Power Increase"),
KLYY-FM's license has been reissued by the FCC to reflect its FCC Power
Increase, and applications for issuance of licenses reflecting these changes for
WWXY-FM and WWZY-FM are pending before the FCC.
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
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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 acquiror 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
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.
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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 the date of this Prospectus.
<TABLE>
<CAPTION>
NAME AGE OFFICE OR POSITION HELD
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Stuart Subotnick..................................... 56 Chairman of the Board
Michael Kakoyiannis.................................. 55 Chief Executive Officer, President and Director
Anita Subotnick...................................... 54 Director
Steven G. Blatter.................................... 32 Vice President--Programming
Alan D. Kirschner.................................... 46 Vice President--Engineering
Bryan Subotnick...................................... 34 Executive Vice President--Corporate Development
Paul R. Thomson...................................... 41 Vice President, Chief Financial Officer and Treasurer
Silvia Kessel........................................ 47 Executive Vice President and Director
Arnold L. Wadler..................................... 54 Executive Vice President, General Counsel, Secretary
and Director
Michael H. Boyer..................................... 47 Director
Leonard White........................................ 59 Director
</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 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. ("MMG"), an international
telecommunications and media company that invests in telecommunications and
media joint ventures in Eastern Europe, Russia, the People's Republic of China,
the republics of the former Soviet Union and other selected emerging markets.
Mr. Subotnick has also served as Executive Vice President of Metromedia and its
predecessor for over five years. Metromedia 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., a cruise line
company, and Metromedia Fiber Network, Inc. ("Metromedia Fiber"), a provider of
high bandwidth, fiber optic transmission capacity. 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 and its predecessor, and controlled nine
stations that were generally located in major metropolitan markets.
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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. 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.
Mr. Subotnick is the son of Stuart Subotnick, the Chairman of the Board of
Directors of the Company, and of Anita Subotnick, a Director of the Company.
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.
SILVIA KESSEL has served as a Director of the Company since December 1997
and has served as Executive Vice President of the Company since September 1997.
Ms. Kessel has served as Executive Vice President of Metromedia Fiber since
October 1997, Chief Financial Officer and Treasurer of MMG since 1995 and
Executive Vice President of MMG since 1996. In addition, Ms. Kessel served as
Executive Vice President of Orion Pictures Corporation ("Orion"), a motion
picture production and distribution company, from January 1993 through July
1997, Senior Vice President of Metromedia since 1994 and President of Kluge &
Company since January 1994. Prior to that time, Ms. Kessel served as Senior Vice
President and a Director of Orion from June 1991 to November 1992 and Managing
Director of Kluge & Company from April 1990 to January 1994. Ms. Kessel is a
member of the Board of Directors of MMG and Metromedia Fiber.
ARNOLD L. WADLER has served as a Director and General Counsel of the Company
since December 1997 and has served as Executive Vice President and Secretary of
the Company since September 1997. Mr. Wadler has served as Director of
Metromedia Fiber since July 1997, General Counsel of Metromedia Fiber since
August 1997, Secretary of Metromedia Fiber since October 1997, Executive Vice
President, General Counsel and Secretary of MMG since August 29, 1996 and, from
November 1, 1995 until that date, as Senior Vice President, General Counsel and
Secretary of MMG. In addition, Mr. Wadler serves as a director of MMG and has
served as a Director of Orion from 1991 until July 1997 and as Senior Vice
President, Secretary and General Counsel of Metromedia for over five years.
MICHAEL H. BOYER was elected as a Director of the Company as of January
1998. Mr. Boyer is currently Senior Vice President and Chief Financial Officer
of Stanadyne Automotive Corp., a manufacturer of diesel fuel injection equipment
and hydraulic value lifters, where he has been employed since July 1978.
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LEONARD WHITE has served as a Director of the Company since December 1997.
Mr. White has served as President and Chief Executive Officer of Rigel
Enterprises, a management and private investment firm, since July 1997. Mr.
White served as President and Chief Executive Officer of Orion from 1992 until
1997 and as President and Chief Executive Officer of Orion Home Entertainment
Corporation from 1987 to 1992. Mr. White is also a Director of MMG, American
Film Technologies, Inc. and Metromedia Fiber.
BOARD; ELECTION OF DIRECTORS; AGREEMENTS REGARDING BOARD POSITIONS
From and after the Company's first annual meeting of stockholders, 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
or series of Preferred 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 or series
of Preferred 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 or
series of Preferred 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 or series of Preferred Stock.
COMMITTEES OF THE BOARD
The Board of Directors has established an Executive Committee, a
Compensation Committee and an Audit Committee of the Board of Directors of the
Company (the "Executive Committee," the "Compensation Committee" and the "Audit
Committee," respectively). The Executive Committee has all of the powers of the
Board of Directors in the management and affairs of the Company as provided
under Delaware laws. The Compensation Committee makes recommendations concerning
the salaries and incentive compensation of employees of and consultants to the
Company. The Audit Committee, a majority of which are directors who are not
employees of the Company, is responsible for reviewing the results and scope of
audits and other services provided by the Company's independent auditors.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth information on
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer and other most highly compensated executive officers whose individual
compensation exceeded $100,000 during the fiscal years ended December 31, 1997,
and 1996 for services rendered in all capacities to Big City Radio and its
subsidiaries.
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The persons listed in the table below are referred to as the "Named
Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
-----------------------------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
-------------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARD(S)($) STOCK OPTIONS COMPENS.($)
- --------------------------------------------- --------- ---------- --------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael Kakoyiannis.......................... 1997 $ 300,000 $ 75,000 $ 1,968,855(1) -- $ --
(President and Chief Executive Officer) 1996 230,000 -- -- --
Paul R. Thomson.............................. 1997 175,000 30,000 -- 75,000(2) --
(Vice President and Chief Financial 1996 165,000 25,000 -- --
Officer)
Steven G. Blatter............................ 1997 165,000 27,500 -- 75,000(2) --
(Vice President--Programming) 1996 150,000 25,000 -- --
Bryan Subotnick.............................. 1997 100,000 -- -- 75,000(2) --
(Executive Vice President-Corporate 1996 (3) (3) -- (3) (3)
Development)
Alan D. Kirschner............................ 1997 94,000 5,000 -- 75,000(2) --
(Vice President-Engineering) 1996 (3) (3) -- (3) (3)
</TABLE>
- ------------------------
(1) Pursuant to his employment agreement, Mr. Kakoyiannis is entitled to receive
93,755 shares of Class A Common Stock for every 20% increase in the average
closing price of the Class A Common Stock following the Company's Initial
Public Offering (up to a maximum of 281,265 shares). The aggregate value of
such shares was calculated based on the price of the Class A Common Stock in
the Company's Initial Public Offering ($7.00 per share) by the maximum
number of shares which Mr. Kakoyiannis may be entitled to receive under his
employment agreement. No shares were issued to Mr. Kakoyiannis under his
employment agreement in 1997.
(2) Includes options to purchase 25,000 shares of Class A Common Stock at an
exercise price of $6.00 per share, exercisable immediately, and options to
purchase 50,000 shares of Class A Common Stock at an exercise price of $7.00
per share, that will become exercisable in five annual installments
commencing December 18, 1998.
(3) Compensation information is omitted because aggregate compensation during
fiscal year 1996 was less than $100,000.
During 1997, Mr. Wadler and Ms. Kessel, each of whom serves as an executive
officer of the Company, were employed and paid by Metromedia. No other amounts
were paid by Big City Radio to such Named Executive Officers or to Metromedia
for services during 1997.
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
Mr. Kakoyiannis and the Company are parties to an employment agreement that
provides that he will be employed as the Company's President and Chief Executive
Officer through December 31, 2000 and that Mr. Kakoyiannis will receive a base
salary of $300,000 a year. In addition to his base salary, Mr. Kakoyiannis is
also entitled to an annual bonus as determined by the Compensation Committee if
certain performance targets have been met. Mr. Kakoyiannis is entitled to
participate in all benefits
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generally made available to senior executives of the Company. The Company has
caused a term life insurance to be issued to Mr. Kakoyiannis for $2.0 million.
Under his employment agreement, Mr. Kakoyiannis is entitled to receive 93,755
shares of Class A Common Stock for every 20% increase in the average closing
price of the Class A Common Stock following the Initial Public Offering (up to a
maximum of 281,265 shares) provided that such price remains in effect for six
consecutive months. If Mr. Kakoyiannis earns these grants of shares of Class A
Common Stock, the Company will record future non-cash, compensation expense
equal to the fair value of such stock on the date of grant. If the fair value
were based on exact 20% increments over the Initial Public Offering price of
$7.00 per share, future compensation expense would be approximately $2.9
million. 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.
EMPLOYMENT AGREEMENT WITH PAUL R. THOMSON
The Company and Mr. Thomson are parties to an employment agreement that
provides for Mr. Thomson's employment as Vice President and Chief Financial
Officer through December 31, 1998. Mr. Thomson's employment agreement provides
for an annual base salary of $187,500. Mr. Thomson is 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 will not
exceed $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 the lesser of (i) three times Mr. Thomson's
monthly base salary or (ii) the base salary for the remaining months of Mr.
Thomson's employment under his employment agreement. In addition, upon
consummation of a "change of control" of the Company as defined under the 1997
Incentive Stock Plan, Mr. Thomson's options granted under such 1997 Incentive
Stock Plan will become immediately vested and exercisable. 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 six months following the termination of Mr. Thomson's employment
agreement.
EMPLOYMENT AGREEMENT WITH STEVEN G. BLATTER
The Company and Mr. Blatter are parties to an employment agreement that
provides for Mr. Blatter's employment as Vice President--Programming through
December 31, 1998. Mr. Blatter's employment agreement provides for an annual
base salary of $181,500. Mr. Blatter is 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 $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) six times Mr. Blatter's base
monthly salary if such termination occurs before July 1, 1998, or (ii) the
aggregate amount of Mr. Blatter's monthly salary for the remaining term of
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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. In addition, upon consummation of a
"change of control" of the Company as defined under the 1997 Incentive Stock
Plan, Mr. Blatter's options granted under such 1997 Incentive Stock Plan will
become immediately vested and exercisable. 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
The Company and Mr. Kirschner are parties to an employment agreement that
provides for Mr. Kirshner's employment as Vice President-Engineering through
December 31, 1998. Mr. Kirschner's employment agreement provides for an annual
base salary of $110,000. Mr. Kirschner is 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 $15,000. 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. In addition, upon
consummation of a "change of control" of the Company as defined under the 1997
Incentive Stock Plan, Mr. Kirschner's options granted under such 1997 Incentive
Stock Plan will become immediately vested and exercisable. 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.
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 annual directors' fees of $20,000, plus
$1,200 for each Board of Directors meeting attended ($500 if attended
telephonically) and $500 for each committee meeting attended. Outside directors
will be eligible to participate in the 1997 Incentive Stock Plan and the 1998
Incentive Stock Plan (each, as defined) pursuant to which options to purchase an
aggregate of 2,500 shares of Class A Common Stock will be granted without
duplication under the plans to each outside director immediately upon such
director's initial election and qualification for the Board of Directors.
Options to purchase an aggregate of 2,500 shares of Class A Common Stock will be
granted without duplication under the plans annually on the day of each annual
stockholders' meeting. Each outside director will be eligible to receive options
to purchase a maximum of 25,000 shares of Class A Common Stock pursuant to the
1997 Incentive Stock Plan and the 1998 Incentive Stock Plan, without duplication
under the plans. 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.
1997 STOCK INCENTIVE PLAN
The Company has adopted the Big City Radio, Inc. 1997 Incentive Stock Plan
(the "1997 Incentive Stock Plan") pursuant to which key employees, officers and
directors (including independent directors and
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members of the Compensation Committee) of the Company and its subsidiaries who
have substantial responsibility in the direction of the Company and its
subsidiaries, and others whom the Compensation Committee determines provide
substantial and important services to the Company may be granted (i) incentive
stock options ("ISOs") and/or (ii) non-qualified stock options ("NQSOs" and
together with ISOs, "Stock Options" and "Awards"). The aggregate number of
shares of the Class A Common Stock that may be the subject of Awards under the
1997 Incentive Stock Plan is 700,000 and the maximum number of shares of Class A
Common Stock available with respect to Awards granted to any one grantee is
100,000 shares.
The exercise price of all ISOs is not less than the fair market value of the
Class A Common Stock on the date of grant (or 110% of such fair market value
with respect to ISOs granted to persons who own stock possessing more than 10%
of the voting rights of Big City Radio's capital stock) and the exercise price
of all NQSOs is determined by the Compensation Committee. Stock Options vest and
become exercisable over a period of years and have a term not to exceed ten
years, as determined by the Compensation Committee.
If a grantee's employment with the Company or a subsidiary is terminated
because of the grantee's death, or the grantee's retirement on or after
attaining age sixty-five prior to the date when 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 1997 Incentive Stock
Plan. Upon a "change of control" of the Company (as defined in the 1997
Incentive Stock Plan) and at the sole discretion of the Board of Directors, 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. See "Employment Agreements." Upon a grantee's
termination of employment from the Company or a subsidiary 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 the
Company 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 to the extent then vested within three months after his or her
termination of employment.
On December 1, 1997, the Board of Directors granted to each of Steven G.
Blatter, David J. Howard, Alan D. Kirschner, Sean O'Neill, Bryan Subotnick and
Paul R. Thomson Stock Options to purchase up to 25,000 shares (which represents
an aggregate of 150,000 shares) of Class A Common Stock at an exercise price of
$6.00 per share. All these Stock Options are exercisable immediately. The
Company will record a future non-cash charge of approximately $150,000 based on
the initial public offering price of $7.00 per share of Class A Common Stock in
the Initial Public Offering. Also on December 1, 1997, the Board of Directors
granted to each of Steven G. Blatter, David J. Howard, Alan D. Kirschner, Sean
O'Neill, Bryan Subotnick, Paul R. Thomson, Silvia Kessel and Arnold Wadler Stock
Options to purchase up to 50,000 shares (which represents an aggregate of
400,000 shares) of Class A Common Stock at an exercise price per share equal to
the initial public offering price of $7.00 per share in the Initial Public
Offering. These Stock Options will become exercisable in five annual
installments, as determined by the Board of Directors.
On December 1, 1997, the Board of Directors granted to Leonard White Stock
Options to purchase up to 2,500 shares of Class A Common Stock at an exercise
price per share equal to the initial public offering price of $7.00 per share in
the Initial Public Offering and on January 16, 1998, Stock Options to purchase
up to 2,500 shares of Class A Common Stock were granted to Michael H. Boyer at
an exercise price of $7.125 per share. These Stock Options are immediately
exercisable.
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1998 INCENTIVE STOCK PLAN
The Company has adopted the Big City Radio, Inc. 1998 Incentive Stock Plan
(the "1998 Incentive Stock Plan") pursuant to which key employees, officers and
directors (including independent directors and members of the Compensation
Committee) of the Company and its subsidiaries who have substantial
responsibility in the direction of the Company and its subsidiaries, and others
whom the Compensation Committee determines provide substantial and important
services to the Company may be granted (i) incentive stock options ("ISOs")
and/or (ii) non-qualified stock options ("NQSOs" and together with ISOs, "Stock
Options" and "Awards"). The aggregate number of shares of the Class A Common
Stock that may be the subject to Awards under the 1998 Incentive Stock Plan is
300,000 and the maximum number of shares of Class A Common Stock available with
respect to Awards granted to any one grantee is 100,000 shares.
The exercise price of all ISOs is not less than the fair market value of the
Class A Common Stock on the date of grant (or 110% of such fair market value
with respect to ISOs granted to persons who own stock possessing more than 10%
of the voting rights of Big City Radio's capital stock) and the exercise price
of all NQSOs is determined by the Compensation Committee. Stock Options vest and
become exercisable over a period of years and have a term not to exceed ten
years, as determined by the Compensation Committee.
If a grantee's employment with the Company or a subsidiary is terminated
because of the grantee's death, or the grantee's retirement on or after
attaining age sixty-five prior to the date when 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 of control" of the Company (as defined in the 1998
Incentive Stock Plan) and at the sole discretion of the Board of Directors, 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. Upon a grantee's termination of employment
from the Company or a subsidiary 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 the Company 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 to the extent then
vested within three months after his or her termination of employment.
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 31, 1998, certain information
regarding the beneficial ownership (as such term is defined in Rule 13(d)(3)
under the Exchange Act) of each class of Common Stock by (i) each person
(including any "group" as that term is used in Section 13(d)(3) under the
Exchange Act) known to own beneficially more than 5% of the outstanding shares
of each class of common stock of the Company, (ii) each director and director
nominee of Big City Radio, (iii) each executive officer named in the Summary
Compensation Table under "Executive Compensation" and (iv) all directors and
executive officers of Big City Radio as a group. In accordance with the rules
promulgated by the Commission, such ownership includes shares currently owned as
well as shares of which the named person has the right to acquire beneficial
ownership within 60 days, including, but not limited to, shares which the named
person has the right to acquire through the exercise of any option, warrant or
right, or through the conversion of a security. Accordingly, more than one
person may be deemed to be a beneficial owner of the same securities. 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>
PERCENTAGE OF
NUMBER OF SHARES OF OUTSTANDING
COMMON STOCK CLASS OF COMMON
TITLE OF CLASS NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED STOCK
- --------------------------- ---------------------------------------------- ------------------- -----------------
<S> <C> <C> <C>
Class B Common Stock Stuart Subotnick and Anita Subotnick (1)...... 8,250,458(2) 100.0%
Class A Common Stock Michael Kakoyiannis (3)....................... 1,125,062 19.7%
Capital Guardian Trust Company (4)............ 500,000 8.7%
Strong Capital Management, Inc. (5)........... 450,000 7.9%
Michael H. Boyer.............................. 2,500(6) *
Silvia Kessel................................. 7,140(7) *
Arnold L. Wadler.............................. 6,000(7) *
Leonard White................................. 2,500(6) *
Steven G. Blatter............................. 25,450(8) *
Bryan Subotnick............................... 25,000(8) *
Alan D. Kirschner............................. 25,000(8) *
Paul R. Thomson............................... 30,000(8) *
All Directors and Executive Officers as a
Group (11 persons)............................ 9,499,110(9) 68.0%
</TABLE>
- ------------------------
* Holdings do not exceed one percent of the total outstanding shares of any
class of Common Stock.
(1) Mr and Mrs. Subotnick's address is c/o Kluge & Company, 215 East 67th
Street, New York, New York 10021.
(2) 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 and to vote as a separate class to elect
75% of the members of the Company's Board of Directors. Mr. and Mrs.
Subotnick have shared voting and investment power with respect to their
shares.
(3) Mr. Kakoyiannis' address is c/o Big City Radio, Inc., 11 Skyline Drive,
Hawthorne, NY 10532.
(4) Capital Guardian Trust Company, a bank as defined in Section 3(a)6 of the
Securities Act, is the beneficial owner of 500,000 shares of Class A Common
Stock as a result of its serving as the investment manager of various
institutional accounts. Capital Guardian Trust Company is a wholly-owned
subsidiary of The Capital Group Companies, Inc., the parent holding company
of a group of investment management companies that hold investment power
and, in some cases, voting power over the securities reported. The Capital
Group Companies, Inc. does not have investment power or voting
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<PAGE>
power over any of the securities reported herein; however, The Capital Group
Companies, Inc. may be deemed to "beneficially own" such securities by
virtue of Rule 13d-3 under the Exchange Act. The business address of The
Capital Group Companies, Inc. and Capital Guardian Trust Company is 333
South Hope Street, Los Angeles, California 90071.
(5) Strong Capital Management, Inc. is an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940. Richard S. Strong is the
Chairman of the Board and the principal shareholder of Strong Capital
Management, Inc. The business address of Strong Capital Management, Inc. and
Richard S. Strong is 100 Heritage Reserve, Menomonee Falls, Wisconsin 53051.
(6) Includes 2,500 shares issuable upon exercise of options that are currently
exercisable or exercisable within 60 days of the date of this Prospectus.
(7) Does not include 50,000 shares issuable upon exercise of options that will
become exercisable in five annual installments commencing December 18, 1998.
(8) Includes 25,000 shares issuable upon exercise of options that are currently
exercisable and does not include 50,000 shares issuable upon exercise of
options that will become exercisable in five annual installments commencing
December 18, 1998.
(9) Includes 105,000 shares issuable upon exercise of options that are currently
exercisable or exercisable within 60 days of the date of this Prospectus and
does not include 300,000 shares issuable upon exercise of options that will
become exercisable in five annual installments commencing December 18, 1998.
With respect to holders of 5% or more of the shares of either class of the
Company's Common Stock, the foregoing information is based on a review, as of
March 31, 1998, by Big City Radio of statements filed with the Commission under
Sections 13(d) and 13(g) of the Exchange Act. To the best knowledge of Big City
Radio, except as set forth above, no person owns beneficially more than 5% of
the outstanding Common Stock.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 29, 1996, the Company was merged with Q Broadcasting, Inc., a
Delaware corporation, owned by the Principal Stockholders with the Company as
the surviving corporation. As a result of the merger, Mr. and Mrs. Subotnick
each received 216 shares of the Old Common Stock (which were converted into
1,643,760 shares of Class B Common Stock for each of the Principal Stockholders
in the Reclassification).
On May 30, 1996, the Company entered into the Old Credit Facility with Chase
pursuant to which Chase agreed to make revolving credit loans to the Company
from time to time until December 24, 2002 or earlier, as provided under the Old
Credit Facility. The payment and performance by the Company under the Old Credit
Facility was guaranteed by Stuart Subotnick under a Guarantee Agreement, dated
as of May 30, 1996. Simultaneously with the consummation of the Initial Public
Offering of the Company and the application or the use of proceeds therefrom,
Mr. Subotnick's guarantee was reduced from a guarantee of the entire Old Credit
Facility to a guarantee of up to $6.0 million thereunder. On March 17, 1998, in
connection with the consummation of the Offering and the application of the
proceeds therefrom, the Company entered into the Revolving Credit Facility with
Chase and repaid its indebtedness under the Old Credit Facility and Mr.
Subotnick's guarantee of the Old Credit Facility was terminated. Mr. Subotnick
does not guarantee any portion of the Revolving Credit Facility.
In addition, pursuant to a Pledge Agreement, dated as of May 30, 1996 (the
"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 Company's Initial
Public Offering, the Pledge Agreement terminated.
On October 31, 1997, Mr. Subotnick gave a support letter to the Company
guaranteeing his financial support through the earlier of a successful minimum
initial public offering of $36.0 million of equity securities to the public or
October 1, 1998. In connection with the consummation of the Offering, this
support letter was terminated.
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 Old Credit
Facility pursuant to a subordinated promissory note dated May 24, 1996.
Immediately prior to the consummation of the Initial Public Offering on December
18, 1997, the Principal Stockholders contributed $13.3 million representing the
entire amount of their then outstanding stockholders' loans to the capital of
the Company. In addition, in connection with the consummation of the Initial
Public Offering, the Principal Stockholders exchanged all of their shares of
Class A Common Stock for shares of Class B Common Stock, effectively giving them
control of the Company.
As of July 1, 1997, Mr. and Mrs. Subotnick transferred an aggregate of 68
shares of Old Common Stock (which were converted into 517,480 shares of Class A
Common Stock in the Reclassification) to Mr. Kakoyiannis as an employment
incentive.
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 Class
A Common Stock.
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<PAGE>
On April 30, 1998, Mr. Subotnick agreed to subordinate his security interest in
connection with the pledge by Mr. Kakoyiannis of his shares to Chase.
The Company receives certain legal, accounting, tax and other services from
Metromedia for which it will pay to Metromedia an annual fee not to exceed
initially $200,000, increasing to up to $500,000. Mr. Subotnick is a general
partner of Metromedia. No such management fee was paid in 1997.
