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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
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/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE PERIOD ENDED SEPTEMBER 30, 1999
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 001-13715
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BIG CITY RADIO, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 13-3790661
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
</TABLE>
11 SKYLINE DRIVE, HAWTHORNE, NEW YORK 10532
(Address and zip code of principal executive offices)
(914) 592-1071
(Registrant's telephone number, including area code)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /
The number of shares of the registrant's Class A Common Stock and Class B
Common Stock outstanding as of October 25, 1999 was 5,818,817 and 8,250,458,
respectively.
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BIG CITY RADIO, INC.
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PART 1--FINANCIAL INFORMATION
PAGE
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Item 1. Financial Statements
Consolidated Balance Sheets................................. 2
Consolidated Statements of Operations....................... 3
Consolidated Statements of Cash Flows....................... 4
Consolidated Statement of Stockholders' Equity.............. 5
Notes to Consolidated Financial Statements.................. 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 10-17
PART II--OTHER INFORMATION
Item 1. Legal Proceedings........................................... 18
Item 2. Changes in Securities and Use of Proceeds................... 18
Item 3. Defaults Upon Senior Securities............................. 18
Item 4. Submission of Matters to a Vote of Security Holders......... 18
Item 5. Other Information........................................... 18
Item 6. Exhibits and Reports on Form 8-K............................ 18
Signatures........................................................... 19
</TABLE>
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PART 1--FINANCIAL INFORMATION
ITEM. 1 FINANCIAL STATEMENTS
BIG CITY RADIO, INC.
CONSOLIDATED BALANCE SHEETS
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SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED) (AUDITED)
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ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,965,000 $ 5,285,000
Cash held in escrow....................................... 277,000 450,000
Cash held in investment, restricted....................... 2,441,000 3,350,000
Marketable securities..................................... 9,008,000 48,416,000
Accounts receivable, net of allowance of $194,000 and
$119,000 in 1999 and 1998, respectively................. 5,190,000 3,362,000
Interest receivable....................................... 345,000 1,574,000
Prepaid expenses and other current assets................. 922,000 603,000
------------ ------------
Total current assets.................................. 21,148,000 63,040,000
Property and equipment, net................................. 7,275,000 4,512,000
Intangibles, net............................................ 113,044,000 80,309,000
Deferred financing fees..................................... 3,562,000 4,052,000
Other assets................................................ 101,000 169,000
------------ ------------
Total assets.......................................... $145,130,000 $152,082,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 663,000 $ 518,000
Accrued expenses.......................................... 1,845,000 1,186,000
Promissory notes.......................................... 1,175,000 1,175,000
Other current liabilities................................. 83,000 112,000
------------ ------------
Total current liabilities............................. 3,766,000 2,991,000
------------ ------------
Senior discount notes....................................... 148,409,000 136,776,000
Other long term liabilities................................. 512,000 570,000
Promissory notes............................................ -- 881,000
Deferred income tax liabilities............................. 2,473,000 2,473,000
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 5,818,817
shares.................................................. 58,000 58,000
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................................ 27,862,000 27,831,000
Accumulated deficit....................................... (38,033,000) (19,581,000)
------------ ------------
Net stockholders' (deficit) equity........................ (10,030,000) 8,391,000
------------ ------------
Total liabilities and stockholders' equity............ $145,130,000 $152,082,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
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BIG CITY RADIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
----------- ----------- ------------ ------------
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Gross revenues........................... $ 7,449,000 $ 4,531,000 $ 15,869,000 $ 11,131,000
Less: commissions and fees............. 834,000 495,000 1,801,000 1,187,000
----------- ----------- ------------ ------------
Net revenues....................... 6,615,000 4,036,000 14,068,000 9,944,000
Operating expenses:
Station operating expenses, excluding
depreciation and amortization........ 6,194,000 4,461,000 16,799,000 12,751,000
Corporate, general and administrative
expenses............................. 868,000 721,000 2,506,000 2,063,000
Employment stock incentives............ -- -- -- 808,000
Depreciation and amortization.......... 1,002,000 701,000 2,704,000 1,737,000
----------- ----------- ------------ ------------
Total operating expenses........... 8,064,000 5,883,000 22,009,000 17,359,000
----------- ----------- ------------ ------------