DESCRIPTION OF REVOLVING CREDIT FACILITY
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to certain agreements setting forth the
principal terms and conditions of the Revolving Credit Facility.
In connection with the consummation of the Offering, the Company entered
into the existing Revolving Credit Facility providing for up to $15.0 million of
availability with Chase (based upon a multiple of the Company's Los Angeles
Stations' cash flow). The Revolving Credit Facility will mature on the fifth
anniversary of the date of original issuance of the Existing Notes and amounts
outstanding under the Revolving Credit Facility bear interest at an applicable
margin plus, at the Company's option, Chase's prime rate (in which case the
applicable margin will initially be 2.00%, subject to reductions upon obtaining
performance criteria based on the Company's leverage ratio) or LIBOR (in which
case the applicable margin will initially be 3.00%, subject to reductions upon
obtaining performance criteria based on the Company's leverage ratio). The
Company's obligations under the Revolving Credit Facility are secured by a
pledge of substantially all of the Company and its Restricted Subsidiaries'
assets. The Company will pay a fee of 0.5 percent per annum on the aggregate
unused portion of the facility.
The Revolving Credit Facility contains 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 sale of assets, restrictions on the use of
proceeds from borrowings, limitations on paying cash dividends and redeeming or
repurchasing capital stock of the Company or the Notes, and requirements to
maintain certain minimum interest coverage ratios. The Company is currently in
compliance with all covenants and other restrictions under the Revolving Credit
Facility and anticipates that it will continue to meet the requirements of the
Revolving Credit Facility. See "Risk Factors--Substantial Leverage; Pledge of
Assets; Covenants."
The Revolving Credit Facility contains customary events of default,
including material misrepresentations, payment defaults and default in the
performance of other covenants, certain bankruptcy and ERISA defaults, judgment
and cross defaults, and revocation of any of the Company's broadcast licenses
and change in control. The Revolving Credit Facility also provides that an event
of default will occur upon the occurrence of a "change of control," as defined
in the Revolving Credit Facility. For purposes of the Revolving Credit Facility,
a "change of control" will occur when (i) any person or group other than the
Principal Stockholders and their affiliates obtains the power to elect a
majority of the Board of Directors, (ii) the Company fails to own 100% of the
capital stock of its subsidiaries owning any of the FCC broadcast licenses, or
(iii) the Board of Directors does not consist of a majority of continuing
directors.
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<PAGE>
DESCRIPTION OF THE NEW NOTES
GENERAL
The Existing Notes were issued under an indenture dated as of March 17,
1998, as amended and supplemented from time to time (as so amended or
supplemented, the "Indenture"), among the Company, the Subsidiary Guarantors
named therein and U.S. Bank Trust National Association (formerly known as First
Trust National Association), a national association, as trustee (the "Trustee"),
a copy of which is available upon request to the Company. The form and terms of
the New Notes are identical in all material respects to those of the Existing
Notes, except for certain transfer restrictions and registration rights relating
to the Existing Notes, which do not apply to the New Notes. The following
summary of certain provisions of the Indenture and the Notes does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
the Trust Indenture Act, and to all of the provisions of the Indenture,
including the definitions of certain terms therein and those terms made a part
of the Indenture by reference to the Trust Indenture Act. A copy of the
Indenture has been filed with the Commission as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 and is
incorporated by reference as an Exhibit to the Registration Statement of which
this Prospectus is a part; the Indenture is also incorporated herein by
reference. The definitions of certain capitalized terms used in the following
summary are set forth below under "--Certain Definitions." For purposes of this
summary the term the "Company" refers only to Big City Radio, Inc. and not to
any of its Subsidiaries.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. Principal of, premium, if any, and interest on the Notes will be
payable, and the Notes may be exchanged or transferred, at the office or agency
of the Company in the Borough of Manhattan, The City of New York (which
initially shall be the corporate trust office of the Trustee in New York, New
York) except that, at the option of the Company, payment of interest may be made
by check mailed to the addresses of the holders as such addresses appear in the
note register of the Company. No service charge will be made for any
registration of transfer or exchange of the Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith. All interest payments and
payments on account of redemption or mandatory offers including pursuant to a
Change of Control or an Asset Sale by the Company to purchase Notes shall be
made together with liquidated damages, if any.
The New Notes will be issued in fully registered form without interest
coupon, in denominations of $1,000 principal amount and any integral multiple of
$1,000 principal amount. The New Notes will be represented by one or more
registered notes in global form and in certain circumstances may be represented
by New Notes in definitive form. See "Book Entry, Delivery and Form."
TERMS OF THE NOTES
The Notes will be issued at a discount to their aggregate principal amount
at maturity and will mature on March 15, 2005. The Notes will accrete in value
until March 15, 2001 at the rate of 11 1/4% per annum, compounded semi-annually,
to an aggregate principal amount on such date of $174.0 million. Cash interest
will not accrue on the Notes prior to March 15, 2001. Thereafter, interest will
accrue at the rate of 11 1/4% per annum and will be payable semi-annually in
cash and in arrears to the holders of record on March 1 or September 1
immediately preceding the interest payment date on March 15 and September 15 of
each year, commencing September 15, 2001. Cash interest on the Notes will accrue
from the most recent interest payment date to which interest has been paid or,
if no interest has been paid, from March 15, 2001. All references to the
principal amount of the Notes herein are references to the principal amount at
final maturity.
The Notes will be unsecured, senior obligations of the Company and will rank
PARI PASSU in right of payment to all existing and future senior indebtedness of
the Company (including the Revolving Credit Facility) and senior to all existing
and future subordinated indebtedness of the Company. The Notes will be
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<PAGE>
effectively subordinated to all existing and future secured indebtedness and
liabilities of the Company (including all indebtedness under the Revolving
Credit Facility) and total indebtedness to any Unrestricted Subsidiary. The
Notes will be guaranteed on a senior, full and unconditional, joint and several,
basis by the Restricted Subsidiaries. The Subsidiary Guarantees will be
unsecured, senior obligations of the Subsidiary Guarantors and will rank PARI
PASSU in right of payment to all existing and future senior indebtedness of the
Restricted Subsidiaries and senior to all existing and future subordinated
indebtedness of the Restricted Subsidiaries. The Subsidiary Guarantees will be
effectively subordinated to all existing and future secured indebtedness and
liabilities of the Restricted Subsidiaries (including indebtedness under the
Revolving Credit Facility) to the extent of the value of the assets securing
such indebtedness and to all indebtedness of any Unrestricted Subsidiary. At
March 31, 1998, the Company and its Restricted Subsidiaries had no Indebtedness
outstanding (other than the Notes). On the date of this Prospectus, there are no
Unrestricted Subsidiaries.
OPTIONAL REDEMPTION
Except as set forth below, the Notes will not be redeemable at the option of
the Company prior to March 15, 2002. On and after such date, the Notes will be
redeemable, at the Company's option, in whole or in part, at any time upon not
less than 30 nor more than 60 days prior notice mailed by first-class mail to
each Holder's registered address, at the following redemption prices (expressed
in percentages of principal amount), plus accrued and unpaid interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date):
If redeemed during the 12-month period commencing on March 15 of the years
set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- -------------------------------------------------------------------------------- ----------------
<S> <C>
2002............................................................................ 105.625%
2003............................................................................ 102.813%
2004 and thereafter............................................................. 100.000%
</TABLE>
In addition, at any time and from time to time prior to March 15, 2001, the
Company may redeem in the aggregate up to 33 1/3% of the original principal
amount of the Notes with the Net Cash Proceeds of one or more Equity Offerings
received by the Company so long as there is a Public Market for the Class A
Common Stock at the time of such redemption, at a redemption price (expressed as
a percentage of Accreted Value thereof) of 111.25%, to the date of redemption;
PROVIDED, HOWEVER, that at least 66 2/3% of the original principal amount of the
Notes must remain outstanding after each such redemption.
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate,
although no Note of $1,000 in principal amount or less will be redeemed in part.
If any Note is to be redeemed in part only, the notice of redemption relating to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the holder thereof upon cancellation of the
original Note.
The Notes will not have the benefit of any sinking fund.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder (as defined) will have the right to require the Company
to purchase all or any part of such Holder's Notes at a purchase price in cash
equal to 101% of the principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase (subject to the right of holders of record on
the relevant record date to receive interest due on the relevant interest
payment date) or, in the case of purchases of Notes prior to March 15, 2001, at
a purchase price equal to 101% of the Accreted Value thereof as of the date of
purchase:
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(i) (A) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 35% of the total voting power of
the Voting Stock of the Company (or its successor by merger, consolidation
or purchase of all or substantially all of its assets); and (B) the
Permitted Holders "beneficially own" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of the Company (or
its successor by merger, consolidation or purchase of all or substantially
all of its assets) than such other person and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of the Company or such
successor; or
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the stockholders of the Company was
approved by a vote of a majority of the directors of the Company then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved or is a
designee of the then remaining members of the Board of Directors of the
Company or was nominated or elected by such then remaining members of the
Board of Directors of the Company) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; or
(iii) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole to any "person" (as such term
is used in Section 13(d) and 14(d) of the Exchange Act) other than a
Permitted Holder; or
(iv) the adoption by the stockholders of a plan for the liquidation or
dissolution of the Company.
Within 30 days following any Change of Control the Company shall mail a
notice to each Holder, with a copy to the Trustee, stating: (i) that a Change of
Control has occurred and that such holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of Holders of record on a record date to
receive interest on the relevant interest payment date) or, in the case of
purchases of Notes prior to March 15, 2001, at a purchase price equal to 101% of
the Accreted Value thereof as of the date of purchase; (ii) the date of purchase
(which shall be no earlier than 30 days nor later than 60 days from the date
such notice is mailed); and (iii) the procedures determined by the Company
consistent with the Indenture, that a Holder must follow in order to have its
Notes purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the purchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
Certain events that constitute a change of control under the Revolving
Credit Facility would cause an event of default under such Revolving Credit
Facility. Future Indebtedness of the Company and its Subsidiaries may also
contain prohibitions of certain events that would constitute a Change of Control
or require such Indebtedness to be purchased upon a Change of Control. Moreover,
the exercise by the Holders of their right to require the Company to purchase
the Notes could cause a default under such
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<PAGE>
Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such purchase on the Company. Finally, the Company's ability
to pay cash to the Holders upon a purchase may be limited by the Company's then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required purchases. The provisions
of the Indenture may not afford Holders of the Notes the right to require the
Company to purchase the Notes in the event of a highly leveraged transaction
that may adversely affect the Holders of the Notes if such transaction is not a
transaction defined as a Change of Control.
The Change of Control provisions described above may deter certain mergers,
tender offers and takeover attempts involving the Company by increasing the
capital required to effectuate such transactions. The definition of "Change of
Control" includes a disposition of all or substantially all of the property and
assets of the Company and its Restricted Subsidiaries. With respect to the
disposition of property or assets, the phrase "all or substantially all" as used
in the Indenture varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under New York law (which is the
choice of law under the Indenture) and is subject to judicial interpretation.
Accordingly, in certain circumstances there may be a degree of uncertainty in
ascertaining whether a particular transaction would involve a disposition or
"all or substantially all" of the property or assets of a Person, and therefore
it may be unclear as to whether a Change of Control has occurred and whether the
Company is required to make an offer to purchase the Notes as described above.
CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following.
LIMITATION ON INDEBTEDNESS. (a) The Company shall not, and shall not permit
any of its Restricted Subsidiaries to, Incur any Indebtedness; PROVIDED,
HOWEVER, that the Company may incur Indebtedness if, on the date of such
Incurrence, the Consolidated Leverage Ratio of the Company for the most recent
four consecutive fiscal quarters ending prior to the date of such Incurrence,
after giving effect, on a pro forma basis, to such Incurrence of Indebtedness
and, to the extent set forth in the definition of Consolidated Leverage Ratio,
the use of proceeds thereof, would be no more than 7 to 1.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may incur Indebtedness under any Senior Credit Facility;
PROVIDED that (i) such Indebtedness would be permitted to be incurred under
paragraph (a) of this covenant if it were being incurred solely by the Company
and (ii) the Consolidated Senior Leverage Ratio of the Company for the most
recent four consecutive fiscal quarters ending prior to the date of such
Incurrence, after giving effect, on a pro forma basis, to such Incurrence of
Indebtedness under such Senior Credit Facilities and, to the extent set forth in
the definition of Consolidated Senior Leverage Ratio, the use of proceeds
thereof, would be no more than 4 to 1.
(c) Notwithstanding the foregoing paragraphs (a) and (b), the Company and
its Restricted Subsidiaries may Incur the following Indebtedness: (i)
Indebtedness of the Company owing to and held by any Restricted Subsidiary or
Indebtedness of a Restricted Subsidiary owing to and held by the Company or any
Restricted Subsidiary; PROVIDED, HOWEVER, that any subsequent issuance or
transfer of any Capital Stock or any other event which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent
transfer of any such Indebtedness (except to the Company or a Restricted
Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the issuer thereof; (ii) Indebtedness represented by (w)
Indebtedness of the Company and its Restricted Subsidiaries under the Revolving
Credit Facility not to exceed (including any Refinancing Indebtedness Incurred
with respect to any such Indebtedness) $15 million in the aggregate outstanding
at any time pursuant to this clause (c)(ii)(w), (x) the Notes, the Indenture and
the Subsidiary Guarantees in amounts set forth therein on the Issue Date, (y)
any Indebtedness outstanding on the Issue Date (after giving effect to the use
of proceeds from the Notes to retire Indebtedness) or (z) any Refinancing
Indebtedness Incurred in respect of any
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Indebtedness described in clauses (ii) or (iii) of this paragraph (iii) or
Incurred pursuant to paragraph (a) or (b) above; (iii) Indebtedness of a
Restricted Subsidiary Incurred and outstanding on the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred to provide all or any portion of the funds utilized to consummate, or
otherwise in connection with, the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a Subsidiary or was
otherwise acquired by the Company); PROVIDED, HOWEVER, that at the time such
Restricted Subsidiary is acquired by the Company, the Company would have been
able to Incur $1.00 of additional Indebtedness pursuant to paragraph (a) above,
on a pro forma basis as set forth in such paragraph (a); (iv) Indebtedness under
Interest Rate Agreements entered into for bona fide hedging purposes of the
Company or its Restricted Subsidiaries (as determined in good faith by the Board
of Directors or senior management of the Company) and that correspond in terms
of notional amount, duration, currencies and interest rates, as applicable, to
Indebtedness of the Company or its Restricted Subsidiaries Incurred without
violation of the Indenture; (v) Indebtedness of the Company or any Restricted
Subsidiary consisting solely of indemnification, adjustment of purchase price or
similar obligations, in each case Incurred in connection with the disposition of
any assets of the Company (other than the Capital Stock of any Unrestricted
Subsidiary) or any Restricted Subsidiary; and (vi) Indebtedness (other than
Indebtedness described in clauses (i) through (v) of this paragraph (c) in an
amount which, when taken together with the amount of all other Indebtedness
Incurred pursuant to this clause (vi) and then outstanding (including any
Refinancing Indebtedness Incurred with respect to any such Indebtedness), would
not exceed $15 million in the aggregate.
In the event that Indebtedness meets the criteria of more than one of the
types of Indebtedness described in the foregoing paragraphs (a),(b) or (c)
above, the Company, in its sole discretion, shall classify such item of
Indebtedness as having been incurred under one of such provisions and, except as
specifically provided otherwise, shall only be required to include the amount
and type of such Indebtedness as having been incurred pursuant to such clause.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall not, and shall not
permit any of its Restricted Subsidiaries, directly or indirectly, to (i)
declare or pay any dividend or make any distribution on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving the Company or any of its Restricted Subsidiaries)
except (A) dividends or accretions of liquidation value or distributions payable
in the Company's Capital Stock (other than Disqualified Stock) and (B) dividends
or distributions payable to the Company or a Restricted Subsidiary (and if such
Restricted Subsidiary is not a Wholly-Owned Subsidiary, to its other holders of
Capital Stock on a pro rata basis), (ii) purchase, redeem, retire or otherwise
acquire for value any Capital Stock of the Company held by Persons other than a
Restricted Subsidiary or any Capital Stock of a Restricted Subsidiary of the
Company held by any Affiliate of the Company, other than another Restricted
Subsidiary (in either case, other than in exchange for its Capital Stock (other
than Disqualified Stock)), (iii) purchase, repurchase, redeem, defease or
otherwise acquire or retire for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment, any Subordinated Obligations (other
than the purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date of
purchase, repurchase or acquisition) or (iv) make any Investment (other than a
Permitted Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement or Investment
being herein referred to in clauses (i) through (iv) as a "Restricted Payment"),
if at the time the Company or such Restricted Subsidiary makes such Restricted
Payment: (1) a Default shall have occurred and be continuing (or would result
therefrom); or (2) the Company shall not be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) under "--Limitation on Indebtedness;" or
(3) the aggregate amount of Restricted Payments made on or subsequent to the
Issue Date (the amount expended for such purposes, if other than in cash, being
the fair market value of such property as determined by the Board of Directors
of the Company in good faith) exceeds, without duplication, the sum of (a) (x)
100% of the aggregate Consolidated EBITDA of the Company (or, in the event such
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Consolidated EBITDA shall be a deficit, minus 100% of such deficit) accrued
subsequent to the Issue Date to the most recent date for which financial
information is available to the Company, taken as one accounting period, less
(y) 1.4 times Consolidated Interest Expense for the same period, plus (b) the
aggregate Net Cash Proceeds received by the Company from the issue or sale of
its Capital Stock (other than Disqualified Stock) or other Capital Contributions
subsequent to the Issue Date (other than Net Cash Proceeds received from an
issuance or sale of such Capital Stock to a Subsidiary of the Company or an
employee stock ownership plan or similar trust to the extent such sale to an
employee stock ownership plan or similar trust is financed by loans from or
guaranteed by the Company or any Restricted Subsidiary unless such loans have
been repaid with cash on or prior to the date of determination); plus (c) the
amount by which Indebtedness of the Company is reduced on the Company's balance
sheet upon the conversion or exchange (other than by a Subsidiary of the
Company) subsequent to the Issue Date of any Indebtedness of the Company
converted or exchanged for Capital Stock (other than Disqualified Stock) of the
Company (less the amount of any cash, or other property, distributed by the
Company upon such conversion or exchange); plus (d) the amount equal to the net
reduction in Investments made by the Company or any of its Restricted
Subsidiaries subsequent to the Issue Date in any Person resulting from (i) Net
Cash Proceeds to the Company or a Restricted Subsidiary from (A) repurchases or
redemptions of such Investments by such Person, (B) proceeds realized upon the
sale of such Investment to a purchaser other than a Subsidiary, (C) repayments
of loans or advances or other transfers of assets (including by way of dividend
or distribution) by such Person to the Company or any Restricted Subsidiary of
the Company or (ii) the redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of "Investment")
not to exceed, in the case of any Unrestricted Subsidiary, the amount of
Investments previously made by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary, which amount was included in the calculation of the
amount of Restricted Payments; PROVIDED, HOWEVER, that no amount shall be
included under this clause (d) to the extent it is already included in
Consolidated EBITDA. For purposes of this covenant, the amount of any Restricted
Payments, if other than in cash, shall be determined in good faith by the Board
of Directors of the Company as evidenced by a certificate filed with the
Trustee, except that in the event the value of any non-cash consideration shall
be $5 million or more, the value shall be as determined in writing by an
independent investment banking or valuation firm.
(b) The provisions of paragraph (a) of this covenant shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan or similar trust to the extent such sale to an employee stock
ownership plan or similar trust is financed by loans from or guaranteed by the
Company or any Restricted Subsidiary unless such loans have been repaid with
cash on or prior to the date of determination); PROVIDED, HOWEVER, that (A) such
purchase or redemption shall be excluded in subsequent calculations of the
amount of Restricted Payments and (B) the Net Cash Proceeds from such sale and
the reduction in the amount of Indebtedness as applicable, shall be excluded
from clause (3) of paragraph (a); (ii) any purchase or redemption of
Subordinated Obligations of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Subordinated Obligations of
the Company; PROVIDED, HOWEVER, that such purchase or redemption shall be
excluded in subsequent calculations of the amount of Restricted Payments; (iii)
dividends paid within 60 days after the date of declaration if at such date of
declaration such dividend would have complied with this provision; PROVIDED,
HOWEVER, that such dividends shall be included in subsequent calculations of the
amount of Restricted Payments; (iv) payments for the purpose of, and in amounts
equal to, amounts required to permit the Company to redeem or repurchase its
Capital Stock from existing or former employees, management or directors of the
Company or any Subsidiary or their assigns, estates or heirs, in each case in
connection with the repurchase provisions under plans (or amendments thereto) or
agreements (including employment agreements) under which such individuals
purchase or sell or are granted the option to purchase or sell, shares of
Capital Stock; PROVIDED that such redemption or repurchases
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pursuant to this clause shall not exceed $1 million in the aggregate; PROVIDED,
FURTHER, that such dividends shall be included in the calculation of the amount
of Restricted Payments; (v) repurchases of Capital Stock deemed to occur upon
the exercise of stock options if such Capital Stock represents a portion of the
exercise price thereof; PROVIDED, HOWEVER, that (A) such repurchases shall be
excluded from the calculation of the amount of Restricted Payments and (B) the
Net Cash Proceeds from such sale shall be excluded from clause (3) of paragraph
(a); (vi) Investments in any other Person which were received as consideration
for an Asset Disposition in accordance with the "--Limitation on Sales of
Assets" covenant PROVIDED that such Investments shall be included in the
calculation of Restricted Payments; (vii) Investments made in Related
Businesses, subsequent to the Issue Date, in an aggregate amount not to exceed
$2 million at any one time outstanding (after giving effect to any such
Investments that are returned to the Company or the Restricted Subsidiary that
made such Investment, without restriction, in cash on or prior to the date of
such calculation provided that such amounts shall be included in the calculation
of Restricted Payments); (viii) Investments in an amount not to exceed $10
million in another Person for the purpose of conducting a Related Business in
North America (other than the United States); PROVIDED, that the Company shall
use its best efforts, subject to applicable legal restrictions, to cause
substantially all of the earnings of such Restricted Subsidiary or Person to be
paid promptly to the Company provided that such amounts shall not be included in
the calculation of Restricted Payments; and (ix) management fees paid to
Metromedia or its successors for certain legal, accounting, tax and other
services in an amount not to exceed (A) $200,000 in fiscal 1998, (B) $300,000 in
fiscal 1999, (C) $400,000 in fiscal 2000 and (D) $500,000 in each fiscal year
thereafter, provided that such amounts shall not be included in the calculation
of Restricted Payments.
LIMITATION ON LIENS. The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur or suffer to
exist any Lien (other than Permitted Liens) upon any of its property or assets
(including Capital Stock), whether owned on the date of the Indenture or
thereafter acquired, securing any Indebtedness, unless contemporaneously
therewith effective provision is made to secure the Indebtedness due under the
Indenture and the Notes or, in respect of Liens on any Restricted Subsidiary's
property or assets, the Subsidiary Guarantee by such Restricted Subsidiary of
the Notes equally and ratably with (or prior to in the case of Liens with
respect to Subordinated Obligations) the Indebtedness secured by such Lien with
a Lien on the same properties and assets securing such Indebtedness for so long
as such Indebtedness is so secured.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or consensual restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Capital Stock or pay any Indebtedness or other obligations owed to the
Company, (ii) make any loans or advances to the Company or (iii) transfer any of
its property or assets to the Company, except (a) any encumbrance or restriction
pursuant to an agreement in effect at or entered into on the Issue Date
(including, the Revolving Credit Facility but after giving effect to the use of
proceeds from the issuance of the Notes to retire Indebtedness on such date);
(b) any encumbrance or restriction imposed by the Notes or any pari passu
Indebtedness incurred in accordance with the Indenture and whose restrictions
are no more restrictive than those in the Indenture; (c) any encumbrance or
restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Indebtedness Incurred by a Restricted Subsidiary on or prior to
the date on which such Restricted Subsidiary became a Restricted Subsidiary by
the Company (other than Indebtedness Incurred as consideration in, or to provide
all or any portion of the funds utilized to consummate or otherwise Incurred in
connection with, the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Restricted Subsidiary) and outstanding
on such date; (d) any encumbrance or restriction imposed by any Senior Credit
Facility that is no more restrictive than those contained in the Revolving
Credit Facility; (e) any encumbrance or restriction with respect to any
agreement effecting a refinancing, refunding, replacement, renewal, repayment or
extension (including pursuant to defeasance or discharger mechanisms) of
Indebtedness Incurred pursuant to an agreement referred to in clause (a), (b),
(c) or (d) of this covenant or this clause (e) or contained in any amendment to
an agreement referred to in
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clause (a), (b), (c) or (d) of this covenant or this clause (e); PROVIDED,
HOWEVER,that the encumbrances and restrictions with respect to any such
agreement or amendment are not materially more restrictive than encumbrances or
restrictions contained in such agreements; (f) in the case of clause (iii)
above, any encumbrance or restriction that restricts in a customary manner the
subletting, assignment or transfer of any property or asset that is subject to a
lease, license or similar contract, or the assignment or transfer of any such
lease, license or other contract; (g) any restriction with respect to a
Restricted Subsidiary (or any of its property or assets imposed pursuant to an
agreement entered into for the, direct or indirect, sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted Subsidiary
(or the property or assets, that are subject to such restriction) pending the
closing of such sale or disposition; (h) encumbrances or restrictions arising or
existing by reason of applicable law; (i) restrictions on transfer contained in
Purchase Money Indebtedness incurred pursuant to the covenant "Limitation on
Indebtedness;" PROVIDED such restrictions relate only to the transfer of the
property acquired with the proceeds of such Purchase Money Indebtedness; (j) any
restriction pursuant to the Indenture, the Notes or the Subsidiary Guarantees.
LIMITATION ON SALES OF ASSETS. (a) The Company shall not, and shall not
permit any of its Restricted Subsidiaries to, make any Asset Disposition unless
(i) the Company or such Restricted Subsidiary receives consideration at the time
of such Asset Disposition at least equal to the fair market value, as determined
in good faith by the Board of Directors of the Company (including as to the
value of all non-cash consideration), of the assets subject to such Asset
Disposition, (ii) at least 80% of the consideration thereof received by the
Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents
and (iii) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as the
case may be) (A) FIRST, to the extent the Company or any Restricted Subsidiary,
as the case may be, elects (or is required by the terms of the Senior Credit
Facilities), to prepay, repay or purchase Indebtedness under any of the Senior
Credit Facilities within 180 days from the later of the date of such Asset
Disposition or the receipt of such Net Available Cash; (B) SECOND, to the extent
of the balance of such Net Available Cash after application in accordance with
clause (A), at the Company's election, to the investment in Broadcast Assets
within one year from the later of the date of such Asset Disposition or the
receipt of such Net Available Cash; (C) THIRD, to the extent of the balance of
such Net Available Cash after application in accordance with clauses (A) and (B)
to make an offer to purchase (an "Offer") the Notes at a price in cash equal to,
prior to March 15, 2001, 100% of the Accreted Value thereof on the purchase date
and, thereafter 100% of the principal amount thereof plus accrued and unpaid
interest to the purchase date, and other PARI PASSU debt obligation subject to a
similar covenant (collectively, the "PARI PASSU debt obligations") at par plus
accrued and unpaid interest (or Accreted Value, as applicable) to the purchase
date; and (D) fourth, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A), (B) and (C), for other general
corporate purposes not prohibited by the Indenture; PROVIDED, HOWEVER, that, in
connection with any prepayment, repayment or purchase of Indebtedness pursuant
to clause (A) above, the Company or such Restricted Subsidiary shall permanently
retire such Indebtedness and shall cause the related loan commitment (if any) to
be permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing provisions, the Company and
its Restricted Subsidiaries shall not be required to apply any Net Available
Cash in accordance herewith except to the extent that the aggregate Net
Available Cash from any Asset Dispositions or series of related Asset
Dispositions exceeds $500,000. The Company shall not be required to make an
Offer for the Notes and for the PARI PASSU debt obligations pursuant to this
covenant if the Net Available Cash available therefore (after application of the
proceeds as provided in clauses (A) and (B)) are less than $5 million (which
lesser amounts shall be carried forward for purposes of determining whether an
Offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition).
(b) If the aggregate principal amount (or Accreted Value, as applicable) of
Notes and PARI PASSU obligations validly tendered and not withdrawn in
connection with an Offer pursuant to clause (C) above exceed the funds available
therefor ("Offer Proceeds"), the Trustee will select the Notes and such PARI
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PASSU obligations to be purchased on a pro rata basis (with such adjustments as
may be deemed appropriate by the Trustee so that only Notes in denominations of
$1,000 or integral multiples thereof, will be purchased). Holders whose Notes
are purchased only in part will be issued new Notes equal in principal amount at
maturity to the unpurchased portion of the Notes surrendered.
(c) For the purposes of this covenant, the following will be deemed to be
cash or Cash Equivalents: (x) the assumption by the transferee of Indebtedness
of the Company or Indebtedness of any Restricted Subsidiary of the Company (in
each case, other than Subordinated Obligations) and the release of the Company
and such Restricted Subsidiary from all liability on such Indebtedness (in which
case the Company shall, without further action, be deemed to have applied such
assumed Indebtedness in accordance with clause (A) of the preceding paragraph)
and (y) notes or other obligations or securities received by the Company or any
Restricted Subsidiary of the Company from the transferee that are within 30
business days converted by the Company or such Restricted Subsidiary into cash
or Cash Equivalents and used in accordance with this covenant.
(d) If the aggregate purchase price of the Notes and any PARI PASSU debt
obligations tendered pursuant to the Offer is less than the Net Available Cash
allotted to the purchase of the Notes and any PARI PASSU debt obligations, the
Company will apply the remaining Net Available Cash in accordance with clause
(a) (iii) (D) above.
(e) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the purchase of Notes pursuant to the Indenture.
To the extent that the provisions of any securities laws or regulations conflict
with provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Indenture by virtue thereof.
LIMITATION ON ASSET SWAPS. The Company will not, and will not permit any
Restricted Subsidiary to, engage in any Asset Swaps, unless: (i) at the time of
entering into such Asset Swap and immediately after giving effect to such Asset
Swap, no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; (ii) in the event such Asset Swap involves
an aggregate amount in excess of $1 million, the terms of such Asset Swap have
been approved by a majority of the members of the Board of Directors of the
Company and (iii) in the event such Asset Swap involves an aggregate amount in
excess of $5 million, the Company has received a written opinion from an
independent investment banking firm or other valuation firm of nationally
recognized standing that such Asset Swap is fair to the Company or such
Restricted Subsidiary, as the case may be, from a financial point of view
LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into or conduct any transaction (including the purchase, sale, lease or exchange
of any property or the rendering of any service) with any Affiliate of the
Company (an "Affiliate Transaction") unless: (i) the terms of such Affiliate
Transaction are no less favorable to the Company or such Restricted Subsidiary,
as the case may be, than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an Affiliate;
(ii) in the event such Affiliate Transaction or series of related Affiliate
Transactions involves an aggregate amount in excess of $1 million, the terms of
such transaction have been approved by a majority of the members of the Board of
Directors of the Company and by a majority of the members of such Board of
Directors having no personal stake in such transaction, if any (and such
majority or majorities, as the case may be, determines that such Affiliate
Transaction satisfies the criteria in (i) above); and (iii) in the event such
Affiliate Transaction or series of related Affiliate Transactions involves an
aggregate amount in excess of $5 million, the Company has received a written
opinion from an independent investment banking firm or valuation firm of
nationally recognized standing that such Affiliate Transaction or series of
related Affiliate Transactions is not materially less favorable than those that
might reasonably have been obtained in a comparable transaction at such time on
an arm's-length basis from a Person that is not an Affiliate.
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(b) The foregoing paragraph (a) shall not apply to (i) payment of customary
fees to members of the Board of Directors of the Company, (ii) any issuance of
securities, or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors of the Company, (iii) loans
or advances to employees in the ordinary course of business of the Company or
any of its Restricted Subsidiaries, (iv) any transaction between the Company and
a Wholly-Owned Subsidiary Guarantor or between Wholly-Owned Subsidiary
Guarantors, (v) the grant of stock options or similar rights to employees and
directors of the Company pursuant to plans approved by the Board of Directors,
(vi) indemnification agreements with, and the payment of fees and indemnities
to, directors, officers and employees of the Company and its Restricted
Subsidiaries, in each case, in the ordinary course of business, (vii) any
employment, noncompetition or confidentiality agreement entered into by the
Company and its Restricted Subsidiaries with its employees in the ordinary
course of business, (viii) the pledge of any Capital Stock of any Unrestricted
Subsidiary to support any Indebtedness thereof or (ix) management fees paid to
Metromedia or its successors for certain legal, accounting, tax or other
services in an amount not to exceed (A) $200,000 in fiscal 1998, (B) $300,000 in
fiscal 1999, (C) $400,000 in fiscal 2000 and (D) $500,000 in each fiscal year
thereafter.
LIMITATION ON RESTRICTED SUBSIDIARY CAPITAL STOCK. The Company will not
permit any Restricted Subsidiary to issue or suffer to exist any Capital Stock,
except (i) Capital Stock issued to and held by the Company or a Wholly-Owned
Subsidiary, (ii) Capital Stock issued by a Person prior to the time (A) such
Person becomes a Restricted Subsidiary, (B) such Person merges with or into a
Restricted Subsidiary or (C) a Restricted Subsidiary merges with or into such
Person; PROVIDED THAT such Capital Stock was not issued or incurred by such
Person in anticipation of the type of transaction contemplated by subclause (A),
(B) or (C), (iii) if, immediately after giving effect to such issuance, neither
the Company nor any of its Restricted Subsidiaries owns any Capital Stock of
such Person who was a Restricted Subsidiary, or (iv) if, immediately after
giving effect to such issuance, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary and any Investment in such Person remaining
after giving effect thereto would have been permitted to be made under the
"--Limitation on Restricted Payments" covenant, if made on the date of such
issuance.
SEC REPORTS. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13(a) or 15(d) of the Exchange Act, to the
extent permitted by the Exchange Act, the Company will file with the Commission,
and provide, within 15 days after the Company is (or would be) required to file
the same with the Commission, the Trustee and the Holders of the Notes with the
annual reports and the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) that are specified in Sections 13(a) and 15(d) of the
Exchange Act. In the event that the Company is not permitted to file such
reports, documents and information with the Commission pursuant to the Exchange
Act, the Company will nevertheless deliver such Exchange Act information to the
Trustee and the Holders of the Notes as if the Company were subject to the
reporting requirements of Section 13(a) or 15(d) of the Exchange Act.
MERGER AND CONSOLIDATION. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease all or substantially all its assets
to, any Person, unless: (i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a corporation, partnership, trust or limited
liability company organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Company
(if not the Company) shall expressly assume, by supplemental indenture, executed
and delivered to the Trustee, in form reasonably satisfactory to the Trustee,
all the obligation of the Company under the Notes and the Indenture; (ii)
immediately after giving effect to such transaction (and treating any
Indebtedness that becomes an obligation of the Successor Company or any
Subsidiary of the Successor Company as a result of such transaction as having
been Incurred by the Successor Company or such Restricted Subsidiary at the time
of such transaction), no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to
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such transaction (and treating any Indebtedness that becomes an obligation of
the Successor Company or any Subsidiary of the Successor Company as a result of
such transaction as having been Incurred by the Successor Company or such
Restricted Subsidiary at the time of such transaction), the Successor Company
would be able to Incur at least an additional $1.00 of Indebtedness pursuant to
paragraph (a) of "-- Limitation on Indebtedness;" and (iv) the Company shall
have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but, in the
case of a lease of all or substantially all its assets, the Company will not be
released form the obligation to pay the principal of and interest on the Notes.
Notwithstanding the foregoing clauses (ii) and (iii), (x) any Restricted
Subsidiary of the Company may consolidate with, merge into or transfer all or
part of its properties and assets to the Company or any other Wholly Owned
Subsidiary; PROVIDED such transaction involves no other parties either directly
or indirectly and (y) the Company may merge with an Affiliate with no
Indebtedness incorporated solely for the purpose of reincorporating the Company
in another jurisdiction to realize tax or other benefits.
SUBSIDIARY GUARANTORS. On and after the Issue Date, the Company will cause
each Restricted Subsidiary to execute and deliver to the Trustee a Subsidiary
Guarantee pursuant to which such Subsidiary Guarantor will unconditionally
Guarantee, on a joint and several basis, the full and prompt payment of the
principal of, premium, if any, and interest on the Notes on a senior basis,
which such Subsidiary Guarantees will rank PARI PASSU in right of payment to all
existing and future guarantees of such Restricted Subsidiaries under the
Revolving Credit Facility.
The obligations of each Subsidiary Guarantor will be limited in a manner
intended to limit such Guarantee to the maximum amount as will, after giving
effect to all other contingent and fixed liabilities of such Subsidiary
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Subsidiary Guarantor in respect of the obligations of
such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to
its contribution obligations under the Indenture, result in the obligations of
such Subsidiary Guarantor under its Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law.
Each Subsidiary Guarantor will be permitted to consolidate with or merge
into or sell all or part of its assets or properties to the Company or another
Subsidiary Guarantor without limitation and such merger, sale or other transfer
will not be subject to the "--Limitation on Sales of Assets" covenant. Subject
to the other provisions of the Indenture each Subsidiary Guarantor will be
permitted to consolidate with or merge into or sell all or substantially all of
its assets or properties to any Person other than the Company or another
Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor).
Upon the sale or disposition of a Subsidiary Guarantor (by merger,
consolidation, the sale of all or substantially all of its assets) to a Person
(whether or not an Affiliate of the Subsidiary Guarantor) which is not a
Subsidiary Guarantor of the Company, which sale or disposition is otherwise in
compliance with the Indenture (including the covenant described under "Certain
Covenants--Limitation on Sales of Assets"), such Subsidiary Guarantor shall be
deemed released from all its obligations under the Indenture and its Subsidiary
Guarantee and such Subsidiary Guarantee shall terminate; PROVIDED, HOWEVER, that
any such termination shall occur only to the extent that all obligations of such
Subsidiary Guarantor under all of its guarantees of, and under all of its
pledges of assets or other security interests which secure, any other
Indebtedness of the Company shall also terminate upon such release, sale or
transfer.
LIMITATION ON LINES OF BUSINESS. The Company will not, and will not permit
any Restricted Subsidiary to, engage, to more than a de minimus extent, in any
business other than a Related Business.
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EVENTS OF DEFAULT
Each of the following constitutes an Event of Default under the Indenture:
(i) a default in any payment of interest on any Note when due, continued for 30
days, (ii) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, (iii) the failure by the Company to comply with its
obligations under "Certain Covenants -- Merger and Consolidation" above, (iv)
the failure by the Company to comply for 30 days after notice with any of its
obligations under the covenants described under "Change of Control" above or
under covenants described under "Certain Covenants" above (in each case, other
than a failure to purchase Notes which shall constitute an Event of Default
under clause (ii) above), (v) the failure by the Company to comply for 60 days
after notice with its other agreements contained in the Indenture, (vi)
Indebtedness of the Company or any Restricted Subsidiary is not paid, waived or
cured within any applicable grace period after final maturity or is accelerated
by the holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $5 million (the "cross acceleration
provision"), (vii) certain events of bankruptcy, insolvency or reorganization of
the Company or a Significant Subsidiary (the "bankruptcy provisions"), (viii)
any final judgment or decree for the payment of money in excess of $5 million
(net of applicable insurance coverage provided that the insurance carriers have
acknowledged coverage) is rendered against the Company or a Significant
Subsidiary and such judgment or decree shall remain unvacated, undischarged or
unstayed for a period of 60 days after such judgment becomes final and
non-appealable (the "judgment default provision") or (ix) any Subsidiary
Guarantee ceases to be in full force and effect (except as contemplated by the
terms of the Indenture or such Subsidiary Guarantee) or any Subsidiary Guarantor
denies or disaffirms its obligations under the Indenture or its Subsidiary
Guarantee. However, a default under clause (iv) or (v) will not constitute an
Event of Default until the Trustee or the Holders of more than 25% in principal
amount of the outstanding Notes notify the Company of the default and the
Company does not cure such default within the time specified in clause (iv) or
(v) hereof after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes by notice to the
Company and the Trustee may declare the principal of and accrued and unpaid
interest, if any, on all the Notes to be due and payable. Upon such a
declaration, such principal amount and accrued and unpaid interest or, if prior
to March 15, 2001, Accreted Value shall be due and payable immediately. If an
Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Company occurs and is continuing, the principal of and
accrued and unpaid interest on (or if prior to March 15, 2001, the Accreted
Value of) all the Notes will become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Holders. Under
certain circumstances, the Holders of a majority in principal amount of the
outstanding Notes may rescind any such acceleration with respect to the Notes
and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the Holders unless such Holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal or Accreted Value, premium, if any, or interest when due, no Holder
may pursue any remedy with respect to the Indenture or the Notes unless (i) such
Holder has previously given the Trustee notice that an Event of Default is
continuing, (ii) Holders of at least 25% in principal amount of the outstanding
Notes have requested the Trustee to pursue the remedy, (iii) such Holders have
offered the Trustee reasonable security or indemnity against any loss, liability
or expense, (iv) the Trustee has not complied with such request within 60 days
after the receipt of the request and the offer of security or indemnity and (v)
the Holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction that, in the opinion of the Trustee, is
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the Holders of a majority in principal amount of the outstanding
Notes are given the right to direct the time, method and place of conducting any
proceeding
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for any remedy available to the Trustee or of exercising any trust or power
conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other Holder or that would
involve the Trustee in personal liability. Prior to taking any action under the
Indenture, the Trustee shall be entitled to indemnification satisfactory to it
in its sole discretion against all losses and expenses caused by taking or not
taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of, premium, if any, or interest on (or if prior to March 15, 2001,
the Accreted Value of) any Notes, the Trustee may withhold notice if and so long
as a committee of its Trust officers in good faith determines that withholding
notice is in the interests of the Holders. In addition, the Company is required
to deliver to the Trustee, within 120 days after the end of each fiscal year, a
certificate indicating whether the signers thereof know of any Default that
occurred during the previous year. The Company also is required to deliver to
the Trustee, within 30 days after the occurrence thereof, written notice of any
events which would constitute certain Defaults, their status and what action the
Company is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the Notes then outstanding
and any past default or compliance with any provisions may be waived with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding. However, without the consent of each Holder of an outstanding Note
affected, no amendment may, among other things, (i) reduce the amount of Notes
whose holders must consent to an amendment to the Indenture, (ii) reduce the
stated rate of or extend the stated time for payment of interest on any Note,
(iii) reduce the principal of or extend the Stated Maturity of any Note, (iv)
make any Note payable in money other than that stated in the Note, (v) impair
the right of any Holder to receive payment of principal of and interest on such
Holder's Notes on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such Holder's Notes or (vi)
make any change in the amendment provisions which require each Holder's consent
or in the waiver provisions, or (vii) cause the Notes or the Subsidiary
Guarantees to be subordinated to any other Indebtedness.
Without the consent of any Holder, the Company, the Subsidiary Guarantors
and the Trustee may amend the Indenture to cure any ambiguity, omission, defect
or inconsistency, to provide for the assumption by a successor corporation,
partnership, trust or limited liability company of the obligations of the
Company under the Indenture in accordance with the terms of the Indenture, to
provide for uncertificated Notes in addition to or in place of certificated
Notes (PROVIDED, that the uncertificated Notes are issued in registered form for
purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Notes are described in Section 163(f)(2)(B) of the Code), to add
Guarantees with respect to the Notes, to secure the Notes, to add to the
covenants of the Company for the benefit of the Holders or to surrender any
right or power conferred upon the Company, to make any change that does not
adversely affect the rights of any holder or to comply with any requirement of
the Commission in connection with the qualification of the Indenture under the
Trust Indenture Act.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment. After an amendment under the
Indenture becomes effective, the Company is required to mail to the Holders a
notice briefly describing such amendment. However, the failure to give such
notice to all the Holders, or any defect therein, will not impair or affect the
validity of the amendment.
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DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. In such event, the Subsidiary Guarantees in effect at such time shall
terminate. The Company at any time may terminate its obligations under covenants
described under "Certain Covenants" (other than "Certain Covenants--Merger and
Consolidation"), the operation of the cross acceleration provision, the
bankruptcy provisions with respect to Significant Subsidiaries, the judgment
default provision and the Subsidiary Guarantee provision described under "Events
of Default" above and the limitations contained in clause (iii) under "Certain
Covenants--Merger and Consolidation" above ("covenant defeasance"). If the
Company exercises its covenant defeasance option, the Company may, by written
notice to the Trustee prior to the delivery of the Opinion of Counsel referred
to below, elect to have any Subsidiary Guarantees in effect at such time
terminate.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (v), (vi), (vii) (with respect only
to Significant Subsidiaries), or (viii) under "Events of Default" above or
because of the failure of the Company to comply with clause (iii) under "Certain
Covenants--Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium, if any, and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
U.S. Bank Trust National Association (formerly known as First Trust National
Association), a national association, is the Trustee under the Indenture and has
been appointed by the Company as Registrar and Paying Agent with regard to the
Notes.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Accreted Value" means as of the date of determination prior to March 15,
2001, with respect to any Note, the sum of (a) the initial offering price of
such Note and (b) the portion of the excess of the principal amount of such Note
over such initial offering price which shall have been accreted thereon through
such date, such amount to be so accreted on a daily basis at the rate of 11 1/4%
per annum, compounded semi-annually on each March 15 and September 15 from the
Issue Date through the date of determination,
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computed on the basis of a 360-day year of twelve 30-day months. The Accreted
Value of any Note on or after March 15, 2001 shall be 100% of the principal
amount thereof.
"Affiliate" of any specified Person means any other Person, direct or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have the meanings correlative to the foregoing.
"Asset Acquisition" means (i) an Investment by the Company or any Subsidiary
of the Company in any other Person pursuant to which such Person shall become a
Subsidiary of the Company or shall be consolidated into or merged with the
Company or any Subsidiary of the Company or (ii) the acquisition by the Company
or any Subsidiary of the Company of assets of any Person comprising a division
or line of business of such Person.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Restricted Subsidiaries (including
any disposition by means of a merger, consolidation or similar transaction)
other than (i) a disposition by a Restricted Subsidiary or the Company to the
Company or a Restricted Subsidiary (ii) the disposition of Cash Equivalents in
the ordinary course of business, (iii) a disposition of inventory or other
property in the ordinary course of business, (iv) a disposition of obsolete,
damaged or worn out equipment or equipment that is no longer useful in the
conduct of business of the Company and its Restricted Subsidiaries and that is
disposed of in each case in the ordinary course of business, (v) transactions
permitted under "Certain Covenants Merger and Consolidation" above, (vi) for
purposes of "Certain Covenants--Limitation on Sales of Assets" only, a
disposition subject to "Certain Covenants-- Limitation on Restricted Payments,"
(vii) transactions permitted by paragraph (b) under the covenant "Certain
Covenants--Limitation on Affiliate Transactions" above, (viii) the surrender or
waiver of contract rights or the settlement, release or surrender of contract,
tort or other claims of any kind, (ix) pursuant to foreclosure or other exercise
of remedies, and (x) an Asset Swap made in compliance with the covenant "Certain
Covenants--Limitation on Asset Swaps."