Operating loss................... (1,449,000) (1,847,000) (7,941,000) (7,415,000)
Other income (expenses):
Gain on sale of station................ -- -- 663,000 --
Interest income........................ 355,000 1,022,000 1,751,000 2,263,000
Interest expense....................... (4,559,000) (3,783,000) (12,601,000) (8,664,000)
Other, net............................. (44,000) (2,000) (324,000) (145,000)
----------- ----------- ------------ ------------
Total other expenses............... (4,248,000) (2,763,000) (10,511,000) (6,546,000)
Loss before income taxes and
extraordinary loss..................... (5,697,000) (4,610,000) (18,452,000) (13,961,000)
Income tax benefit, net.................. -- 418,000 -- 1,519,000
----------- ----------- ------------ ------------
Loss before extraordinary loss........... (5,697,000) (4,192,000) (18,452,000) (12,442,000)
Extraordinary loss on extinguishment of
debt, net of income taxes.............. -- -- -- 495,000
----------- ----------- ------------ ------------
Net loss............................... $(5,697,000) $(4,192,000) $(18,452,000) $(12,937,000)
=========== =========== ============ ============
Basic and diluted loss per share:
Loss before extraordinary item........... $ (0.40) $ (0.30) $ (1.31) $ (0.89)
Extraordinary item....................... -- -- -- (0.03)
----------- ----------- ------------ ------------
Net loss............................... $ (0.40) $ (0.30) $ (1.31) $ (0.92)
=========== =========== ============ ============
Weighted average shares outstanding...... 14,069,275 14,069,275 14,069,275 14,011,580
=========== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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BIG CITY RADIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
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1999 1998
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Cash flows from operating activities:
Net loss.................................................. $(18,452,000) $(12,937,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 2,704,000 1,737,000
Non cash interest....................................... 12,154,000 8,030,000
Deferred income taxes................................... -- (1,631,000)
Gain on sale of station................................. (663,000) --
Employment stock incentives............................. -- 808,000
Extraordinary loss on extinguishment of debt............ -- 582,000
Change in operating assets and liabilities
(Increase) decrease in assets:
Accounts receivable................................. (1,828,000) (821,000)
Interest receivable................................. 1,229,000 (1,618,000)
Prepaid expenses and other current assets........... (69,000) (421,000)
Other assets........................................ 68,000 (46,000)
Increase (decrease) in liabilities:
Accounts payable.................................... 145,000 (91,000)
Accrued expenses.................................... 459,000 185,000
Other liabilities................................... (87,000) (199,000)
------------ ------------
Net cash used in operating activities............. (4,340,000) (6,422,000)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment........................ (2,677,000) (1,551,000)
Purchase of marketable securities......................... (34,508,000) (51,217,000)
Sales of marketable securities............................ 73,916,000 --
Cash paid and advanced for assets of radio stations
acquired................................................ (35,934,000) (23,108,000)
Cash held in restricted investment........................ 909,000 --
Cash received for radio station sold...................... 1,195,000 --
------------ ------------
Net cash provided by (used in) investing
activities........................................ 2,901,000 (75,876,000)
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Cash flows from financing activities:
Proceeds from offering of senior discount notes net of
discount and fees of $4,568,000......................... -- 120,808,000
Drawdown on credit facility............................... -- 2,500,000
Repayment of promissory notes............................. (881,000) --
Repayment of existing credit facility..................... -- (32,600,000)
------------ ------------
Net cash provided by (used in) financing
activities........................................ (881,000) 90,708,000
------------ ------------
Change in cash and cash equivalents............... (2,320,000) 8,410,000
Cash and cash equivalents at beginning of period............ 5,285,000 80,000
------------ ------------
Cash and cash equivalents at end of period.................. $ 2,965,000 $ 8,490,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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BIG CITY RADIO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
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COMMON STOCK ADDITIONAL
--------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- -------- ----------- ------------ ------------
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Balance at December 31, 1998
(Audited)..................... 14,069,275 $141,000 $27,831,000 $(19,581,000) $ 8,391,000
Capital contribution related to
Employment incentive.......... -- -- 31,000 -- 31,000
Net loss........................ -- -- -- (18,452,000) (18,452,000)
---------- -------- ----------- ------------ ------------
Balance at September 30, 1999
(Unaudited)................... 14,069,275 $141,000 $27,862,000 $(38,033,000) $(10,030,000)
========== ======== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
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BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The Company owns and operates radio stations in four of the largest radio
markets in the United States. The Company's radio broadcast properties are
located 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.