"Asset Swap" means the execution of a definitive agreement, subject only to
FCC approval and other customary closing conditions, that the Company in good
faith believes will be satisfied, for a substantially concurrent purchase and
sale, or exchange, of Broadcast Assets between the Company or any of its
Restricted Subsidiaries and another Person or group of Affiliated Persons;
PROVIDED that any amendment to or waiver of any closing condition which
individually or in the aggregate, is material to the Asset Swap shall be deemed
to be a new Asset Swap.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest (or accretion) rate borne by the Notes, compounded semi-annually) of
the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"Broadcast Asset" means assets used or useful in the radio broadcast or any
business reasonably related thereto.
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"Capital Contribution" means any contribution to the equity of the Company
from a direct or indirect parent of the Company for which no consideration,
other than the issuance of shares of common stock with no redemption rights or
special preferences, privileges or voting rights is given.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into or exchangeable for such
equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease to the first date
such lease may be terminated without penalty.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition; (ii) marketable general obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition thereof, having a credit
rating of "A" or better from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.; (iii) certificates of deposit, time deposits,
Eurodollar time deposits, overnight bank deposits or bankers' acceptances having
maturities of not more than one year from the date of acquisition thereof issued
by any commercial bank the long-term debt of which is rated at the time of
acquisition thereof at least "A" or the equivalent thereof by Standard & Poor's
Rating Group, or "A" or the equivalent thereof by Moody's Investors Service,
Inc., and having capital and surplus in excess of $500 million; (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (i), (ii) and (iii) entered into with any bank
meeting the qualifications specified in clause (iii) above; (v) commercial paper
rated at the time of acquisition thereof at least "A-2" or the equivalent
thereof by Standard & Poor's Rating Group or "P-2" or the equivalent thereof by
Moody's Investors Service, Inc., or carrying an equivalent rating by a
nationally recognized rating agency, if both of the two named rating agencies
cease publishing ratings of investments, and in either case maturing within 270
days after the date of acquisition thereof; (vi) interests in any investment
company which invests solely in instruments of the type specified in clauses (i)
through (v) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"The Company" means Big City Radio, Inc., a Delaware corporation, or any
successor thereto which assumes the obligations under the Notes pursuant to the
Indenture.
"Consolidated EBITDA" for any period means the Consolidated Net Income for
such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization of intangibles and (v)
other non-cash charges reducing Consolidated Net Income (excluding any such
non-cash charge to the extent it represents an accrual of or reserve for cash
charges in any future period of amortization of a prepaid cash expense that was
paid in a prior period not included in the calculation). Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
interest, depreciation and amortization of, a Restricted Subsidiary of a Person
shall be added to Consolidated Net Income to compute Consolidated EBITDA of such
Person only to the extent (and in the same proportion) that the net income of
such Subsidiary was included in calculating the Consolidated Net Income of such
Person.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Consolidated Subsidiaries, plus, to the extent
not included in such interest expense, (i) interest expense attributable to
Capitalized Lease Obligations and the interest portion of rent expense
associated
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with Attributable Indebtedness in respect of the relevant lease giving rise
thereto, determined as if such lease were a capitalized lease in accordance with
GAAP, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest and accrued interest, (iv) non-cash interest expense, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) interest actually paid by the
Company or any such Subsidiary under any Guarantee of Indebtedness or other
obligation of any other Person, (vii) net costs associated with Interest Rate
Agreements (including amortization of fees), (viii) dividends in respect of all
Disqualified Stock of the Company and all Preferred Stock of Subsidiaries (other
than pay in kind dividends or accretions to liquidation value of Preferred Stock
that is not Disqualified Stock), in each case, held by Persons other than the
Company or a Restricted Subsidiary and (ix) the cash contributions to any
employee stock ownership plan or similar trust to the extent such contributions
are used by such plan or trust to pay interest or fees to any Person (other than
the Company) in connection with Indebtedness Incurred by such plan or trust;
PROVIDED, HOWEVER that there shall be excluded therefrom any such interest
expense of any Unrestricted Subsidiary to the extent the related Indebtedness is
not Guaranteed or paid by the Company or any Restricted Subsidiary. For purposes
of the foregoing, total interest expense shall be determined after giving effect
to any net payments made or received by the Company and its Subsidiaries with
respect to Interest Rate Agreements. Notwithstanding the foregoing, the
Consolidated Interest Expense with respect to any Restricted Subsidiary of the
Company that was not a Wholly Owned Subsidiary shall be included only to the
extent (and in the same proportion) that the net income of such Restricted
Subsidiary was included in calculating Consolidated Net Income.
"Consolidated Leverage Ratio" shall mean, as to any Person, the ratio of (i)
the aggregate outstanding amount of Indebtedness of the Company and its
Consolidated Subsidiaries as of the date of calculation on a consolidated basis
in accordance with GAAP plus the aggregate liquidation preference of all
Disqualified Stock of the Company and of all outstanding Preferred Stock of
Consolidated Subsidiaries of the Company to (ii) the Consolidated EBITDA of the
Company for the four full fiscal quarters (the "Four Quarter Period") ending on
or prior to the date of determination.
For purposes of this definition, the aggregate outstanding amount of
Indebtedness of the Person and its Consolidated Subsidiaries for which such
calculation is made shall be determined on a pro forma basis as if the
Indebtedness giving rise to the need to perform such calculation had been
incurred and the proceeds therefrom had been applied, and all other transactions
in respect of which such Indebtedness is being incurred had occurred, on the
last day of the Four Quarter Period. In addition to the foregoing, for purposes
of this definition, "Consolidated EBITDA" of any Person shall be calculated on a
pro forma basis after giving effect to (i) the incurrence of the Indebtedness of
such Person and its Consolidated Subsidiaries (and the application of the
proceeds therefrom) giving rise to the need to make such calculation and any
incurrence (and the application of the proceeds therefrom) or repayment of other
Indebtedness, other than the incurrence or repayment of Indebtedness pursuant to
working capital facilities, at any time on or subsequent to the beginning of the
Four Quarter Period and on or prior to the date of determination, as if such
incurrence (and the application of the proceeds thereof), or the repayment as
the case may be, occurred on the first day of the Four Quarter Period (except
that, in making such computation, the amount of Indebtedness under any revolving
credit facility outstanding on the date of such calculation shall be computed
based on the average daily balance of such Indebtedness (and any Indebtedness
under a revolving credit facility replaced by such Indebtedness) during such
Four Quarter Period or such shorter period when such facility and any replaced
facility was outstanding), and (ii) any Asset Dispositions or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the need to
make such calculation as a result of such Person or one of its Consolidated
Subsidiaries (including any person that becomes a Consolidated Subsidiary as a
result of such Asset Acquisition) incurring, assuming or otherwise becoming
liable for Indebtedness) at any time on or subsequent to the first day of the
Four Quarter Period and on or prior to the date of determination, as if such
Asset Disposition or Asset Acquisition (including the incurrence, assumption or
liability for any such Indebtedness and also including any pro forma effects on
Consolidated EBITDA associated with such Asset
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Acquisition) occurred on the first day of the Four Quarter Period. Furthermore,
in calculating "Consolidated Interest Expense" for purposes of the calculation
of "Consolidated EBITDA," (i) interest on Indebtedness determined on a
fluctuating basis as of the date of determination (including Indebtedness
actually incurred on the date of the transaction giving rise to the need to
calculate the Consolidated Leverage Ratio) and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness as in effect on the date of
determination and (ii) notwithstanding (i) above, interest determined on a
fluctuating basis, to the extent such interest is covered by Interest Rate
Agreements, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its Consolidated Subsidiaries determined in accordance with
GAAP; provided, however, that there shall not be included in such Consolidated
Net Income: (i) any net income (loss) of any Person if such Person is not a
Restricted Subsidiary, except that (A) subject to the limitations contained in
(iv) below, the Company's equity in the net income of any such Person for such
period shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person during such period to the
Company or a Restricted Subsidiary as a dividend or other distribution (subject,
in the case of a dividend or other distribution to a Restricted Subsidiary, to
the limitations contained in clause (iii) below) and (B) the Company' equity in
a net loss of any such Person (other than an Unrestricted Subsidiary) for such
period shall be included in determining such Consolidated Net Income to the
extent such loss has been funded with cash from the Company or a Restricted
Subsidiary; (ii) any net income (loss) of any Person acquired by the Company or
a Subsidiary in a pooling of interests transaction for any period prior to the
date of such acquisition; (iii) any net income of any Restricted Subsidiary if
such Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject to
the limitations contained in (iv) below, the Company's equity in the net income
of any such Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash that could have been
distributed by such Restricted Subsidiary during such period to the Company or
another Restricted Subsidiary as a dividend (subject, in the case of a dividend
or other distribution to another Restricted Subsidiary, to the limitation
contained in this clause) and (B) the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining such
Consolidated Net Income; (iv) any gain (loss) realized upon the sale or other
disposition of any property, plant or equipment of the Company or its
consolidated Subsidiaries (including pursuant to any Sale/Leaseback Transaction)
which is not sold or otherwise disposed of in the ordinary course of business
and any gain (loss) realized upon the sale or other disposition of any Capital
Stock of any Person; (v) any extraordinary gain or loss and (vi) the cumulative
effect of a change in accounting principles.
"Consolidated Senior Leverage Ratio" shall mean, as to any Person, the ratio
of (i) the aggregate outstanding amount of secured Indebtedness of the Company
and its Consolidated Subsidiaries as of the date of calculation on a
consolidated basis in accordance with GAAP to (ii) the Consolidated EBITDA of
the Company for the four full fiscal quarters (the "Four Quarter Period") ending
on or prior to the date of determination.
For purposes of this definition, the aggregate outstanding amount of secured
Indebtedness of the Person and its Consolidated Subsidiaries for which such
calculation is made shall be determined on a pro forma basis as if the
Indebtedness giving rise to the need to perform such calculation had been
Incurred and the proceeds therefrom had been applied, and all other transactions
in respect of which such secured Indebtedness is being Incurred had occurred, on
the last day of the Four Quarter Period. In addition to the foregoing, for
purposes of this definition, Consolidated EBITDA of any Person shall be
calculated on a pro forma basis after giving effect to (i) the Incurrence of the
Indebtedness of such Person and its Consolidated Subsidiaries (and the
application of the proceeds therefrom) giving rise to the need to make such
calculation and any Incurrence (and the application of the proceeds therefrom)
or repayment of other
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Indebtedness, other than the Incurrence or repayment of Indebtedness pursuant to
working capital facilities, at any time on or subsequent to the beginning of the
Four Quarter Period and on or prior to the date of determination, as if such
Incurrence (and the application of the proceeds thereof), or the repayment, as
the case may be, occurred on the first day of the Four Quarter Period, and (ii)
any Asset Dispositions or Asset Acquisitions (including, without limitation, any
Asset Acquisition giving rise to the need to make such calculation as a result
of such Person or one of its Consolidated Subsidiaries (including any Person
that becomes a Consolidated Subsidiary as a result of such Asset Acquisition)
Incurring, assuming or otherwise becoming liable for Indebtedness) at any time
on or subsequent to the first day of the Four Quarter Period and on or prior to
the date of determination, as if such Asset Disposition or Asset Acquisition
(including the Incurrence, assumption or liability for any such secured
Indebtedness and also including any Consolidated EBITDA associated with such
Asset Acquisition) occurred on the first day of the Four Quarter Period.
Furthermore, in calculating "Consolidated Interest Expense" for purposes of the
calculation of Consolidated EBITDA," (i) interest on secured Indebtedness
determined on a fluctuating basis as of the date of determination (including
Indebtedness actually Incurred on the date of the transaction giving rise to the
need to calculate the Consolidated Senior Leverage Ratio) and which will
continue to be so determined thereafter shall be deemed to have accrued at a
fixed rate per annum equal to the rate of interest on such Indebtedness as in
effect on the date of determination and (ii) notwithstanding (i) above, interest
determined on a fluctuating basis, to the extent such interest is covered by
Interest Rate Agreements, shall be deemed to accrue at the rate per annum
resulting after giving effect to the operation of such agreements.
"Consolidated Subsidiaries" means, with respect to any Person, the
Restricted Subsidiaries of such Person that are consolidated with such Person in
accordance with GAAP.
"Default" means any event which is, or after notice or passage of time or
both would be, and Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock of
such Person which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) (i) matures or is mandatorily
redeemable pursuant to a sinking fund obligation or otherwise, (ii) is
convertible into or exchangeable for Indebtedness or Disqualified Stock
(excluding Capital Stock which is convertible or exchangeable solely at the
option of the Company or a Restricted Subsidiary) or (iii) is redeemable at the
option of the holder thereof, in whole or in part, in each case on or prior to
the Stated Maturity of the Notes, PROVIDED, that only the portion of Capital
Stock which so matures or is mandatorily redeemable, is so convertible or
exchangeable or is so redeemable at the option of the holder thereof prior to
such Stated Maturity shall be deemed to be Disqualified Stock and PROVIDED
FURTHER that any Capital Stock that would not constitute Disqualified Stock but
for provisions thereof giving holders thereof the right to require such Person
to repurchase or redeem such Capital Stock upon the occurrence of any "asset
sale" or "change of control" occurring prior to the Stated Maturity of the Notes
shall not constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are not more favorable to
the holders of such Capital Stock than the provisions described under "Change of
Control" and under "Certain Covenants--Limitations on Sales of Assets" and if
such provisions do not permit payment to the holders of such Capital Stock prior
to the Holders of the Notes.
"Equity Offering" means an offering or issuance for cash by the Company of
its shares of Capital Stock (other than Disqualified Stock).
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy. All determinations in the covenants of Fair Market
Value shall be made by the Board of Directors of the Company and shall be
evidenced by a resolution of such Board of Directors set forth in an Officers'
Certificate delivered to the Trustee, upon which the Trustee may conclusively
rely.
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"GAAP" means generally accepted accounting principles in the United States
of America, as in effect as of the date of the Indenture, including those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Holder" means the Person or Persons in whose name a Note is registered on
the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable for
(including as a result of an Asset Acquisition); PROVIDED, HOWEVER, that any
Indebtedness or Capital Stock of a Person existing at the time such person
becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition
or otherwise) shall be deemed to be Incurred by such Restricted Subsidiary at
the time it becomes a Restricted Subsidiary. "Incurrence" shall have a
correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal and premium (if any) in
respect of Indebtedness of such Person for borrowed money; (ii) the principal
and premium (if any) in respect of obligations of such Person evidenced by
bonds, the Notes, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) other than
obligations with respect to letters of credit securing obligations entered into
in the ordinary course of business of such Person to the extent such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed not later than the 30th day following payment on the letter of
credit; (iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except trade payables), which purchase
price is due more than six months after the date of placing such property in
service or taking delivery and title thereto or the completion of such services;
(v) all Capitalized Lease Obligations and all Attributable Indebtedness of such
Person; (vi) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of (A) any Disqualified Stock or, (B)
with respect to any Subsidiary, any Preferred Stock (but excluding, in each
case, any accrued dividends); (vi) all Indebtedness of other Persons secured by
a Lien on any asset of such Person, whether or not such Indebtedness is assumed
by such Person; PROVIDED, HOWEVER, that the amount of such Indebtedness shall be
the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other Persons;
(viii) all Indebtedness of other Persons to the extent Guaranteed by such
Person; and (ix) to the extent not otherwise included in this definition, net
obligations of such Person under Interest Rate Agreements (the amount of any
such obligations to be equal at any time to the termination value of such
agreement or arrangement giving rise to such obligation that would be payable by
such Person at such time). The amount of Indebtedness of any Person at any date
shall be the outstanding balance without duplication at such date of all
unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations at such date, provided that the amount outstanding at any time of
any Indebtedness issued with original issue discount is the full amount of such
Indebtedness
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less the remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in accordance with GAAP.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or by payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by, such Person. For purposes
of the "Limitation on Restricted Payments" covenant, (i) "Investment" shall
include the portion (proportionate to the Company' equity interest in a
Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the
fair market value of the net assets of such Restricted Subsidiary of the Company
at the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive)
equal to (x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time that such Subsidiary is so redesignated a Restricted
Subsidiary; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors of
the Company.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash or Cash Equivalent
payments received (including any cash or Cash Equivalent payments received by
way of deferred payment of principal pursuant to a note or installment
receivable or otherwise, but only as and when received, but excluding any other
consideration received in the form of assumption by the acquiring person of
Indebtedness or other obligations relating to the properties or assets that are
the subject of such Asset Disposition or received in any other noncash form)
therefrom, in each case net of (i) all legal, accounting, investment banking,
title and recording tax expenses, commission and other fees and expenses
incurred, and all Federal, state, provincial, foreign and local taxes required
to be paid or accrued as a liability under GAAP, as a consequence of such Asset
Disposition (ii) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of any
Lien upon such assets, or which must by its terms, or in order to obtain a
necessary consent to such Asset Disposition, or by applicable law be repaid out
of the proceeds from such Asset Disposition, (iii) all distributions and other
payments required to be made to minority interest holders in Subsidiaries or
joint ventures as a result of such Asset Disposition, (iv) the deduction of
appropriate amounts to be provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the assets disposed of in
such Asset Disposition and retained by the Company or any Restricted Subsidiary
after such Asset Disposition and (v) employee severance and termination costs.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
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"Officer" means the Chairman of the Board of Directors, the President, any
Vice President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Holders" means (i) the Class B Permitted Holders (as such term is
defined in the Company's Amended and Restated Certificate of Incorporation in
effect on the Issue Date); (ii) any officer or other member of management
employed by the Company or any Subsidiary as of the Issue Date; (iii) without
duplication of (i), family members or relatives of the persons described in
clauses (i) and (ii); (iv) any trusts created for the sole benefit of the
persons described in clause (i), (ii) or (iii); or (v) in the event of the
incompetence or death of any of the persons described in clauses (i) or (ii),
such person's estate, executor, administrator, committee or other personal
representatives or beneficiaries.
"Permitted Investment" means an investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person which will, upon the
making of such Investment, become a Restricted Subsidiary; PROVIDED, HOWEVER,
that the primary business of such Restricted Subsidiary is a Related Business;
(ii) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Company or a Restricted Subsidiary;
PROVIDED, HOWEVER, that such Person's primary business is a Related Business;
(iii) cash and Cash Equivalents; (iv) receivables owing to the Company or any
Restricted Subsidiary created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms; PROVIDED,
HOWEVER,that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary;
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; or (viii) Investments made in
connection with any Asset Disposition permitted under the covenant "Certain
Covenants--Limitation on Asset Sales."
"Permitted Liens" means, with respect to any Person, (a) pledges or deposits
by such Person under workmen's compensation laws, unemployment insurance laws or
similar legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to which such
Person is a party, or deposits to secure public or statutory obligations of such
Person or deposits or cash or United States government bonds to secure surety or
appeal bonds to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each case
Incurred in the ordinary course of business; (b) Liens imposed by law, including
landlords' and carriers', warehousemen's, suppliers', materialmen's, repairmen's
and mechanics' Liens, in each case for sums not yet due or being contested in
good faith by appropriate proceedings; or other Liens arising out of judgments
or awards against such Person with respect to which such Person shall there be
proceeding with an appeal or other proceedings for review; (c) Liens for taxes,
assessments or other governmental charges not yet subject to penalties for
non-payment or which are being contested in good faith by appropriate
proceedings provided appropriate reserves have been taken on the books of the
Company in accordance with GAAP; (d) Liens in favor of issuers of surety bonds
or letters of credit issued pursuant to the request of and for the account of
such Person in the ordinary course of its business; PROVIDED, HOWEVER, that such
letters of credit do not constitute Indebtedness; (e) encumbrances, easements,
rights-of-way, minor defects or irregularities in title or reservations of, or
rights of others for, licenses, rights of way, sewers, electric lines telegraph
and telephone lines and other similar purposes, or zoning or other restrictions
as to the use of real properties or liens incidental to the conduct of the
business of such Person or to the ownership of its
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properties which do not in the aggregate materially adversely affect the value
of said properties or materially impair their use in the operation of the
business of such Person; (f) Liens securing an Interest Rate Agreement so long
as the related Indebtedness is, and is permitted to be under the Indenture,
secured by a Lien on the same property securing the Interest Rate Agreement; (g)
leases and subleases of real property which do not materially interfere with the
ordinary conduct of the business of the Company or any of its Restricted
Subsidiaries; (h) judgment Liens not giving rise to an Event of Default so long
as such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have been
finally terminated or the period within which such proceedings may be initiated
shall not have expired; (i) Liens for the purpose of securing the payment (or
the refinancing of the payment) of all or a part of Purchase Money Indebtedness
relating to assets or property acquired or constructed in the ordinary course of
business provided that (x) the aggregate principal amount of Indebtedness
secured by such Liens shall not exceed the cost of the assets or property so
acquired or constructed and (y) such Liens shall not encumber any other assets
or property of the Company or any Restricted Subsidiary other than such assets
or property and assets affixed or appurtenant thereto and (z) such Purchase
Money Indebtedness was incurred pursuant to "Certain Covenants-- Limitation on
Indebtedness;" (j) Liens arising solely by virtue of any statutory or common law
provision relating to banker's Liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided that (x) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by the Company in excess of those set forth by regulations promulgated by
the Federal Reserve Board, and (y) such deposit account is not intended by the
Company or any Restricted Subsidiary to provide collateral to the depository
institution; (k) Liens arising from Uniform Commercial Code financing statement
filings regarding operating leases entered into by the Company and its
Restricted Subsidiaries in the ordinary course of business; (l) Liens existing
on the Issue Date; (including Liens under the Revolving Credit Facility whether
or not there is any indebtedness outstanding thereunder on the Issue Date after
giving effect to the repayment of Indebtedness on such date) and any additional
Liens created under the terms of the agreements relating to such Liens existing
on the Issue Date; (m) Liens on property or shares of stock of a Person at the
time such Person becomes a Subsidiary; PROVIDED, HOWEVER, that such Liens are
not created, incurred or assumed in connection with, or in contemplation of,
such other Person becoming a Subsidiary, PROVIDED, FURTHER, HOWEVER, that any
such Lien may not extend to any other property owned by the Company or any
Restricted Subsidiary; (n) Liens on property at the time the Company or a
Subsidiary acquired the property, including any acquisition by means of a merger
or consolidation with or into the Company or any Restricted Subsidiary;
PROVIDED, HOWEVER, that such Liens are not created, incurred or assumed in
connection with, or in contemplation of, such acquisition; PROVIDED, FURTHER,
HOWEVER, that such Liens may not extend to any other property owned by the
Company or any Restricted Subsidiary; (o) Liens securing Indebtedness or other
obligations of a Subsidiary owing to the Company or a Wholly Owned Subsidiary;
(p) Liens securing Refinancing Indebtedness incurred to Refinance Indebtedness
that was previously so secured, PROVIDED that any such Lien is limited to all or
part of the same property or assets (plus improvements, accessions, proceeds or
dividends or distributions in respect thereof) that secured (or, under the
written arrangements under which the original Lien arose, could secure) the
obligations to which such Liens relate; and (q) Liens securing Indebtedness
incurred pursuant to paragraph (b) of the covenant "Limitation on Indebtedness"
so long as such Indebtedness is permitted to be incurred thereunder.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision hereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
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A "Public Market" exists at any time with respect to the common stock of the
Company if (i) the common stock of the Company is then registered with the
Commission pursuant to Section 12(b) or 12(g) of the Exchange Act and traded
either on a national securities exchange or in the Nasdaq National Market and
(ii) at least 15% of the total issued and outstanding shares of common stock of
the Company has been distributed prior to such time by means of an effective
registration statement under the Securities Act.
"Purchase Money Indebtedness" of any person means any Indebtedness of such
person to any seller or other person incurred to finance the acquisition or
construction (including in the case of a Capitalized Lease Obligation, the
lease) of any business or real or personal tangible property (or, in each case,
any interest therein) acquired or constructed after the Issue Date which, in the
reasonable good faith judgment of the Board of Directors of the Company, is
related to a Related Business of the Company and which is incurred concurrently
with, or within 180 days of, such acquisition or the completion of such
construction and, if secured, is secured only by the assets so financed.
"Refinancing Indebtedness" means Indebtedness that is Incurred in exchange
for or to refund, refinance, replace, renew, repay or extend (including pursuant
to any defeasance or discharge mechanism) (collectively, "refinance",
"refinances," and "refinanced" shall have a correlative meaning) any
Indebtedness existing on the date of the Indenture or Incurred in compliance
with the Indenture (including Indebtedness of the Company that refinances
Indebtedness of any Restricted Subsidiary and Indebtedness of any Restricted
Subsidiary that refinances Indebtedness of another Restricted Subsidiary)
including Indebtedness that refinances Refinancing Indebtedness; PROVIDED,
HOWEVER, that (i) the Refinancing Indebtedness has a Stated Maturity no earlier
than the Stated Maturity of the Indebtedness being refinanced, (ii) the
Refinancing Indebtedness has a Weighted Average Life to Maturity at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being refinanced, and
(iii) such Refinancing Indebtedness is Incurred in an aggregate principal amount
(or if issued with original issue discount, an aggregate issue price) that is
equal to or less than the sum of the aggregate principal amount (or if issued
with original issue discount, the aggregate accreted value) then outstanding
(plus fees and expenses, including any premium and defeasance costs) of the
Indebtedness being refinanced.
"Related Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of the Company and its
Restricted Subsidiaries on the Issue Date.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Revolving Credit Facility" means the Revolving Credit Agreement, dated as
of the Issue Date, by and among the Company, the Subsidiary Guarantors and the
lenders named therein, as in effect on the Issue Date.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Subsidiary leases it
from such Person.
"Senior Credit Facilities" means secured Indebtedness for borrowed money
Incurred under agreements with financial institutions.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X
promulgated by the Commission.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
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"Subordinated Obligation" means any Indebtedness of the Company or any
Restricted Subsidiary (whether outstanding on the Issue Date or thereafter
Incurred) which expressly is subordinate or junior in right of payment to the
Notes or the Subsidiary Guarantee of such Restricted Subsidiary pursuant to a
written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person. Unless otherwise specified herein, each reference to a Subsidiary shall
refer to a Subsidiary of the Company.
"Subsidiary Guarantee" means, individually, any Guarantee of payment of the
Notes by a Subsidiary Guarantor pursuant to the terms of the Indenture, and,
collectively, all such Guarantees. Each such Subsidiary Guarantee will be in the
form prescribed in the Indenture.
"Subsidiary Guarantor" means any Restricted Subsidiary created or acquired
by the Company which Guarantees Indebtedness of the Company under the Notes.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors of the Company in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company
may designate any Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless
such Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; PROVIDED, HOWEVER, that either (A) the
Subsidiary to be so designated has total consolidated assets of $10,000 or less
or (B) if such Subsidiary has consolidated assets greater than $10,000, then the
Restricted Payments to or with respect to such Subsidiary would be permitted
under "Certain Covenants-- Limitation on Restricted Payments." The Board of
Directors of the Company may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect
to such designation (x) the Company could Incur $1.00 of additional Indebtedness
pursuant to paragraph (a) under "Certain Covenants--Limitation on Indebtedness"
and (y) no Default shall have occurred and be continuing. Any such designation
by the Board of Directors of the Company shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the board resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, by (b)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company, all
of the Capital Stock of which (other than directors qualifying shares and shares
that, under applicable law, are required to be held by third persons) is owned
by the Company or another Wholly Owned Subsidiary.
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BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in the
form of one or more registered New Notes in global form without coupons (each a
"Global Note"). Each Global Note will be deposited on the date of the closing of
the exchange of the New Notes for Existing Notes (the "Exchange Offer Closing
Date") with, or on behalf of, The Depository Trust Company ("DTC") and
registered in the name of Cede & Co., as nominee of DTC, or will remain in the
custody of the Trustee.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a member of the Federal
Reserve system, (iii) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (iv) a "Clearing Agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Holders who are not Participants may
beneficially own securities held by or on behalf of the Depository only through
Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of the Global Notes, DTC will credit the accounts of Participants with
an interest in the Global Note and (ii) ownership of the New Notes will be shown
on, and the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the interest of Participants), the
Participants and the Indirect Participants. The laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer New Notes or to pledge the New Notes as
collateral will be limited to such extent.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the New Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have New Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated securities (the "Certificated Securities"), and will
not be considered the owners or Holders thereof under the Indenture for any
purpose, including with respect to the giving of any directions, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in New Notes represented by a Global Note to pledge or
transfer such interest to persons or entities that do not participate in DTC's
system or to otherwise take action with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if such holder is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a holder of Notes under the
Indenture or such Global Note. The Company understands that under existing
industry practice, in the event the Company requests any action of holders of
Notes or a holder that is an owner of a beneficial interest in a Global Note
desires to take any action that DTC, as the holder of such Global Note, is
entitled to take, DTC would authorize the Participants to take such action and
the Participant would authorize holders owning through such Participants to take
such action or would otherwise act upon the instruction of such holders. Neither
the Company nor the Trustee will have any responsibility or liability for any
aspect of the
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records relating to or payments made on account of Notes by DTC, or for
maintaining, supervising or reviewing any records of DTC relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest on,
any New Notes represented by a Global Note registered in the name of DTC or its
nominee on the applicable record date will be payable by the Trustee to or at
the direction of DTC or its nominee in its capacity as the registered holder of
the Global Note representing such New Notes under the Indenture. Under the terms
of the Indenture, the Company and the Trustee may treat the persons in whose
names the New Notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payment and for any and all other
purposes whatsoever. Consequently, neither the Issuer nor the Trustee has or
will have any responsibility or liability for the payment of such amounts to
beneficial owners of interests in the Global Note (including principal, premium,
if any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the Global Note as shown
on the records of DTC. Payments by the Participants and the Indirect
Participants to the beneficial owners of interests in the Global Note will be
governed by standing instructions and customary practice and will be the
responsibility of the Participants or the Indirect Participants and DTC.
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and the Company is unable to locate a
qualified successor within 90 days, (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of New Notes in
definitive form under the Indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by DTC of its Global Notes, Certificated
Securities will be issued to each person that DTC identifies as the beneficial
owner of the New Notes represented by the Global Notes. Upon any such issuance,
the Trustee is required to register such Certificated Securities in the name of
such person or persons (or the nominee of any thereof), and cause the same to be
delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related New Notes and each such person may conclusively rely on, and shall
be protected in relying on, instructions from DTC for all purposes (including
with respect to the registration and delivery, and the respective principal
amounts, of the New Notes to be issued).
DESCRIPTION OF EXISTING NOTES
On March 17, 1998, the Company issued and sold $174.0 million aggregate
principal amount of Existing Notes. The form and terms of the Existing Notes are
the same as the form and terms of the New Notes except that the Existing Notes
are not registered under the Securities Act and bear legends restricting the
transfer thereof. See "Description of the New Notes."
In connection with the issuance of the Existing Notes, the Company, the
Subsidiary Guarantors and the Initial Purchasers entered into the Registration
Rights Agreement to provide for, among other things, the Exchange Offer. The
Registration Rights Agreement also obligates the Company and the Subsidiary
Guarantors under certain circumstances to file with the Commission a shelf
registration statement. The Registration Rights Agreement further provides that
if the Company fails to complete the Exchange Offer or have a shelf registration
statement become effective under the Securities Act within and for certain
specified time periods, the Company would become obligated to pay to the holders
of affected Existing Notes liquidated damages in an amount equal to $0.192 per
week per $1,000 principal amount (or Accreted Value as the case may be) of the
Notes ("Liquidated Damages") constituting outstanding Transfer Restricted
Securities held by such holder until the applicable Registration Statement is
filed, the Exchange Offer Registration Statement is declared effective and the
Exchange Offer is consummated or the Shelf Registration Statement is declared
effective or again becomes effective, as the case may be. All
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accrued Liquidated Damages shall be paid to holders in the same manner as
interest payments on the Notes on semi-annual payment dates which correspond to
interest payment dates for the Notes. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease. Except as described
under "Plan of Distribution," completion of the Exchange Offer with respect to
tendered Existing Notes on or before September 13, 1998 will satisfy the
Company's obligations under the Registration Rights Agreement with respect to
the Exchange Offer. Following completion of the Exchange Offer, the Company will
be obligated to file and cause to become effective under the Securities Act a
shelf registration statement only if (i) because of any change in law or
applicable interpretations thereof by the Commission's staff the Company and the
Subsidiary Guarantors are not permitted to effect the Exchange Offer, (ii) any
Existing Notes validly tendered pursuant to the Exchange Offer and not withdrawn
are not exchanged for New Notes within 180 days after the Issue Date, (iii) any
Initial Purchaser so requests with respect to Existing Notes not eligible to be
exchanged for New Notes in the Exchange Offer pursuant to the terms of the
Registration Rights Agreement and held by it following the consummation of the
Exchange Offer, (iv) any applicable law or interpretations do not permit any
holder of Existing Notes to participate in the Exchange Offer, (v) any holder
that participates in the Exchange Offer does not receive freely transferrable
New Notes in exchange for tendered Existing Notes, or (vi) the Company and the
Subsidiary Guarantors so elect.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of certain of the anticipated Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the final, temporary and proposed regulations promulgated thereunder
and administrative rulings and judicial decisions now in effect, all of which
are subject to change (possibly with retroactive effect) or different
interpretations. This summary does not purport to deal with all aspects of
Federal income taxation that may be relevant to a particular investor, nor any
tax consequences arising under the laws of any state, locality, or foreign
jurisdiction, and it is not intended to be applicable to all categories of
investors, some of which, such as dealers in securities, banks, insurance
companies, persons whose functional currency is not the United States dollar,
tax-exempt organizations, persons that hold Notes as part of a straddle,
shortsale or conversion transaction, or holders subject to the alternative
minimum tax, may be subject to special rules. In addition, the summary is
limited to persons that will hold the Notes as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Code. As
used herein, a "U.S. Holder" of a Note means a holder that is (i) a citizen or
resident of the United States, (ii) a corporation or partnership created or
organized in or under the laws of the United States or any political subdivision
thereof, (iii) an estate the income of which is subject to U.S. Federal income
taxation regardless of its source or (iv) a trust which is subject to the
supervision of a court within the United States and the control of a U.S. person
as described in Section 7701(a)(30) of the Code. A "Non-U.S. Holder" is a holder
that is not a U.S. Holder. ALL INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISERS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
OWNERSHIP AND DISPOSITION OF NOTES.
CONSEQUENCES TO U.S. HOLDERS
ORIGINAL ISSUE DISCOUNT
The Notes will have original issue discount for Federal income tax purposes.
The amount of original issue discount ("OID") on a Note is the excess of its
"stated redemption price at maturity" (the sum of all payments to be made on the
Note, whether denominated as interest or principal) over its "issue price." The
"issue price" of each Note will be the initial offering price at which a
substantial amount of Notes are sold. Each U.S. Holder (whether a cash or
accrual method taxpayer) will be required to include such OID in income on an
economic accrual basis (using the constant yield method of accrual described in
Section 1272(a) of the Code and the Treasury regulations promulgated thereunder)
in advance of the receipt of some or all of the related cash payments. A U.S.
Holder will not be required to recognize any income upon the receipt of interest
payments on the Notes.
The amount of OID includable in income by the initial U.S. Holder of a Note
is the sum of the "daily portions" of OID with respect to the Note for each day
during the taxable year or portion of the taxable year on which such holder held
such Note ("accrued OID"). The daily portion is determined by allocating to each
day in any accrual period for such Note a pro rata portion of the OID allocable
to that accrual period. The amount of OID allocable to any accrual period other
than the initial short accrual period (if any) and the final accrual period is
an amount equal to the product of the Note's "adjusted issue price" at the
beginning of such accrual period and its yield to maturity (determined on the
basis of compounding at the close of each accrual period and properly adjusted
for the length of the accrual period). The amount of OID allocable to the final
accrual period is the difference between the amount payable at maturity and the
adjusted issue price of the Note at the beginning of the final accrual period.
The adjusted issue price of the Note at the start of any accrual period is equal
to its issue price increased by the accrued OID for each prior accrual period
and reduced by any prior payments with respect to such Note.
The tax basis of a Note in the hands of the U.S. Holder will be increased by
the amount of OID, if any, on the Note that is included in the holder's income
pursuant to these rules, and will be decreased by the amount of any payments
made with respect to the Note (including the payment of stated interest).
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U.S. Holders that acquire Notes after their original issuance will be
required to determine for themselves whether, by reason of the rules described
below, they are eligible to report a reduced amount of OID for Federal income
tax purposes.
ACQUISITION PREMIUM
A subsequent U.S. Holder of a Note is generally subject to rules for
accruing OID described above. However, if the U.S. Holder's purchase price for
the Note (i) exceeds the "adjusted issue price" (the sum of the issue price of
the Note and the aggregate amount of the OID includible in the gross income of
all holders for periods before the acquisition of the Note by such holder
reduced by any payments previously made on the Note), and (ii) is less than the
stated redemption price at maturity (reduced by any payments made on the Note),
the excess (referred to as "acquisition premium") is offset ratably against the
amount of OID otherwise includible in such holder's taxable income (i.e., such
holder may reduce the daily portions of OID by a fraction, the numerator of
which is the excess of such holder's purchase price for the Note over the
adjusted issue price, and the denominator of which is the excess of the sum of
all amounts payable on the Note after the purchase date over the Note's adjusted
issue price). If a subsequent U.S. Holder's tax basis in a Note immediately
after such holder's acquisition of the Note were to exceed its stated redemption
price at maturity (reduced as described above), such holder would not be
required to include any OID in income.
MARKET DISCOUNT
If a subsequent U.S. Holder purchases a Note for an amount that is less than
its "revised issue price" (the sum of the issue price of the Note and the
aggregate amount of OID includible in the gross income of all holders for
periods before the acquisition of the Note), the amount of the difference will
be treated as "market discount" for Federal income tax purposes, unless such
difference is less than a specified DE MINIMIS amount. Under the market discount
rules, a U.S. Holder will be required to treat any principal payment on, or any
gain on the sale, exchange, retirement or other disposition of, a Note as
ordinary income to the extent of the market discount which has not previously
been included in income and is treated as having accrued on such a Note at the
time of such payment or disposition. In addition, the U.S. Holder may be
required to defer, until the maturity of the Note or its earlier disposition in
a taxable transaction, the deduction of all or a portion of the interest expense
on any indebtedness incurred or continued to purchase or carry such Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the U.S.
Holder elects to accrue on a constant interest method. A U.S. Holder of a Note
may elect to include market discount in income currently as it accrues (on
either a ratable or constant interest method), in which case the rule described
above regarding deferral of interest deductions will not apply. This election to
include market discount in income currently, once made, applies to all market
discount obligations acquired on or after the first taxable year to which the
election applies and may not be revoked without the consent of the Internal
Revenue Service (the "IRS").
SALE, EXCHANGE AND RETIREMENT
A U.S. Holder's tax basis in a Note will, in general, be the U.S. Holder's
cost therefor, increased by any accrued OID or market discount previously
included in income by the holder and reduced by any previous payments with
respect to a Note. Upon the sale, exchange or retirement of a Note, a U.S.
Holder will recognize gain or loss equal to the difference between the amount
realized upon the sale, exchange or retirement and the adjusted tax basis of the
Note. Except as described above with respect to market discount, such gain or
loss will be capital gain or loss. For U.S. Holders other than individuals,
capital gain or loss will be long-term capital gain or loss if the holding
period for the Notes is more than one year. For U.S. Holders that are
individuals, the maximum tax rate for such holders on long-term capital gain
will be 20% for most capital assets (including the Notes) held for more than 18
months. For individuals holding
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Notes for more than one year but not more than 18 months, the maximum tax rate
on capital gain will be 28%. Capital gain or loss will be short-term if the Note
is held for one year or less. The deductibility of capital losses sustained with
respect to the Notes is subject to limitations.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company is required to report the amount of OID accrued on Notes held of
record by persons other than corporations and other exempt holders, which may be
based on accrual periods other than those chosen by the holder. In addition,
certain information reporting requirements may apply to the proceeds of sale of
a Note made to U.S. Holders other than certain exempt recipients (such as
corporations). A 31% backup withholding tax will apply to such payments if the
holder fails to provide a taxpayer identification number or certification of
foreign or other exempt status or fails to report in full dividend and interest
income.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such U.S. Holder's Federal income tax liability
provided the required information is furnished to the IRS.
TAXATION OF HOLDERS ON EXCHANGE
The exchange of a Note for an Exchange Note will not be a taxable, for
Federal income tax purposes, event to the holder of a Note, and a holder will
not recognize any taxable gain or loss as a result of such an exchange.
Accordingly, a holder will have the same adjusted basis and holding period in an
Exchange Note as it had in a Note immediately before the exchange. Further, the
Federal income tax consequences of ownership and disposition of any Exchange
Note will be the same as the tax consequences of ownership and disposition of a
Note.
CONSEQUENCES TO NON-U.S. HOLDERS
Under present U.S. Federal income and estate tax law, and subject to the
discussion below concerning backup withholding:
(a) no withholding of U.S. Federal income tax will be required with
respect to the payment by the Company or any Paying Agent of principal or
interest (which for purposes of this discussion includes OID) on a Note
owned by a Non-U.S. Holder, provided (i) that the beneficial owner does not
actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote within the
meaning of Section 871(h)(3) of the Code and the Treasury regulations
promulgated thereunder, (ii) the beneficial owner is not a controlled
foreign corporation that is related to the Company through stock ownership,
(iii) the beneficial owner is not a bank whose receipt of interest on a Note
is described in Section 881(c)(3)(A) of the Code and (iv) the beneficial
owner satisfies the statement requirement (described generally below) set
forth in Section 871(h)(5)(A) of the Code;
(b) no withholding of U.S. Federal income tax will be required with
respect to any gain or income realized by a Non-U.S. Holder upon the sale,
exchange or retirement of a Note; and
(c) a Note beneficially owned by an individual who at the time of death
is a Non-U.S. Holder will not be subject to U.S. Federal estate tax as a
result of such individual's death, provided that such individual does not
actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the company entitled to vote within the
meaning of Section 871 (h) (3) of the Code and provided that the interest
payments with respect to such Note would not have been, if received at the
time of such individual's death, effectively connected with the conduct of a
U.S. trade or business by such individual.
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To satisfy the requirement referred to in (a) (iv) above, the beneficial
owner of such Note, or a financial institution holding the Note on behalf of
such owner, must provide, in accordance with specified procedures, a paying
agent of the Company with a statement to the effect that the beneficial owner is
not a U.S. person. Pursuant to current temporary Treasury regulations, these
requirements will be met if (1) the beneficial owner provides his name and
address, and certifies, under penalties of perjury, that he is not a U.S. person
(which certification may be made on an IRS Form W-8 (or successor form)) or (2)
a financial institution holding the Note on behalf of the beneficial owner
certifies, under penalties of perjury, that such statement has been received by
it and furnishes a paying agent with a copy thereof. Under recently finalized
Treasury regulations (the "Final Regulations"), the statement referred to in (a)
(iv) above may also be satisfied with other documentary evidence for amounts
paid after December 31, 1999 with respect to an offshore account or through
certain foreign intermediaries.
If a Non-U.S. Holder cannot satisfy the requirements of the "portfolio
interest" exception described in (a) above, payments of premium, if any, and
interest (including OID) made to such Non-U.S. Holder will be subject to a 30%
withholding tax unless the beneficial owner of the Note provides the Company or
its paying agent, as the case may be, with a properly executed (i) IRS Form 1001
(or successor form) claiming an exemption from withholding under the benefit of
a tax treaty or (2) IRS Form 4224 (or successor form) stating that interest paid
on the Note is not subject to withholding tax because it is effectively
connected with the beneficial owner's conduct of a trade or business in the
United States. Under the Final Regulations, beginning after December 31, 1998,
Non-U.S. Holders will generally be required to provide IRS Form W-8 in lieu of
IRS Form 1001 and IRS Form 4224, although alternative documentation may be
applicable in certain situations.
If a Non-U.S. Holder is engaged in a trade or business in the United States
and premium, if any, or interest (including OID) on the Note is effectively
connected with the conduct of such trade or business, the Non-U.S. Holder,
although exempt from the withholding tax discussed above, will be subject to
U.S. Federal income tax on such interest and OID on a net income basis in the
same manner as if it were a U.S. Holder. In addition, if such holder is a
foreign corporation, it may be subject to a branch profits tax equal to 30% of
its effectively connected earnings and profits for the taxable year, subject to
adjustments. For this purpose, such premium, if any, and interest (including
OID) on a Note will be included in such foreign corporation's earnings and
profits.
Any gain or income realized upon the sale, exchange or retirement of a Note
generally will not be subject to U.S. Federal income tax unless (i) such gain or
income is effectively connected with the conduct of a trade or business in the
United States of the Non-U.S. Holder, or (ii) in the case of a Non-U.S. Holder
who is an individual, such individual is present in the United States for 183
days or more in the taxable year of such sale, exchange or retirement, and
certain other conditions are met.
No information reporting or backup withholding will be required with respect
to payments made by the Company or any paying agent to Non-U-S- Holders if a
statement described in (a) (iv) under "Non-U.S. Holders" has been received and
the payor does not have actual knowledge that the beneficial owner is a U.S.
person.
In addition, backup withholding and information reporting will not apply if
payments of the principal, interest, OID or premium on a Note are paid or
collected by a foreign office of a custodian, nominee or other foreign agent on
behalf of the beneficial owner of such Note, or if a foreign office of a broker
(as defined in applicable Treasury regulations) pays the proceeds of the sale of
a Note to the owner thereof. If, however, such nominee, custodian, agent or
broker is, for U.S. Federal income tax purposes, a U.S. Person, a controlled
foreign corporation or a foreign person that derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the United
States, or, after December 31, 1999, if such nominee, custodian, agent or broker
is a foreign partnership, in which one or more U.S. persons, in the aggregate,
own more than 50% of the income or capital interests in the partnership or if
the partnership is engaged in a trade or business in the United States, such
payments will not be subject to
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backup withholding but will be subject to information reporting, unless (1) such
custodian, nominee, agent or broker has documentary evidence in its records that
the beneficial owner is not a U.S. person and certain other conditions are met
or (2) the beneficial owner otherwise establishes an exemption.
Payments of principal, interest, OID and premium on a Note paid to the
beneficial owner of a Note by a United States office of a custodian, nominee or
agent, or the payment by the United States office of a broker of the proceeds of
sale of a Note, will be subject to both backup withholding and information
reporting unless the beneficial owner provides the statement referred to in (a)
(iv) above and the payor does not have actual knowledge that the beneficial
owner is a U.S. person or otherwise establishes an exemption.
As mentioned above, any amounts withheld under the backup withholding rules
will be allowed as a refund or a credit against such holder's U.S. federal
income tax liability provided the required information is furnished to the IRS.
The exchange of a Note for an Exchange Note will not be a taxable event for
U.S. Federal income tax purposes to a Non-U.S. Holder. See "Consequences to U.S.
Holders--Taxation of Holders on Exchange."