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.
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 for the
year ended December 31, 1998 (the "1998 Form 10-K"). In the opinion of
management all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly in all material respects the financial position of
the Company as of September 30, 1999, and the results of its operations and its
cash flows for the three and nine-month periods ended September 30, 1999 and
1998, 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
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. In calculating
diluted EPS, no potential shares of Common Stock are to be included in the
computation when a loss from continuing operations available to common
stockholders exists. Stock options issued under the Company's 1997, 1998 and
1999 Incentive Stock Plans amounting to 1,011,500 and 886,500 at September 30,
1999 and 1998, respectively, were not included in the computation of diluted EPS
because to do so would have been antidilutive.
3. SENIOR DISCOUNT NOTES
OFFERING OF SENIOR DISCOUNT NOTES
The Company completed a private placement of $174.0 million aggregate
principal amount, at maturity, 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 has used for past acquisitions and has committed
for future acquisitions of radio station properties approximately $66.4 million
and intends to use the remaining proceeds of the Notes Offering for general
6
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BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SENIOR DISCOUNT NOTES (CONTINUED)
corporate and working capital purposes. (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources").
SUBSIDIARY GUARANTORS
Pursuant to the terms of the indenture relating to the 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 Big City Radio-Phoenix, 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 the Notes.
All of the then existing 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 holding the
Company's Federal Communications Commission ("FCC") radio licenses. Big City
Radio-Phoenix, L.L.C. was created in December 1998 upon signing the intent to
purchase the broadcast radio properties in Phoenix. The operating agreements for
the Station Subsidiaries limit the activities of these companies to owning the
FCC radio licenses. Odyssey Traveling Billboards, Inc. 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 Travelling Billboards, Inc.
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 Station Subsidiaries 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 September 30, 1999 and December 31, 1998 and for the three
months and nine months ended September 30, 1999 and 1998 on an as if pooling
basis given the common control relationship of the Company and the Subsidiary
Guarantors.
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SEPTEMBER 30, 1999 DECEMBER 31, 1998
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Current assets.............................................. -- --
Noncurrent assets........................................... $113,043,000 $80,295,000
Current liabilities......................................... -- --
Noncurrent liabilities...................................... -- --
</TABLE>
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THREE MONTHS ENDED, NINE MONTHS ENDED,
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -------------------------
1999 1998 1999 1998
--------- --------- ----------- -----------
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Net sales..................................... -- -- -- --
Costs and expenses............................ -- -- -- --
Depreciation and amortization................. $ 645,000 $ 439,000 $ 1,744,000 $ 1,159,000
Net loss...................................... $(645,000) $(439,000) $(1,744,000) $(1,159,000)
</TABLE>
7
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BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SENIOR DISCOUNT NOTES (CONTINUED)
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.
4. RECENT DEVELOPMENTS
ACQUISITIONS
On September 28, 1999, the Company completed the acquisition of KMYL-FM,
Wickenburg, Arizona. The operations of this station have been included in the
consolidated statements of operations from this date. The aggregate purchase
price for this station was $5,600,000 excluding acquisition related expenses and
was paid in cash. Management's preliminary estimate of the fair value of the
assets acquired in this transaction, subject to further review and appraisal is
as follows:
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Building.................................................... $ 8,000
Fixed assets................................................ 92,000
FCC broadcast license....................................... 5,500,000
</TABLE>
The fair value of the fixed assets and building 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 September 22, 1999, the Company completed the acquisition of KBZR-FM,
Arizona City, Arizona. The operations of this station have been included in the
consolidated statements of operations from this date. The aggregate purchase
price for this station was $3,900,000 excluding acquisition related expenses and
was paid in cash. Management's preliminary estimate of the fair value of the
assets acquired in this transaction, subject to further review and appraisal is
as follows:
<TABLE>
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Land........................................................ $ 20,000
Fixed assets................................................ 73,000
FCC broadcast license....................................... 3,807,000
</TABLE>
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 July 30, 1999, the Company completed the acquisition of KEDJ-FM, Sun
City, Arizona and KDDJ-FM, Globe, Arizona. The operations of these stations have
been included in the consolidated statements of operations from this date. The
aggregate purchase price for these stations was $22,000,000 excluding
acquisition related expenses and was paid in cash. Management's preliminary
estimate of the fair value of the assets acquired in this transaction, subject
to further review and appraisal is as follows:
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<CAPTION>
KEDJ-FM KDDJ-FM
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Building............................................ $ 112,000 $ 349,000
Fixed assets........................................ 212,000 15,000
FCC broadcast license............................... 16,176,000 5,136,000
</TABLE>
8
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BIG CITY RADIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RECENT DEVELOPMENTS (CONTINUED)
The fair value of the fixed assets and building 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.