CONSEQUENCES TO THE COMPANY
Although OID is ordinarily deductible in the same manner as interest, the
ability of the Company to deduct OID, for Federal income tax purposes, as it
accrues on the Notes will depend upon the application of certain provisions of
the Code that limit the deductibility of interest on "applicable high yield
discount obligations." In general, any debt instrument that has a term of more
than five years, a yield that exceeds the "applicable Federal rate" (as defined
in Section 1274(d) of the Code), by five or more percentage points and that has
"significant original issue discount" will be treated as an "applicable high
yield discount obligation." An obligation has "significant original issue
discount " if the amount includible in gross income of a holder during the first
five years of the term of the obligation exceeds the sum of (i) the aggregate
amount of interest paid in cash during such five-year period, assuming for this
purpose that payments are made on the last date permitted under the debt
instrument, and (ii) the product of the issue price of the obligation times its
yield to maturity.
In the case of any debt instrument that constitutes an "applicable high
yield discount obligation," the issuer is permitted to deduct OID, for Federal
income tax purposes, only as it is paid in cash and, to the extent that the
yield on such obligation exceeds the applicable Federal rate by more than six
percentage points, no deduction will be allowed for the portion of OID that
represents such excess yield.
Based on the terms of the Notes, the Company believes that the "applicable
high yield discount obligation" provisions of the Code will apply to the Notes.
Accordingly, the Company will not be able to deduct OID that represents excess
yield and will not be able to deduct the remainder of the OID with respect to
the Notes until payments are actually made on the Notes in cash.
THE FOREGOING SUMMARY OF THE PRINCIPAL FEDERAL INCOME TAX CONSEQUENCES TO
HOLDERS DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO A PARTICULAR HOLDER OF A NOTE IN LIGHT OF HIS PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER OF A NOTE SHOULD CONSULT
SUCH HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF
THE OWNERSHIP AND DISPOSITION OF A NOTE, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OR SUBSEQUENT VERSIONS THEREOF.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act and must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Existing Notes where such Existing Notes were acquired
as a result of market-making activities or other trading activities. The Company
and the Subsidiary Guarantors have agreed that for a period of 180 days after
the Expiration Date, they will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
The Company and the Subsidiary Guarantors will not receive any proceeds from
any sale of New Notes by broker-dealers. New Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Securities Act, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company and the
Subsidiary Guarantors will promptly send additional copies of this Prospectus
and any amendment or supplement to this Prospectus to any broker-dealer that
requests such documents in the Letter of Transmittal. The Company and the
Subsidiary Guarantors have agreed to pay all expenses incident to the Exchange
Offer (including the expenses of one counsel for the holders of the Existing
Notes) other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the Existing Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Notes offered hereby and certain tax matters will be
passed upon for the Company by Paul, Weiss, Rifkind, Wharton & Garrison, New
York, New York.
EXPERTS
The financial statements of the Company and related schedule for the Company
as of December 31, 1997 and 1996 and for the years then ended, the financial
statements of WZVU-FM as of December 31, 1996 and 1995 and for the years 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 the Company and related schedules as of December
31, 1995 and for the year 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
107
<PAGE>
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 Winter 1998. 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, Fourth 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,
(v) American Radio, Spring 1997, (vi) American Radio, Summer 1997, and (vii)
American Radio, Fall 1997.
108
<PAGE>
BIG CITY RADIO, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
BIG CITY RADIO, INC.
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, 1996 and 1997............................................................ F-4
Statements of Operations for the years ended December 31, 1995, 1996 and 1997.............................. F-5
Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997.............................. F-6
Statement of Stockholders' Equity (Deficit)................................................................ F-7
Notes to Financial Statements.............................................................................. F-8
Consolidated Balance Sheets as of December 31, 1997 and March 31, 1998 (unaudited)......................... F-24
Consolidated Statements of Operations for the three month periods ended March 31, 1997 and 1998
(unaudited).............................................................................................. F-25
Consolidated Statements of Cash Flows for the three month periods ended March 31, 1997 and 1998
(unaudited).............................................................................................. F-26
Consolidated Statement of Stockholders' Equity (unaudited)................................................. F-27
Notes to Consolidated Financial Statements (unaudited)..................................................... F-28
WZVU-FM
Independent Auditors' Report............................................................................... F-31
Balance Sheets as of December 31, 1995 and 1996 (audited) and May 31, 1997 (unaudited)..................... F-32
Statements of Operations and Station Deficit for the years ended December 31, 1995 and 1996 (audited), for
the five months ended May 31, 1996 and for the five months ended May 31 1997 (unaudited)................. F-33
Statements of Cash Flows for the years ended December 31, 1995 and 1996 (audited) and for the five months
ended May 31, 1996 and for the five months ended May 31, 1997 (unaudited)................................ F-34
Notes to Financial Statements.............................................................................. F-35
WVVX-FM, INC.
Independent Auditors' Report............................................................................... F-39
Balance Sheets as of December 31, 1996 (audited) and July 31, 1997 (unaudited)............................. F-40
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-41
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-42
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-43
Notes to Financial Statements.............................................................................. F-44
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Big City Radio, Inc.:
We have audited the accompanying consolidated balance sheets of Big City
Radio, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years then ended. In connection with our audits of the
consolidated financial statements, we also have audited Schedule II, Combined
Financial Statement Schedules Valuation and Qualifying Accounts for the years
ended December 31, 1997 and 1996. These consolidated financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Big City
Radio, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Los Angeles, California
March 20, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Big City Radio, Inc.:
We have audited the accompanying statements of operations, stockholders'
deficit and cash flows for the year ended December 31, 1995 of Big City Radio,
Inc. (formerly Odyssey Communications, Inc.). 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Big City
Radio, Inc. for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
Melville, New York
September 19, 1997
Holtz Rubenstein & Co., LLP
Certified Public Accountants
F-3
<PAGE>
BIG CITY RADIO, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................. $ 234,000 $ 80,000
Cash held in escrow (note 3)..................................................... 500,000 --
Accounts receivable, net of allowance of $212,000 and $213,000 in 1996 and 1997,
respectively................................................................... 1,537,000 2,325,000
Prepaid expenses and other current assets........................................ 42,000 252,000
------------- -------------
Total current assets....................................................... 2,313,000 2,657,000
Property and equipment, net (note 4)............................................... 1,477,000 2,679,000
Intangibles, net (note 5).......................................................... 29,230,000 54,115,000
Deferred financing fees............................................................ 473,000 612,000
Other assets....................................................................... 36,000 45,000
Advance to purchase stations (note3)............................................... 5,434,000 --
------------- -------------
Total assets............................................................... $ 38,963,000 $ 60,108,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................................... $ 830,000 $ 1,125,000
Accrued expenses............................................................... 454,000 1,383,000
Other current liabilities...................................................... 735,000 368,000
------------- -------------
Total current liabilities.................................................. 2,019,000 2,876,000
------------- -------------
Notes payable:
Long-term debt (note 6)........................................................ 28,200,000 30,100,000
Notes payable, stockholders (note 7)........................................... 12,544,000 --
Deferred income tax liabilities (notes 2 and 10)................................... -- 2,100,000
Stockholders' equity (deficit):
Preferred stock, $.01 par value.Authorized 20,000,000 shares in 1997; zero
shares issued and outstanding................................................ -- --
Common stock, Class A, $.01 par value.Authorized 2,000 shares and 80,000,000
shares in 1996 and 1997, respectively; issued and outstanding 9,375,520
shares and 5,725,062 shares in 1996 and 1997, respectively................... 94,000 57,000
Common stock, Class B, $.01 par value.Authorized 20,000,000 shares in 1997;
issued and outstanding 8,250,458 shares...................................... -- 83,000
Additional paid-in capital..................................................... 6,395,000 27,024,000
Deficit........................................................................ (10,289,000) (2,132,000)
------------- -------------
(3,800,000) 25,032,000
------------- -------------
Total liabilities and stockholders' equity (deficit)....................... $ 38,963,000 $ 60,108,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BIG CITY RADIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
Gross revenues...................................................... $ 5,655,000 $ 8,567,000 $ 11,731,000
Less commissions and fees......................................... 430,000 623,000 1,271,000
------------- ------------- --------------
Net revenues.................................................. 5,225,000 7,944,000 10,460,000
------------- ------------- --------------
Operating expenses:
Station operating expenses, excluding depreciation and
amortization.................................................... 7,185,000 12,253,000 12,979,000
Corporate, general and administrative expenses.................... 425,000 1,201,000 1,745,000
Employment stock incentives....................................... -- -- 3,863,000
Depreciation and amortization..................................... 798,000 1,388,000 1,931,000
------------- ------------- --------------
Total operating expenses...................................... 8,408,000 14,842,000 20,518,000
------------- ------------- --------------
Operating loss................................................ (3,183,000) (6,898,000) (10,058,000)
------------- ------------- --------------
Other income (expenses):
Gain on sale of stations.......................................... -- 6,608,000 --
Interest expense, net............................................. (842,000) (2,827,000) (4,348,000)
Other, net........................................................ 20,000 19,000 101,000
------------- ------------- --------------
Total other income (expenses)................................. (822,000) 3,800,000 (4,247,000)
------------- ------------- --------------
Loss before provision for income taxes, reinstatement of
deferred income taxes relating to conversion to C
Corporation status and extraordinary loss................... (4,005,000) (3,098,000) (14,305,000)
Income tax benefit (notes 2 and 10)................................. -- -- 1,050,000
Deferred income taxes resulting from conversion to C Corporation
status (note 2)................................................... -- -- (3,350,000)
------------- ------------- --------------
Loss before extraordinary loss................................ (4,005,000) (3,098,000) (16,605,000)
Extraordinary loss on extinguishment of debt, net of income taxes
(note 6)............................................................ -- -- (313,000)
------------- ------------- --------------
Net loss...................................................... $ (4,005,000) $ (3,098,000) $ (16,918,000)
------------- ------------- --------------
------------- ------------- --------------
Basic and diluted loss per share:
Loss before extraordinary item.................................... $ (0.66) $ (0.39) $ (1.74)
Extraordinary item................................................ -- -- (0.03)
------------- ------------- --------------
Net loss...................................................... $ (0.66) $ (0.39) $ (1.77)
------------- ------------- --------------
------------- ------------- --------------
Weighted average shares outstanding................................. 6,088,000 8,024,000 9,539,000
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BIG CITY RADIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................ $ (4,005,000) $ (3,098,000) $ (16,918,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................. 798,000 1,388,000 1,931,000
Deferred income taxes......................................... -- -- 2,100,000
Loss on abandonment........................................... 150,000 -- --
Contributed services.......................................... 20,000 -- --
Gain on sale of stations...................................... -- (6,608,000) --
Employment stock incentives................................... -- -- 3,863,000
Extraordinary loss on extinguishment of debt.................. -- -- 513,000
Changes in operating assets and liabilities, net of
acquisitions:
(Increase) decrease in assets:
Accounts receivable....................................... (429,000) (456,000) (788,000)
Prepaid expenses and other current assets................. (18,000) 30,000 (210,000)
Other assets.............................................. (33,000) 54,000 (9,000)
Increase (decrease) in liabilities:
Accounts payable.......................................... 302,000 458,000 295,000
Accrued expenses.......................................... 257,000 84,000 929,000
Other liabilities......................................... 16,000 700,000 (367,000)
------------- -------------- --------------
Net cash used in operating activities................... (2,942,000) (7,448,000) (8,661,000)
------------- -------------- --------------
Cash flows from investing activities:
Purchase of property and equipment.............................. (333,000) (653,000) (488,000)
Cash paid and advanced for assets of radio stations acquired.... (3,550,000) (38,173,000) (21,967,000)
Cash received for radio stations sold........................... -- 20,025,000 513,000
Net advances to purchase stations............................... -- (5,434,000) --
------------- -------------- --------------
Net cash used in investing activities................... (3,883,000) (24,235,000) (21,942,000)
------------- -------------- --------------
Cash flows from financing activities:
Loans from stockholders......................................... 7,522,000 4,186,000 801,000
Drawdown on credit facility, net of fees paid of $535,000 and
$793,000 in 1996 and 1997, respectively....................... -- 38,865,000 30,007,000
Repayment of existing credit facility........................... -- (11,200,000) (28,900,000)
Repayment of note payable....................................... -- (1,000,000) --
Proceeds from initial public offering........................... -- -- 28,541,000
Capital contributions........................................... 350,000 -- --
Other........................................................... (93,000) -- --
------------- -------------- --------------
Net cash provided by financing activities............... 7,779,000 30,851,000 30,449,000
------------- -------------- --------------
Change in cash and cash equivalents..................... 954,000 (832,000) (154,000)
Cash and cash equivalents at beginning of year.................... 56,000 1,066,000 234,000
Adjustment for duplicate three-month period....................... 56,000 -- --
------------- -------------- --------------
Cash and cash equivalents at end of year.......................... $ 1,066,000 $ 234,000 $ 80,000
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BIG CITY RADIO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------------ ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994....... -- $ -- $ 1,000,000 $ (3,484,000) $ (2,484,000)
Capital contribution............... 6,088,000 61,000 309,000 -- 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....... 6,088,000 61,000 1,309,000 (7,191,000) (5,821,000)
Contribution of stockholders' loans
to equity (note 3)............... 3,287,520 33,000 5,086,000 -- 5,119,000
Net loss........................... -- -- -- (3,098,000) (3,098,000)
------------ ------------- -------------- -------------- --------------
Balance at December 31, 1996....... 9,375,520 94,000 6,395,000 (10,289,000) (3,800,000)
Capital contribution related to
employment incentive............. -- -- 3,713,000 -- 3,713,000
Net loss in the period January 1,
1997 to the date of the change in
tax status, October 1, 1997...... -- -- -- (11,435,000) (11,435,000)
Reinstatement of deferred income
taxes relating to conversion to C
Corporation status (note 2)...... -- -- -- (3,350,000) (3,350,000)
Reclassification of accumulated
deficit to paid-in capital in
connection with the termination
of S Corporation status.......... -- -- (25,074,000) 25,074,000 --
Stock option awards................ -- -- 150,000 -- 150,000
Equity contribution and
reclassification (note 11)....... -- -- 13,345,000 -- 13,345,000
Initial public offering............ 4,600,000 46,000 28,495,000 -- 28,541,000
Net loss in the period following
conversion to C Corporation...... -- -- -- (2,132,000) (2,132,000)
------------ ------------- -------------- -------------- --------------
Balance at December 31, 1997....... 13,975,520 $ 140,000 $ 27,024,000 $ (2,132,000) $ 25,032,000
------------ ------------- -------------- -------------- --------------
------------ ------------- -------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(1) ORGANIZATION AND BUSINESS
Big City Radio, Inc. (formerly Odyssey Communications, Inc.) ("Big City
Radio") was incorporated in Delaware on August 2, 1994 and commenced operations
on January 1, 1995. On May 30, 1996, Big City Radio merged with Q Broadcasting,
Inc. ("Q", and together with Big City Radio, the "Company") with Big City Radio
being the surviving company. Big City Radio 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 Big City Radio and Q was effected utilizing
historical costs. At the date of conversion from S Corporation to C Corporation
(see note 2), the Company formed five wholly owned subsidiaries, Big City Radio
- -- LA, LLC; Big City Radio -- NYC, LLC; Big City Radio -- CHI, LLC; WRKL
Rockland Radio, LLC; and Odyssey Traveling Billboards, Inc.
The Company owns and operates radio broadcasting stations. As of December
31, 1997, 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 four radio properties, WWXY-FM Westchester
County, New York and WRKL-AM Rockland, New York (the "Original New York
Stations") and WWZY-FM Monmouth, New Jersey and WWVY-FM Hampton Bays, New York.
WWXY-FM, WWZY-FM and WWVY-FM are programmed as "New Country Y-107." In the
Chicago area, the Company owns two radio properties, WXXY-FM Highland Park,
Illinois and WYXX-FM Morris, Illinois (programmed as "FM 103.1").
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. In March 1998, the Company successfully
completed the offering of 11.25% Senior Discount Notes (the "Note Offering" see
note 12). The net proceeds of approximately $125,400,000 from this offering were
used to repay approximately $32,800,000 of the Credit Facility (see note 6).
Simultaneously with the completion of the Note Offering, the Company obtained a
revolving credit facility in the amount of $15 million (see note 12). The
Company believes the proceeds from the Note Offering, together with the
available revolving credit facility, will be sufficient to permit it to acquire,
develop and operate new and existing properties through at least December 31,
1998.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
In connection with the merger discussed in note 1, Big City Radio and Q are
deemed to be combined since inception for financial reporting purposes. Big City
Radio 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. Reported periods prior to January
1, 1995, the commencement of Big City Radio operations, reflected the operations
of Q on the basis of a September 30 year-end. The Company previously reported
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. As a result, the financial
statements for the twelve months ended December 31, 1995 include the 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
F-8
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
period are $604,000 and $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.
The accompanying consolidated financial statements include the accounts of
Big City Radio, Inc. and all its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
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.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews long-lived assets 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.
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, 1997.
DEFERRED FINANCING FEES
Deferred finance costs and loan origination fees incurred in connection with
the long-term debt and Senior Discount Notes (see notes 6 and 12) are and will
be amortized over the period of the relevant facility.
REVENUE RECOGNITION
Broadcasting revenue is recognized when commercials are aired. Net revenues
represent gross revenues, less direct fees and commissions paid to independent
advertising agencies.
INCOME TAXES
The Company previously 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 were reported by the individual stockholders and the
Company was not responsible for federal or certain state income taxes.
F-9
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company terminated its S Corporation election effective October 1, 1997.
Accordingly, no provision for income taxes is included in the accompanying
consolidated financial statements for the years ended December 31, 1995 and
1996. The year ended December 31, 1997 reflects a provision for income taxes
comprised of a charge of $3,350,000 relating to the reinstatement of deferred
income taxes resulting from the conversion to C Corporation status and a
deferred tax benefit of $1,050,000 for the period from October 1, 1997 to
December 31, 1997.
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.
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 debt approximates fair value because it
is a floating rate instrument.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration
of credit risk consist primarily of accounts receivable. The Company believes
that concentration of credit risk with respect to accounts receivable, which are
unsecured, are limited due to the Company's ongoing relationship with its
clients. The Company provides for its estimate of uncollectible accounts on a
periodic basis. The Company has not experienced significant losses relating to
accounts receivable. For periods ended December 31, 1995, 1996 and 1997, no
customer accounted for more than 10% of revenues.
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 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.
ADVERTISING
The Company charges advertising costs, as incurred, to expense. Advertising
costs amounted to $320,000, $550,000 and $1,275,000 for the years ended December
31, 1995, 1996 and 1997, respectively.
EARNINGS PER SHARE
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," is effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 replaces Accounting
F-10
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles Board Opinion (APB) No. 15 and simplifies the computation of earnings
per share (EPS) by replacing the presentation of primary EPS with a presentation
of basic EPS. Basic EPS includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution from
securities that could share in the earnings of the Company, similar to fully
diluted EPS under APB No. 15. The statement requires dual presentation of basic
and diluted EPS by entities with complex capital structures. The Company adopted
SFAS No. 128 for the financial statements ended December 31, 1997. Stock options
issued under the Company's 1997 Incentive Stock Plan amounting to 572,500 at
December 31, 1997 were not included in the computation of diluted EPS because to
do so would have been antidilutive.
ACCOUNTING FOR STOCK OPTIONS
Prior to January 1, 1996, the Company accounted for its stock option grants
in accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation," which permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and disclosure for employee stock option grants made in
1995, 1996 and future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123. Accordingly, the adoption of SFAS No. 123 did not have a
material effect on the consolidated financial statements of the Company.
REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement, which establishes standards for reporting and
disclosure of comprehensive income, is effective for interim and annual periods
beginning after December 15, 1997, although earlier adoption is permitted.
Reclassification of financial information for earlier periods presented for
comparative purposes is required under SFAS No. 130. As this statement only
requires additional disclosures in that Company's consolidated financial
statements, its adoption will not have any impact on the Company's consolidated
financial position or results of operations. The Company expects to adopt SFAS
No. 130 effective January 1, 1998.
(3) ACQUISITIONS AND DISPOSITIONS
On August 8, 1997, the Company acquired substantially all of the assets of
WXXY-FM Chicago (formerly WVVX-FM) for a purchase price of $9,500,000 and
WYXX-FM Chicago (formerly WJDK-FM) for a purchase price of $1,100,000. The fair
value of the WXXY-FM and WYXX-FM assets acquired is as follows:
<TABLE>
<CAPTION>
WXXY-FM WYXX-FM
------------ -----------
<S> <C> <C>
Fixed assets, including land........................................ $ 119,000 $ 154,000
FCC broadcast license............................................... 9,381,000 946,000
</TABLE>
F-11
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(3) ACQUISITIONS AND DISPOSITIONS (CONTINUED)
The fair value of the fixed assets and land acquired is determined by
reference to replacement value on an individual-asset basis and comparable
property, respectively. The remaining purchase price is assigned to the FCC
license.
On June 5, 1997, the Company acquired substantially all of the assets of
WWZY-FM Monmouth, New Jersey (formerly WZVU-FM), for a purchase price of
$12,000,000. At that date, the seller's loan payable to the Company in the
amount of $5,434,000 plus accrued interest of $103,000 was paid in full. This
loan payable originated on the date the Company entered into an agreement to
acquire WWZY-FM, November 7, 1996. The loan bore interest at prime rate plus 2%
and was collateralized by substantially all the assets of the seller. The
Company managed the operations of WWZY-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 consolidated financial statements as
have LMA fees of approximately $100,000 and $375,000 for the years ended
December 31, 1996 and 1997, respectively. The fair value of WWZY-FM assets
acquired, exclusive of acquisition costs, is as follows:
<TABLE>
<S> <C>
Fixed assets................................................... $ 833,000
FCC broadcast license.......................................... 11,157,000
Covenant not to compete........................................ 10,000
</TABLE>
The fair value of the fixed assets acquired is determined by reference to
replacement value on an individual-asset basis. The fair value of the covenant
not to compete is determined by reference to the covenant agreement, and the
remaining purchase price is assigned to the FCC license.
LMA fees are reflected in the accompanying consolidated financial statements
as station operating expenses.
On April 1, 1997, the Company acquired substantially all the assets of
WWVY-FM Hampton Bays, New York (formerly WWHB-FM), for a purchase price of
$4,000,000. The Company managed the operations of WWVY-FM for a fee from
December 31, 1996 up to the effective acquisition date under an LMA. Revenue,
programming expenses and other reimbursable expenses pursuant to the LMA have
been included in the accompanying consolidated financial statements as have LMA
fees of $165,000 for the year ended December 31, 1997. Management's estimate of
the fair value of WWVY-FM assets acquired, exclusive of acquisition costs,
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>
The fair value of the fixed assets acquired is determined by reference to
replacement value on an individual-asset basis. The fair value of the consulting
agreement is determined by reference to the agreement, and the remaining
purchase price is assigned to the FCC license.
LMA fees are reflected in the accompanying consolidated financial statements
as station operating expenses.
On May 30, 1996, the Company acquired substantially all of the assets of
KLYY-FM, Arcadia (formerly KMAX-FM), KVYY-FM, Ventura (formerly KAXX-FM),
KSYY-FM, Fallbrook (formerly KBAX-FM) (the "Los Angeles Stations") and KWIZ-FM,
Santa Ana, in a simultaneous purchase and multiparty, tax-free exchange through
the use of a third party serving as a "qualified intermediary." The
F-12
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(3) ACQUISITIONS AND DISPOSITIONS (CONTINUED)
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 6). 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 multiparty tax-free
exchange, Q was merged into Big City Radio (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
Big City Radio 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 Big City Radio, the stockholders contributed
$5,119,000 of loans payable by the Company to equity and received 3,287,520
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
consolidated financial statements from March 26, 1996 as have LMA fees of
approximately $593,000. The acquisitions were recorded using the purchase method
of accounting. The fair value of the Los Angeles Stations' assets acquired,
exclusive of acquisition costs, is as follows:
<TABLE>
<S> <C>
Fixed assets................................................... $ 437,000
FCC broadcast licenses......................................... 26,085,000
Covenant not to compete........................................ 68,000
</TABLE>
The fair value of the fixed assets acquired is determined by reference to
replacement value on an individual-asset basis. The fair value of covenants not
to compete is determined by reference to the covenant agreement, and the
remaining purchase price is assigned to the FCC licenses.