5. SUBSEQUENT EVENTS
On November 1, 1999 the Company entered into a merger and registration
rights agreement ("the agreement") in which the Company acquired, in an all
stock transaction, all the issued and outstanding stock of Hispanic Internet
Holdings, Inc., a privately held bilingual Online Service Provider for the U.S.
Hispanic and Latin American markets. The transaction will be accounted for as a
purchase. The Company issued 400,000 shares of its Class A Common Stock at a
value of $4 per share. Under the terms of the agreement, an additional 600,000
shares will be issued over the next five years contingent upon the successful
achievement of certain annual revenue goals.
On November 1, the Company also announced the appointment of Charles
M. Fernandez to the position of President and Chief Executive Officer. The
Company and Mr. Fernandez are parties to an employment agreement for an initial
term of three years. Upon signing the agreement, Mr. Fernandez is entitled to be
issued 250,000 stock options of the Company. Under the terms of this agreement,
he can earn up to an additional 750,000 stock options, based upon the future
stock price of the Company.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements set forth below under this caption constitute
"Forward-Looking Statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). See "Special Note
Regarding Forward-Looking Statements".
GENERAL
The Company owns and operates radio stations in four of the largest radio
markets in the United States. The Company's radio broadcast properties are
located 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 the Los Angeles area, the Company owns and operates three FM radio
stations, KLYY-FM, KSYY-FM, and KVYY-FM, all trimulcasting on 107.1 FM to form
"Southern California's Modern Rock Y-107". These stations were acquired in 1996.
In the New York area, the Company owns and operates four FM radio stations,
WYNY-FM and WWVY-FM, WWZY-FM, and WWYY-FM, all programmed as "New Country
Y-107". New Country Y-107 began broadcasting on December 4, 1996. WWVY-FM and
WWZY-FM were operated under Local Marketing Agreements ("LMAs") throughout the
periods from December 1996 to April 1, 1997 and June 5, 1997, their effective
acquisition dates, respectively, and WWYY-FM was operated under LMA throughout
the period from April 27, 1998 to August 13, 1998, its effective acquisition
date. WYNY-FM was acquired on January 1, 1995.
In the Chicago area, the Company owns six radio stations, WXXY-FM and
WYXX-FM, both simulcasting on 103.1 FM as "The EightiesChannel" and WKIE-FM,
WKIF-FM, and WDEK-FM, trimulcasting as 92 KISS FM, and WLBK-AM. The 103.1 FM
stations were acquired on August 8, 1997. The Company operated WXXY-FM as a
stand-alone, brokered-programming FM station and leased WYXX-FM to the previous
owner under a LMA agreement until the Company commenced operation of this
simulcast in early February 1998. The 103.1 simulcast began broadcasting its
current format of "The EightiesChannel" in August 1999. WKIE-FM and WKIF-FM were
acquired on August 4 and 7, 1998, respectively. These stations commenced
operations as 92 KISS FM, a contemporary hit radio format in November 1998. On
February 25, 1999 the Company acquired WDEK-FM and WLBK-AM. The Company added
WDEK-FM to the 92 KISS FM stations. It is the Company's intention to sell the
operating assets of WLBK-AM.
In the Phoenix area, the Company owns four radio stations, KEDJ-FM on 106.3
FM, KDDJ-FM on 100.3 FM, and KBZR-FM on 106.5, all trimulcasting the modern rock
format known as "The Edge" with the Howard Stern morning show, and KMYL-FM
currently broadcasting "Nostalgia". KEDJ-FM and KDDJ-FM were acquired on
July 30, 1999. On September 22, 1999 the Company acquired KBZR-FM and added
KBZR-FM to "The Edge" stations. It is the Company's intention to exchange the
operating assets of KDDJ-FM, plus an additional cash amount for the FCC license
and operating assets of another Phoenix area station to simulcast with KMYL-FM
which was acquired on September 28, 1999. With the completion of this
transaction, the Company will own two separate radio station groups in Phoenix.