LMA fees are reflected in the accompanying consolidated statements of
operations as station operating expenses.
Effective December 31, 1994, the Company acquired substantially all the
assets of WWXY-FM (formerly WRJX-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 (which was repaid in 1996). The acquisitions were recorded
using the purchase method of accounting. The accompanying consolidated 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>
F-13
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(3) ACQUISITIONS AND DISPOSITIONS (CONTINUED)
The fair value of the fixed assets acquired is determined by reference to
replacement value on an individual-asset basis. The fair value of covenants not
to compete is determined by reference to the covenant agreement, and the
remaining purchase price is assigned to the FCC licenses.
The acquisitions were recorded using the purchase method of accounting. The
results of operations of the acquired businesses are included in the Company's
consolidated financial statements since the respective dates of acquisition.
The following unaudited pro forma results of operations illustrate the
effect of the acquisition of WWZY-FM and WXXY-FM and assumes that the
acquisitions occurred at the beginning of each of the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
<S> <C> <C>
1996 1997
------------- --------------
Net revenues................................................... $ 12,007,000 $ 11,120,000
Income (loss) from continuing operations....................... (4,778,000) (18,700,000)
Pro forma loss per share....................................... (.51) (1.96)
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1997 were as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Land.............................................................. $ 50,000 $ 377,000
Building and improvements......................................... 236,000 561,000
Transmitter equipment............................................. 1,152,000 1,925,000
Furniture and office equipment.................................... 260,000 422,000
Vehicles.......................................................... 163,000 219,000
------------ ------------
1,861,000 3,504,000
Less accumulated depreciation..................................... 384,000 825,000
------------ ------------
$ 1,477,000 $ 2,679,000
------------ ------------
------------ ------------
</TABLE>
Subsequent to December 31, 1995, the Company relocated its WWXY-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
consolidated statement of operations.
(5) INTANGIBLES
Intangibles at December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
FCC broadcast licenses......................................... $ 29,528,000 $ 55,788,000
Covenants not to compete....................................... 668,000 678,000
------------- -------------
30,196,000 56,466,000
Less accumulated amortization.................................. 966,000 2,351,000
------------- -------------
$ 29,230,000 $ 54,115,000
------------- -------------
------------- -------------
</TABLE>
F-14
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(6) LONG-TERM DEBT
On May 30, 1996, the Company entered into a credit agreement (the Old Credit
Facility) with The Chase Manhattan Bank. The Old Credit Facility provided
revolving credit commitments in the form of loans and/or letters of credit in an
aggregate principal amount of $40 million. A significant portion of the debt was
guaranteed by a Principal Stockholder. This facility was subsequently amended in
November 1996, May 1997 and August 1997 to primarily change the available
borrowings.
On December 24, 1997, following the initial public offering of the Company's
stock, the Old Credit Facility was substantially amended to comprise a new $35
million reducing revolving facility (Credit Facility). Outstanding amounts under
the Credit Facility bear interest at a rate based, at the option of the Company,
on the participating bank's prime rate, plus 1.5% to 2.0% or the London
Inter-Bank Borrowing Rate, plus 2.5% to 3.0%, except for guaranteed amounts
which bear interest at 1% less. A Principal Stockholder of the Company has
guaranteed $6 million of the outstanding amounts. As consideration for agreeing
to the Credit Agreement, the Company paid financing fees of $612,000. These fees
will be amortized over the period of the Credit Agreement. In addition, the
Company agreed to pay a commitment fee quarterly equal to 0.5% per annum on the
average unused available credit. Upon entering into the Credit Facility, the
Company recorded a loss on extinguishment of the Old Credit Facility which
consisted of the existing unamortized deferred financing fees of $513,000. This
expense is reported, net of its tax effect of $200,000, as an extraordinary loss
in the consolidated statement of operations for the year ended December 31,
1997.
The interest rates for the guaranteed and nonguaranteed portions as of
December 31, 1997 were 8.9% and 9.9%, respectively. Interest expense on the
above facilities for the years ended December 31, 1996 and 1997 was $1,794,000
and $3,547,000, respectively.
The Credit Facility contains certain financial and operational covenants and
other restrictions with which the Company had to 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 was also
prohibited from making acquisitions without the prior consent of the Bank. All
of the Company's obligations under the Credit Facility are secured by a first
priority security interest in all of the Company's tangible and intangible
property and assets.
In March 1998, the Company repaid all amounts outstanding under the Credit
Facility (see note 12).
(7) NOTES PAYABLE TO STOCKHOLDERS
At December 31, 1996 and 1997, the Company had $12,544,000 and $0
outstanding in notes payable to stockholders at interest rates which fluctuated
and ranged during the periods from 5.5% to 8% per annum for the years ended
December 31, 1996 and 1997, respectively. The notes payable to the stockholders
were contributed as equity to the Company at the date of the Company's initial
public offering (see note 11). The notes were subordinated to the Old Credit
Facility. Interest expense related to notes payable to stockholders was
$781,000, $1,033,000 and $801,000 for the years ended December 31, 1995, 1996
and 1997, respectively.
F-15
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(8) COMMITMENTS AND CONTINGENCIES
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>
1998............................................................ $ 325,000
1999............................................................ 298,000
2000............................................................ 246,000
2001............................................................ 199,000
2002............................................................ 114,000
Thereafter...................................................... 86,000
---------
$1,268,000
---------
---------
</TABLE>
Rent expense for the years ended December 31, 1995, 1996 and 1997 was
approximately $301,000, $325,000 and $383,000, respectively.
EMPLOYMENT CONTRACTS
The Company has entered into various employment contracts with 13
individuals comprised of mainly 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>
1998............................................................ $1,725,000
1999............................................................ 470,000
2000............................................................ 300,000
---------
$2,495,000
---------
---------
</TABLE>
CONTINGENT LIABILITIES
The Company has certain contingent liabilities resulting from litigation and
claims incident to the ordinary course of business. Management believes that the
probable resolution of such contingencies will not materially affect the
financial position, results of operations, or liquidity of the Company.
(9) SUPPLEMENTARY INFORMATION -- STATEMENT OF CASH FLOWS
The Company acquired vehicles during the years ended December 31, 1996 and
1997 through issuances of notes payable amounting to $51,000 and $33,000,
respectively.
Barter transactions resulted in sales of $941,000, $875,000 and $850,000 and
related expenses of $951,000, $962,000 and $797,000 for the years ended December
31, 1995, 1996 and 1997, respectively.
Cash paid for interest during the years ended December 31, 1995, 1996 and
1997 amounted to $781,000, $2,454,000 and $4,395,000, respectively.
F-16
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(9) SUPPLEMENTARY INFORMATION -- STATEMENT OF CASH FLOWS (CONTINUED)
The capitalization of the Company on 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 years ended December 31, 1996 and 1997, the Principal
Stockholders contributed notes payable of $5,119,000 and $13,345,000,
respectively, to the Company's capital.
F-17
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(10) INCOME TAXES
The Company did not incur income taxes during the years ended December 31,
1995 and 1996 and the period ended September 30, 1997 due to its election to be
treated as an S corporation. Income tax expense for the year ended December 31,
1997 is comprised of the following:
<TABLE>
<S> <C>
Deferred tax expense resulting from conversion to C
Corporation................................................ $3,350,000
Deferred tax benefit......................................... (1,050,000)
Tax benefit resulting from extraordinary loss................ (200,000)
---------
$2,100,000
---------
---------
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory Federal income tax rate in 1995 and 1996 due to the Company's S
Corporation status and in 1997 due to the following:
<TABLE>
<S> <C>
Federal income taxes at the statutory rate.................. $(4,864,000)
State income taxes, net of any amount of Federal income tax
benefit................................................... (84,000)
Extraordinary loss.......................................... (200,000)
Losses during status as S Corporation....................... 3,888,000
Conversion to C Corporation................................. 3,350,000
Other....................................................... 10,000
----------
$2,100,000
----------
----------
</TABLE>
The tax effects of the significant temporary differences which comprise the
deferred tax liability at December 31, 1997 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss......................................... $1,603,000
Other...................................................... 287,000
---------
1,890,000
---------
Deferred tax liabilities:
Deferred gain.............................................. 2,946,000
Depreciation and amortization.............................. 1,044,000
---------
3,990,000
---------
Net deferred tax liability............................... $2,100,000
---------
---------
</TABLE>
The Company has approximately $1,603,000 of net operating loss carryforwards
for Federal income tax purposes which expire in 2017.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers
projected future taxable income and tax planning strategies in making this
assessment. At December 31, 1997, based on projections for
F-18
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(10) INCOME TAXES (CONTINUED)
future taxable income over the periods in which the level of deferred tax assets
are deductible, management believes that it is more likely than not that the
Company will realize the benefits of these deductible differences. Accordingly,
no valuation allowance has been provided for the deferred tax assets for the
year ended December 31, 1997.
(11) INITIAL PUBLIC OFFERING AND RELATED TRANSACTIONS
On December 24, 1997, the Company completed an initial public offering ("the
Offering") of 4,600,000 shares of its Class A Common Stock, at an offering price
of $7.00 per share. Simultaneously with the Offering, certain related
transactions occurred.
EQUITY CONTRIBUTION AND RECLASSIFICATION -- Immediately prior to the
consummation of the Offering, the Principal Stockholders contributed the entire
amount of certain outstanding stockholders' loans in the amount of $13,345,000
made to the Company to the Company's capital (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"), was reclassified into
7,610 shares of Class A Common Stock and the Principal Stockholders exchanged
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, the Company converted from an S
Corporation to a C Corporation.
DESCRIPTION OF CAPITAL STOCK -- The authorized capital stock of the Company
upon consummation of the Equity Contribution and the Reclassification consists
of 120,000,000 shares of capital stock, par value $.01 per share, of which
80,000,000 shares have been designated as Class A Common Stock and 20,000,000
shares have been designated as Class B Common Stock. After completion of the
Offering, 5,725,062 shares of Class A Common Stock are issued and outstanding
and 8,250,458 shares of Class B Common Stock are issued and outstanding. In
addition, 8,250,458 shares of Class A Common Stock are reserved for issuance
upon conversion of the Class B Common Stock. Immediately prior to the
consummation of the Offering, there was one holder of Class A Common Stock and
two holders of Class B 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 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 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.
EMPLOYMENT INCENTIVE -- On July 1, 1997, the Principal Stockholders
transferred 68 shares of Old Common Stock to the Chief Executive Officer as an
employment incentive. The consolidated statement of operations for the year
ended December 31, 1997 reflects a charge of $3,713,000 relating to the award.
The charge represents the fair market value of the stock transferred and it has
been reflected as a capital contribution in the accompanying consolidated
financial statements.
STOCK OPTION PLAN -- On December 1, 1997, the Company adopted the Big City
Radio, Inc. 1997 Incentive Stock Plan (the "1997 Incentive Stock Plan"). The
following is a summary of the material features of the 1997 Incentive Stock
Plan.
F-19
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(11) INITIAL PUBLIC OFFERING AND RELATED TRANSACTIONS (CONTINUED)
The types of awards that may be granted pursuant to the 1997 Incentive Stock
Plan include (i) incentive stock options ("ISOs") and (ii) nonqualified stock
options ("NQSOs" and together with ISOs, "Stock Options" and "Awards").
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.
Subject to certain exceptions set forth in the 1997 Incentive Stock Plan,
the aggregate number of shares of the Class A Common Stock that may be the
subject of Awards under the 1997 Incentive Stock Plan is 700,000. 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, 100,000 shares.
Shares of Class A Common Stock granted under the 1997 Incentive Stock Plan may
either be authorized by 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.
On December 1, 1997, options to purchase an aggregate of 150,000 shares of
Class A Common Stock were granted to certain officers and directors of the
Company, at an exercise price of $6.00 per share. These options vested
immediately resulting in a charge of $150,000. On the date of the Offering,
options to purchase an aggregate of 422,500 shares of Class A Common Stock were
granted to certain officers, directors and advisors of the Company, at an
exercise price per share equal to the initial public offering price per share in
the Offering.
Summary information pertaining to the plan for the year ended December 31,
1997 is as follows:
<TABLE>
<CAPTION>
EXERCISE WEIGHTED
NUMBER OF PRICE AVERAGE
SHARES PER SHARE EXERCISE PRICE
----------- ------------- ---------------
<S> <C> <C> <C>
Outstanding at beginning of year............... -- $ -- $ --
Granted........................................ 572,500 6.00 - 7.00 6.74
Exercised...................................... -- -- --
Outstanding at end of year..................... 572,500 6.00 - 7.00 6.74
Exercisable at end of year..................... 150,000 6.00 6.00
Available for grant at end of year............. 127,500 --
</TABLE>
At December 31, 1997, the weighted average remaining contractual life of all
outstanding options was 10 years.
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Option No.
25, "Accounting for Stock Issued to Employees," and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 in accounting for its Plan, and accordingly, no compensation cost
has been recognized for its stock options granted at fair market value in the
consolidated financial statements. Compensation cost will be recorded for
options granted below fair market value.
F-20
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(11) INITIAL PUBLIC OFFERING AND RELATED TRANSACTIONS (CONTINUED)
In 1995 and 1996, the Company did not grant any stock options nor did it
have any previously granted options outstanding. Accordingly, for these years,
there is no pro forma impact on earnings had SFAS No. 123 fair value methods
been used. In 1997, had the Company determined compensation cost based on the
fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997
--------------
<S> <C>
Net income (loss):
As reported............................................................... $ (16,918,000)
Pro forma................................................................. (17,515,000)
Earnings (loss) per share:
As reported............................................................... (1.77)
Pro forma................................................................. (1.84)
--------------
--------------
</TABLE>
At December 31, 1997, the per share weighted average fair value of stock
options granted was $4.83 on the date of grant using the modified Black-Scholes
option-pricing model with the following weighted average assumptions: expected
dividend yield 0%, risk-free interest rate of 5.57%, expected volatility of 50%
and an expected life of 10 years.
(12) SUBSEQUENT EVENTS
On March 17, 1998 ("the issue date"), the Company completed the offering of
$174,000,000 11.25% Senior Discount Notes ("the Notes"). The Senior Discount
Notes are due 2005 and were issued at a discount to their aggregate principal
amount at maturity generating gross proceeds to the Company of approximately
$125.4 million. They mature on March 15, 2005. The Notes will accrete in value
until March 15, 2001 at a rate of 11.25% per annum, compounded semiannually, to
an aggregate principal amount of $174.0 million. Cash interest will not accrue
on the Notes prior to March 15, 2001. Thereafter, interest on the Notes will
accrue at a rate of 11.25% per annum and will be payable semiannually in cash on
March 15 and September 15 of each year, commencing on September 15, 2001.
Except as described below, the Company may not redeem the Notes prior to
March 15, 2002. On or after such date, the Company may redeem the Notes, in
whole or in part, at certain redemption prices together with accrued and unpaid
interest, if any, to the date of redemption. In addition, at any time on or
prior to March 15, 2001, the Company may, at its option, redeem in the aggregate
up to 33 1/3% of the original principal amount of the Notes with net cash
proceeds of one or more Equity Offerings received by the Company so long as
there is a public market for the Company's Class A Common Stock at the time of
such redemption, at a redemption price equal to 111.25% of the accreted value
thereof to be redeemed, to the date of redemption; provided that at least
66 2/3% of the original principal amount of the Notes remains outstanding
immediately after each such redemption. The Notes are not subject to any sinking
fund requirement. Upon a Change of Control, each holder of Notes has the right
to require the Company to make an offer to purchase the Notes at a price equal
to 101% of the accreted value of such Notes prior to March 15, 2001, or 101% of
the principal amount of such Notes thereafter, together with accrued and unpaid
interest, if any, to the date of the purchase.
F-21
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(12) SUBSEQUENT EVENTS (CONTINUED)
The Notes are unsecured, senior obligations of the Company and rank pari
passu in right of payment to all existing and future senior indebtedness of the
Company and senior to all existing and future subordinated indebtedness of the
Company. The Notes are guaranteed on a senior unsecured basis by each of the
Company's subsidiaries. The indenture does not restrict the ability of the
Company or its subsidiaries to create, acquire or capitalize subsidiaries in the
future. The Notes will be effectively subordinated to all existing and future
indebtedness of the Company's subsidiaries.
Simultaneously with the consummation of the Notes, the Company entered into
the Revolving Credit Facility providing for up to $15 million of availability.
The Revolving Credit Facility matures on the fifth anniversary of the Issue Date
and amounts outstanding under the Revolving Credit Facility bear interest at an
applicable margin plus, at the Company's option, Chase's prime rate (in which
case the applicable margin is 2.00% subject to reduction upon obtaining
performance criteria based on the Company's leverage ratio) or the London
Inter-Bank Borrowing Rate (in which case the applicable margin is 3.00% subject
to reduction upon obtaining performance criteria based on the Company's leverage
ratio). The Company's obligations under the Revolving Credit Facility are
secured by a pledge of substantially all of the Company and its subsidiaries'
assets. The Company will pay fees of .5% per annum, on the aggregate unused
portion of the facility.
The Revolving Credit Facility contains 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 sale of assets, restrictions on the use of
borrowings, limitations on paying cash dividends and redeeming or repurchasing
capital stock of the Company or the Notes, and requirements to maintain certain
financial ratios, maximum total leverage, minimum interest coverage and minimum
fixed charge coverage.
The Revolving Credit Facility contains customary events of default,
including material misrepresentations, payment defaults and default in the
performance of other covenants, certain bankruptcy and ERISA defaults, judgment
and cross defaults, revocation of any of the Company's broadcast licenses and
change in control. The Revolving Credit Facility also provides that an event of
default will occur upon the occurrence of a "change of control." For purposes of
the Revolving Credit Facility, a change of control will occur when (i) any
person or group other than the Principal Stockholders and their affiliates
obtains the power to elect a majority of the Board of Directors, (ii) the
Company fails to own 100% of the capital stock of its subsidiaries owning any of
the FCC broadcast licenses or (iii) the Board of Directors does not consist of a
majority of continuing directors.
SUBSIDIARY GUARANTORS
Pursuant to the terms of the indenture relating to the 11.25% Senior
Discount Notes Due 2005 (the "Indenture"), the direct wholly-owned subsidiaries
of Big City Radio, Inc.--consisting of Odyssey Traveling Billboards, Inc., Big
City Radio-NYC, L.L.C., Big City Radio-LA, L.L.C., Big City Radio-CHI, L.L.C.,
and WRKL Rockland Radio, L.L.C. (collectively, the Subsidiary Guarantors)--have,
jointly and severally, fully and unconditionally guaranteed the obligations of
Big City Radio, Inc. with respect to these Notes.
All of the Subsidiary Guarantors except Odyssey Traveling Billboards, Inc.
(the "Station Subsidiaries"), were created in December 1997 as special purpose
Delaware limited liability companies formed at the request of the lenders under
the Credit Facility for the sole purpose of facilitating the Credit Facility by
F-22
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(12) SUBSEQUENT EVENTS (CONTINUED)
holding the Company's Federal Communications Commission ("FCC") radio licenses.
The operating agreements for the Station Subsidiaries limit the activities of
these companies to owning the FCC radio licenses. Odyssey Traveling Billboards,
Inc. ("Odyssey") owns and operates certain vehicles used to advertise for the
Company's radio stations. Because the Station Subsidiaries have entered into
assignment and use agreements with the Company whereby the Company manages and
directs the day-to-day operations of the radio stations, pays all expenses and
capital costs incurred in operating the radio stations, and retains all
advertising and other receipts collected in operating the radio stations, the
Station Subsidiaries have no income or expenses other than the amortization of
the FCC licenses. Odyssey is similarly a special purpose corporation with no
income and only expenses.
The covenants in the Notes, the Indenture and the Revolving Credit Facility
do not restrict the ability of the Subsidiary Guarantors to make cash
distributions to the Company.
Accordingly, set forth below is certain summarized financial information
(within the meaning of Section 1-02(bb) of Regulation S-X) for the Subsidiary
Guarantors, as of and for the years ended December 31, 1996 and 1997 on an as if
pooling basis given the common control relationship of Big City Radio and the
Subsidiary Guarantors.
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Current assets........................................................................ -- --
Noncurrent assets..................................................................... 28,988,000 54,087,000
Current liabilities................................................................... -- --
Noncurrent liabilities................................................................ -- --
Net sales............................................................................. -- --
Costs and Expenses.................................................................... -- --
Depreciation and Amortization......................................................... 457,000 1,162,000
Net Loss.............................................................................. (457,000) (1,162,000)
</TABLE>
The summarized financial information for the Subsidiary Guarantors has been
prepared from the books and records maintained by the Subsidiary Guarantors and
the Company. The summarized financial information may not necessarily be
indicative of the results of operations or financial position had the Subsidiary
Guarantors operated as independent entities.
F-23
<PAGE>
BIG CITY RADIO, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1997 1998
------------- --------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 80,000 $ 88,755,000
Accounts receivable, net of allowance $213,000 and $189,000 in 1997 and 1998,
respectively.................................................................. 2,325,000 1,820,000
Prepaid expenses and other current assets....................................... 252,000 417,000
------------- --------------
Total current assets.......................................................... 2,657,000 90,992,000
Property and equipment, net....................................................... 2,679,000 3,067,000
Intangibles, net.................................................................. 54,115,000 53,733,000
Deferred financing fees........................................................... 612,000 4,541,000
Other assets...................................................................... 45,000 72,000
------------- --------------
Total assets.................................................................. $ 60,108,000 $ 152,405,000
------------- --------------
------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 1,125,000 $ 1,097,000
Accrued expenses................................................................ 1,383,000 2,058,000
Other current liabilities....................................................... 368,000 81,000
------------- --------------
Total current liabilities..................................................... 2,876,000 3,236,000
------------- --------------
Notes payable:
Senior Discount Notes........................................................... -- 125,900,000
Long term debt.................................................................. 30,100,000 --
Deferred income tax liabilities................................................... 2,100,000 1,523,000
Stockholders' Equity:
Preferred stock $.01 par value. Authorized 20,000,000 shares; zero shares issued
and outstanding............................................................... -- --
Common Stock, Class A, $.01 par value. Authorized 80,000,000 shares; issued and
outstanding 5,725,062 shares.................................................. 57,000 57,000
Common Stock, Class B, $.01 par value. Authorized 20,000,000 shares; issued and
outstanding 8,250,458 shares.................................................. 83,000 83,000
Additional paid-in capital...................................................... 27,024,000 27,024,000
Deficit......................................................................... (2,132,000) (5,418,000)
------------- --------------
Net Stockholders' Equity........................................................ 25,032,000 21,746,000
------------- --------------
Total liabilities and Stockholder's Equity........................................ $ 60,108,000 $ 152,405,000
------------- --------------
------------- --------------
</TABLE>
F-24
<PAGE>
BIG CITY RADIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
Gross revenues...................................................................... $ 2,098,000 $ 2,658,000
Less: commissions and fees........................................................ 228,000 259,000
------------- -------------
Net revenues.................................................................... 1,870,000 2,399,000
Operating expenses
Station operating expenses, excluding depreciation and amortization............... 3,430,000 3,502,000
Corporate, general and administrative expenses.................................... 334,000 570,000
Depreciation and amortization..................................................... 319,000 576,000
------------- -------------
Total operating expenses........................................................ 4,083,000 4,648,000
------------- -------------
Operating loss................................................................ (2,213,000) (2,249,000)
------------- -------------
Other income (expenses):
Interest expense, net............................................................. (818,000) (995,000)
Other, net........................................................................ 28,000 (37,000)
------------- -------------
Total other expenses............................................................ (790,000) (1,032,000)
------------- -------------
Loss before benefit from income taxes and extraordinary loss.................... (3,003,000) (3,281,000)
Income tax benefit................................................................ -- 490,000
------------- -------------
Loss before extraordinary loss.................................................... (3,003,000) (2,791,000)
Extraordinary loss on extinguishment of debt, net of income taxes................. -- (495,000)
------------- -------------
Net loss.......................................................................... $ (3,003,000) $ (3,286,000)
------------- -------------
------------- -------------
Basic and diluted loss per share:
Loss before extraordinary item.................................................. $ (0.32) $ (0.20)
Extraordinary item.............................................................. -- (0.04)
------------- -------------
Net loss.......................................................................... $ (0.32) $ (0.24)
------------- -------------
------------- -------------
Weighted average shares outstanding............................................... 9,375,520 13,975,520
------------- -------------
------------- -------------
</TABLE>
F-25
<PAGE>
BIG CITY RADIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net loss......................................................................... $ (3,003,000) $ (3,286,000)
Adjustments to reconcile net loss to net cash used in operating activities.......
Depreciation and amortization.................................................... 319,000 576,000
Non cash interest................................................................ 27,000 545,000
Deferred income taxes............................................................ -- (577,000)
Extraordinary loss on extinguishment of debt..................................... -- 582,000
Change in operating assets and liabilities
Increase (decrease) in assets:
Accounts receivable.......................................................... (198,000) 505,000
Prepaid expenses and other current assets.................................... (112,000) (165,000)
Other assets................................................................. (86,000) (27,000)
Increase (decrease) in liabilities:
Accounts payable............................................................. (144,000) (28,000)
Accrued expenses............................................................. 1,113,000 675,000
Other liabilities............................................................ (562,000) (288,000)
------------- --------------
Net cash used in operating activities...................................... (2,646,000) (1,488,000)
------------- --------------
Cash flows from investing activities:
Purchase of property and equipment............................................. (183,000) (545,000)
------------- --------------
Net cash used in investing activities...................................... (183,000) (545,000)
------------- --------------
Cash flows from financing activities:
Loans from stockholders........................................................ 202,000 --
Proceeds from offering of Senior Discount Notes net of discount and fees of
$4,568,000................................................................... -- 120,808,000
Drawdown on credit facility.................................................... 2,600,000 2,700,000
Repayment of existing credit facility.......................................... -- (32,800,000)
------------- --------------
Net cash provided by financing activities.................................. 2,802,000 90,708,000
------------- --------------
Change in cash and cash equivalents........................................ (27,000) 88,675,000
Cash and cash equivalents at beginning of period........................... 234,000 80,000
------------- --------------
Cash and cash equivalents at end of period................................. $ 207,000 $ 88,755,000
------------- --------------
------------- --------------
</TABLE>
F-26
<PAGE>
BIG CITY RADIO, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997.............. 13,975,520 $ 140,000 $ 27,024,000 $ (2,132,000) $ 25,032,000
Net loss.................................. -- -- -- (3,286,000) (3,286,000)
------------ ---------- ------------- ------------- -------------
Balance at March 31, 1998................. 13,975,520 $ 140,000 $ 27,024,000 $ (5,418,000) $ 21,746,000
------------ ---------- ------------- ------------- -------------
------------ ---------- ------------- ------------- -------------
</TABLE>
F-27
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying interim consolidated financial statements include the
accounts of Big City Radio, Inc. and all its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
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.
The accompanying interim consolidated financial statements have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange 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 consolidated financial statements and
related footnotes included in the Company's Form 10-K/A for the year ended
December 31, 1997 (the "1997 Form 10-K"). 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 March 31, 1998, the
results of its operations and its cash flows for the three-month periods ended
March 31, 1998 and 1997, have been included. The results of operations for the
interim period are not necessarily indicative of the results which may be
realized for the full year.
2. EARNINGS PER SHARE
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," is effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 replaces Accounting Principles Board Opinion
(APB) No. 15 and simplifies the computation of earnings per share (EPS) by
replacing the presentation of primary EPS with a presentation of basic EPS.
Basic EPS includes no dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution from securities that
could share in the earnings of the Company, similar to fully diluted EPS under
APB No. 15. The statement requires dual presentation of basic and diluted EPS by
entities with complex capital structures. The Company adopted SFAS No. 128 for
the financial statements ended December 31, 1997. The Company had for the three
months ended March 31, 1997 and 1998 potentially dilutive shares of Common Stock
of 0 and 572,500 which were not included in the computation of diluted EPS
because to do so would have been antidilutive.
3. REPORTING COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." This statement, which establishes standards
for reporting and disclosure of comprehensive income, is effective for interim
and annual periods beginning after December 15, 1997, although earlier adoption
is permitted. Reclassification of financial information for earlier periods
presented for comparitive purposes is required under SFAS No. 130. The Company
has adopted SFAS No. 130 effective January 1, 1998 and its adoption has not had
any impact on the Company's consolidated financial position or results of
operations.
F-28
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RECENT DEVELOPMENTS
INITIAL PUBLIC OFFERING
The Company successfully completed the initial public offering (the "Initial
Public Offering" or "IPO") of 4,600,000 shares of Common Stock on December 24,
1997 at an offering price of $7.00 per share, generating $28.5 million of net
proceeds for the Company which were used by the Company to repay outstanding
indebtedness under its then existing Credit Facility (the "Old Credit
Facility"). In connection with the consummation of the Initial Public Offering,
the Company changed its fiscal year-end from September 30 to December 31. In
addition, simultaneously with the consummation of the Initial Public Offering,
Stuart and Anita Subotnick (the "Principal Stockholders") contributed
approximately $13.3 million of stockholder loans to the Company (the "Equity
Contribution"), the Company reclassified each share of its then-existing common
stock (the "Old Common Stock") into 7,610 shares of Class A Common Stock, and
the Principal Stockholders exchanged their shares of Class A Common Stock for
shares of Class B Common Stock, par value $.01 per share (the "Class B Common
Stock") (collectively, the "Reclassification"). 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. The Principal Stockholders own all of the outstanding
shares of Class B Common Stock.
OFFERING OF SENIOR DISCOUNT NOTES
The Company completed a private placement of $174.0 million aggregate
principal amount 11 1/4% Senior Discount Notes due 2005 (the "Notes") on March
17, 1998 (the "Notes Offering"), generating approximately $125.4 million of
gross proceeds for the Company of which the Company used approximately $32.8
million to repay outstanding indebtedness under its Old Credit Facility. The
Company intends to use the remaining proceeds of the Notes Offering to finance
the acquisition costs of radio station properties and for general working
capital purposes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources".
5. SUBSEQUENT EVENTS
On April 20, 1998, the Company signed agreements to acquire substantially
all of the assets of four radio stations in Chicago (WLRT-FM, Kankakee, Ill.,
WCBR-FM, Arlington Heights, Ill., and WDEK-FM and WLBK-AM, DeKalb, Ill.) It is
the Company's intention that certain of these stations will be reconfigured and
resold immediately following the closing of the acquisitions.
On April 27, 1998, the Company signed an agreement to acquire all of the
stock of Radio New Jersey, owner of the FCC licenses of WRNJ-FM, Belvidere, NJ
and WRNJ-AM, Hackettstown, NJ. Simultaneously with this acquisition agreement,
the Company agreed to sell substantially all of the assets of WRNJ-AM to one of
the previous stockholders of Radio New Jersey.
The consummation of the above acquisitions remains subject to a number of
significant conditions to closing, including the consent of the FCC to the
assignment of these stations' FCC licenses and, in the case of the New Jersey
stations, the consent of the FCC for the transfer of control from Radio New
Jersey, to the Company. The results of operations of the assets of the radio
stations to be retained will be included in the Company's consolidated financial
statements following the closing dates of the transactions.
F-29
<PAGE>
BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SUBSEQUENT EVENTS (CONTINUED)
SUBSIDIARY GUARANTORS
Pursuant to the terms of the indenture relating to the 11.25% Senior
Discount Notes due 2005 (the "Indenture"), the direct subsidiaries of Big City
Radio, Inc.--consisting of Odyssey Traveling Billboards, Inc., Big City
Radio-NYC, L.L.C., Big City Radio-LA, L.L.C., Big City Radio--CHI, L.L.C., and
WRKL Rockland Radio, L.L.C. (collectively, the Subsidiary Guarantors)--have,
jointly and severally, fully and unconditionally guaranteed the obligations of
Big City Radio, Inc. with respect to these Notes.
All of the Subsidiary Guarantors except Odyssey Traveling Billboards, Inc.
(the "Station Subsidiaries"), were created in December 1997 as special purpose
Delaware limited liability companies formed at the request of the lenders under
the Credit Facility for the sole purpose of facilitating the Credit Facility by
holding the Company's Federal Communications Commission ("FCC") radio licenses.
The operating agreements for the Station Subsidiaries limit the activities of
these companies to owning the FCC radio licenses. Odyssey Traveling Billboards,
Inc. ("Odyssey") owns and operates certain vehicles used to advertise for the
Company's radio stations. Because the Station Subsidiaries have entered into
assignment and use agreements with the Company whereby the Company manages and
directs the day-to-day operations of the radio stations, pays all expenses and
capital costs incurred in operating the radio stations, and retains all
advertising and other receipts collected in operating the radio stations, the
Station Subsidiaries have no income or expenses other than the amortization of
the FCC licenses. Odyssey is similarly a special purpose corporation with no
income and only expenses.
The covenants in the Notes, the Indenture and the Revolving Credit Facility
do not restrict the ability of the Subsidiary Guarantors to make cash
distributions to the Company.
Accordingly, set forth below is certain summarized financial information
(within the meaning of Section 1-02(bb) of Regulation S-X) for the Subsidiary
Guarantors, as of and for the three months ended March 31, 1998 and 1997 on an
as if pooling basis given the common control relationship of Big City Radio and
the Subsidiary Guarantors. Separate financial statements and other disclosures
concerning the Subsidiary Guarantors are not presented because management of the
Company believes that such disclosures are not material to investors.
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Current assets.................................................... -- --
Noncurrent assets................................................. 28,774,000 53,727,000
Current liabilities............................................... -- --
Noncurrent liabilities............................................ -- --
Net sales......................................................... -- --
Costs and Expenses................................................ -- --
Depreciation and Amortization..................................... 238,000 360,000
Net Loss.......................................................... (238,000) (360,000)
</TABLE>
The summarized financial information for the Subsidiary Guarantors has been
prepared from the books and records maintained by the Subsidiary Guarantors and
the Company. The summarized financial information may not necessarily be
indicative of the results of operations or financial position had the Subsidiary
Guarantors operated as independent entities.
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Members of K&K Broadcasting
We have audited the accompanying balance sheets of WZVU as of December 31,
1996 and 1995, and the related statements of operations and station deficit and
cash flows for the years 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 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 WZVU as of December 31, 1996
and 1995 and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
October 21, 1997
F-31
<PAGE>
WZVU
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS 1995 1996
-------------- ------------- MAY 31,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash.............................................................. $ 74,180 $ 36,739 $ 98,846
Accounts receivable:
Trade........................................................... 342,802 249,452 139,883
Big City Radio.................................................. -- 113,613 --
Other current assets.............................................. 118,559 14,914 19,536
-------------- ------------- -------------
Total current assets.......................................... 535,541 414,718 258,265
Property and equipment, net (note 4)................................ 876,909 911,553 874,354
Intangibles, net (note 5)........................................... 131,807 100,482 87,429
-------------- ------------- -------------
Total assets.................................................. 1,544,257 $ 1,426,753 $ 1,220,048
-------------- ------------- -------------
-------------- ------------- -------------
LIABILITIES AND STATION DEFICIT
Current liabilities:
Accounts payable.................................................. $ 36,906 $ 108,410 $ 89,699
Accrued expenses (Note 7)......................................... 497,637 568,680 199,948
Accrued interest expense (Note 6)................................. 8,207,156 -- 179,683
Notes payable to members (note 7)................................. 649,893 820,930 820,930
Notes payable to Big City Radio (note 6).......................... -- 5,433,687 5,433,687
Notes payable to Weiss Bros. and AT&T (Note 6).................... 5,578,444 -- --
Notes payable to banks (note 6)................................... 40,609 34,168 --
Other liabilities................................................. -- -- 12,959
-------------- ------------- -------------
Total current liabilities..................................... 15,010,645 6,965,875 6,736,906
Station deficit..................................................... (13,466,388) (5,539,122) (5,516,858)
-------------- ------------- -------------
Total liabilities and station deficit......................... $ 1,544,257 $ 1,426,753 $ 1,220,048
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
See accompanying notes to combined financial statements.
F-32
<PAGE>
WZVU
STATEMENTS OF OPERATIONS AND STATION DEFICIT
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM JANUARY 1,
YEAR YEAR JANUARY 1, 1997
ENDED ENDED 1996 THROUGH THROUGH
DECEMBER 31, DECEMBER 31, MAY 31, MAY 31,
1995 1996 1996 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Gross revenue................................... $ 2,891,032 $ 3,173,549 $ 1,177,715 $ 413,933
Less: commission and fees....................... 174,089 247,405 96,888 1,054
-------------- -------------- -------------- --------------
Net revenue..................................... 2,716,943 2,926,144 1,080,827 412,879
Operating expenses:
Station operating expenses, excluding
depreciation and amortization............... 995,106 1,044,024 382,582 91,986
Corporate general and administrative
expenses.................................... 1,427,016 1,650,991 525,930 219,608
Reimbursement of operating expenses under
LMA......................................... -- (27,169) -- (151,756)
Depreciation and amortization................. 182,275 140,642 62,464 51,094
-------------- -------------- -------------- --------------
Total operating expenses.................... 2,604,397 2,808,488 970,976 210,932
-------------- -------------- -------------- --------------
Operating income............................ 112,546 117,656 109,851 201,947
Other income (expenses)
Interest...................................... (2,666,378) (2,498,207) (1,022,274) (179,683)
Other, net.................................... (548) 29,325 3,750 --
-------------- -------------- -------------- --------------
Total other................................... (2,666,926) (2,468,882) (1,018,524) (179,683)
-------------- -------------- -------------- --------------
Loss before extraordinary item.............. (2,554,380) (2,351,226) (908,673) 22,264
Extraordinary item--forgiveness of debt (note
6)............................................ -- 10,278,492 -- --
-------------- -------------- -------------- --------------
Net income (loss)............................... $ (2,554,380) $ 7,927,266 $ (908,673) $ 22,264
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Station Deficit at beginning of period.......... $ (10,912,008) $ (13,466,388) $(13,466,388) $ (5,539,122)
-------------- -------------- -------------- --------------
Station Deficit at end of period................ $ (13,466,388) $ (5,539,122) $(14,375,061) $ (5,516,858)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
See accompanying notes to combined financial statements.
F-33
<PAGE>
WZVU
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
YEAR ENDED YEAR ENDED JANUARY 1, JANUARY 1,
DECEMBER 31, DECEMBER 31, 1996 THROUGH 1997 THROUGH
1995 1996 MAY 31, 1996 MAY 31, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)............................. $ (2,554,380) $ 7,927,266 $ (908,673) $ 22,264
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization............... 182,275 140,642 62,464 51,094
Forgiveness of debt......................... -- (10,278,492) -- --
Other....................................... 25,500 19,318 -- --
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable....................... 87,247 93,350 (16,455) 109,569
Other receivables......................... -- (113,613) -- 113,613
Other current assets...................... 2,972 99,887 33,509 (4,936)
Increase (decrease) in liabilities:
Accounts payable.......................... (25,506) 71,505 19,901 (18,711)
Accrued expenses.......................... 2,287,349 2,142,378 950,863 (173,118)
Notes payable to members.................. 423 168,587 -- --
-------------- -------------- -------------- --------------
Net cash provided by operating
activities.............................. 5,880 270,828 141,609 99,775
Cash flows from investing activities:
Purchase of property and equipment............ (23,388) (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 Big City Radio
payable..................................... -- 5,433,687 -- --
Payments to notes payable to banks............ (19,656) (6,441) (2,610) (34,168)
-------------- -------------- -------------- --------------
Net cash used in financing activities..... (19,656) (151,198) (67,610) (34,168)
-------------- -------------- -------------- --------------
Change in cash............................ (37,164) (37,441) (48,531) 62,107
Cash at beginning of period..................... 111,344 74,180 74,180 36,739
-------------- -------------- -------------- --------------
Cash at end of period........................... 74,180 $ 36,739 $ 25,649 $ 98,846
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
See accompanying notes to combined financial statements.
F-34
<PAGE>
WZVU
NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
WZVU (the "Company") conducts radio broadcasting operations in New Jersey.
The principal source of revenue is derived from the sale of air time to
advertisers.
The Company is a radio station owned by K&K Broadcasting, L.L.C. ("K&K
Broadcasting"). The accompanying financial statements presents the results of
operations of the Company on a stand alone basis as K&K Broadcasting had no
corporate expenses.
During November 1996, K&K Broadcasting entered into an agreement to sell
substantially all of the assets and operations of the Company to Big City Radio,
Inc. (formerly Odyssey Communications, Inc.) ("Big City Radio") (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 financial
statements as of May 31, 1997 and 1996 are similar to those used in preparing
the audited financial statements as of December 31, 1996 and 1995.
(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) INTANGIBLES
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.
(D) REVENUE RECOGNITION
Broadcasting revenue is recognized when commercials are aired. Net revenues
represent gross revenues less direct fees and commissions paid to independent
advertising agencies. 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.
F-35
<PAGE>
WZVU
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) INCOME TAXES
For Federal and state income tax purpose, K&K Broadcasting 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, 1995 and 1996.
(H) ADVERTISING
The Company charges advertising costs, as incurred, to expense. Advertising
costs amounted to $139,398, $128,781, $5,318, and $43,172 for the year ended
December 31, 1995 and 1996 and the five month periods ended May 31, 1997 and
1996, respectively.
(3) SALE OF WZVU
On November 7, 1996, K&K Broadcasting entered into an agreement to sell
substantially all of the assets of the Company to Big City Radio for
$12,000,000. At that date, Big City Radio 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 Big City Radio under which Big City Radio has the right to
program and sell advertising time on 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 Big
City Radio of $87,097 and $378,421, respectively. The station operated under the
LMA agreement from December 6, 1996 through June 5, 1997.
The Members of K&K Broadcasting also entered into a three year
covenant-not-compete.
F-36
<PAGE>
WZVU
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1996 and May 31, 1997 is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MAY 31,
1995 1996 1997
------------ ------------ -----------
<S> <C> <C> <C>
Land............................................... $ 150,332 $ 150,332 $ 150,332
Building and improvements.......................... 609,247 710,307 710,307
Transmitter equipment.............................. 250,000 250,000 250,000
Furniture and office equipment..................... 724,143 769,301 772,801
Vehicles........................................... -- 3,750 3,750
------------ ------------ -----------
1,733,722 1,883,690 1,887,190
Less: accumulated depreciation..................... 856,813 972,137 1,012,836
------------ ------------ -----------
876,909 $ 911,553 $ 874,354
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
(5) INTANGIBLES
Intangibles at December 31, 1995 and 1996 and May 31, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31, MAY 31,
1995 1996 1997
------------ ------------ -----------
<S> <C> <C> <C>
FCC broadcast licenses.............................. $ 300,644 $ 300,644 $ 300,644
Goodwill............................................ 50,441 50,441 50,441
------------ ------------ -----------
351,085 351,085 351,085
Less: accumulated amortization...................... 219,278 250,603 263,656
------------ ------------ -----------
131,807 $ 100,482 $ 87,429
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
(6) NOTES PAYABLE
At December 31, 1995, the Company had notes payable of $2,250,000 due
December 31, 1996 and $3,328,444 due March 31, 1998 to Weiss Bros. and AT&T,
respectively. The Weiss Bros. and AT&T notes payable bears interest at 25% and
prime plus 1.5%, respectively. The notes are collateralized by substantially all
of the Company's assets. Accrued interest at December 31, 1995 on the notes
payable was $8,207,156.
On November 7, 1996, concurrent with K&K Broadcasting entering into the
Asset Purchase Agreement with Big City Radio (as described in note 3), the
Company entered into a loan agreement with Big City Radio 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 Big City Radio, the note
payable to Big City Radio was repaid.
F-37
<PAGE>
WZVU
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) NOTES PAYABLE (CONTINUED)
During 1995 and 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, 1995 and 1996, total borrowings under the line of credit were $40,609 and
$34,168, respectively.
(7) NOTES PAYABLE TO MEMBERS
At December 31, 1995 and 1996 and May 31, 1997, the Company had $649,893,
$820,930 and $820,930, respectively, outstanding in notes payable to members of
K&K Broadcasting which are subordinated to the note payable to Big City Radio as
described in note 7. The notes payable to members were comprised of $390,012 and
$465,012, at December 31, 1995 and 1996, respectively, which bears interest at
7.5% and are due on demand. The remaining notes payable balance represents
accrued interest outstanding on this loan. Also, included in accrued expenses is
$338,750 and $428,750 at December 31, 1995 and 1996, respectively, of accrued
wages payable to one Member.
(8) 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, 1995 and 1996, total expense for the plan
amounted to $10,053 and $18,856, respectively. Effective December 31, 1996, the
Plan was terminated.
(9) SUPPLEMENTARY INFORMATION--STATEMENT OF CASH FLOWS
Barter transactions resulted in sales and related expenses of $531,946,
$452,158, $3,127 and $163,916 for the year ended December 31, 1995 and 1996 and
the five month periods ending May 31, 1997 and May 31, 1996, respectively.
During March 1995, K&K Broadcasting transferred to the Company net
liabilities of $731,000 in a non-cash transaction. These balances have been
included as an addition to station deficit.
F-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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) (3.6) (7.8)
Other........................................... (0.9) (0.9) (0.5)
----- --- ---
9.2% 32.0% 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-47
<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 Big
City Radio, Inc. (formerly Odyssey Communications, Inc.) for $9,500,000.
F-48
<PAGE>
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NO 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. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information........................... iii
Special Note Regarding Forward-Looking
Statements.................................... iii
Summary......................................... 1
Risk Factors.................................... 13
Use of Proceeds................................. 21
Capitalization.................................. 22
Unaudited Pro Forma Financial Statements........ 23
Selected Financial Data......................... 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operation..................................... 29
The Exchange Offer.............................. 37
Business........................................ 46
Management...................................... 62
Principal Stockholders.......................... 70
Certain Relationships and Related
Transactions.................................. 72
Description of Revolving Credit Facility........ 73
Description of the New Notes.................... 74
Book Entry; Delivery and Form................... 99
Description of Existing Notes................... 100
Certain Federal Income Tax Considerations....... 102
Plan of Distribution............................ 107
Legal Matters................................... 107
Experts......................................... 107
Market Data and Certain Definitions............. 108
Index to Financial Statements................... F-1
</TABLE>
------------------------
PROSPECTUS
$174,000,000
BIG CITY RADIO, INC.
OFFER TO EXCHANGE $174,000,000 OF ITS 11 1/4% SENIOR DISCOUNT NOTES DUE 2005
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR $174,000,000
OF ITS OUTSTANDING 11 1/4% SENIOR
DISCOUNT NOTES DUE 2005.
JUNE 3, 1998
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