RESULTS OF OPERATIONS
BACKGROUND
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
10
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radio broadcasting compared to other advertising media, government regulation
and policies and the Company's ability to provide popular programming.
The Company's primary source of revenue is the sale of advertising. Each
station's total revenue is determined by the number of advertisements aired by
the station and the advertising rates that the station is able to charge.
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 SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1998
NET REVENUES for the three months ended September 30, 1999 were $6,615,000
compared with $4,036,000 for the three months ended September 30, 1998, an
increase of $2,579,000 or 63.9%. This increase was due primarily to increases in
the net revenues of Y-107 NY, Y-107 LA, and the commencement of operations of 92
KISS FM in November 1998 and "The Edge" in August 1999. These increases in
revenues were partially offset by the absence of net revenues for WRKL-AM for
the three months ended September 30, 1999 compared with net revenues of $401,000
during the same period in 1998. The existing radio stations' revenue growth
compared with the corresponding period in the prior year was $642,000 or 17.7%.
STATION OPERATING EXPENSES EXCLUDING DEPRECIATION AND AMORTIZATION for the
three months ended September 30, 1999 were $6,194,000 compared with $4,461,000
for the three months ended September 30, 1998, an increase of $1,733,000 or
38.8%. This increase was due principally to the start-up operations of 92 KISS
FM in November 1998 and "The Edge" in August 1999, offset by a decrease in
station operating expenses at WRKL-AM of $450,000 for the corresponding three
month period in 1998 due to its sale in March 1999.
CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES for the three months ended
September 30, 1999 were $868,000 compared with $721,000 for the three months
ended September 30, 1998, an increase of $147,000, or 20.4%. This increase was
due primarily to increased printing costs, franchise taxes, legal and
professional fees and administrative expenses to support the growth of the
Company.
DEPRECIATION AND AMORTIZATION EXPENSES for the three months ended
September 30, 1999 were $1,002,000 compared with $701,000 for the three months
ended September 30, 1998, an increase of $301,000, or 42.9%. This increase was
due primarily to the amortization of intangibles and depreciation of capital
assets of the Chicago and Phoenix stations which were acquired in February and
July 1999, respectively.
INTEREST EXPENSE for the three months ended September 30, 1999 was
$4,559,000 compared with $3,783,000 for the three months ended September 30,
1998, an increase of $776,000, or 20.5%. This increase is due to the increase in
the accreted principal amount of the Senior Discount Notes for the quarter ended
September 30, 1999 when compared to the quarter ended September 30, 1998. In the
three months ended September 30, 1999 and 1998, the average outstanding total
debt for the Company was $148,322,000 and $133,091,000, respectively. The
average rate of interest on the outstanding debt was 11.31% and 11.21%,
respectively. Interest income for the three months ended September 30, 1999 was
$355,000 compared with $1,022,000 for the three months ended September 30, 1998.
This decrease was a result of lower average balance of investments in marketable
securities.
NET LOSSES for the three months ended September 30, 1999 were $5,697,000
compared with $4,192,000 for the three months ended September 30, 1998. The
increase in the net loss of $1,505,000 was primarily
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<PAGE>
attributable to higher station operating expenses, depreciation and amortization
expenses, corporate, general and administrative expenses, net interest expense,
and loss of income tax benefit, offset by increased net revenues in the quarter
ended September 30, 1999, compared to the corresponding quarter in 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1998
NET REVENUES for the nine months ended September 30, 1999 were $14,068,000
compared with $9,944,000 for the nine months ended September 30, 1998, an
increase of $4,124,000 or 41.5%. This increase was due primarily to increases in
the net revenues of Y-107 NY, Y107 LA, Chicago stations, and the commencement of
the Phoenix station. These increases in revenues were partially offset by the
decrease in net revenues of $1,099,000 for WRKL-AM for the nine months ended
September 30, 1999 compared with the same period in 1998. The existing radio
stations' net revenue growth compared with the corresponding period in the prior
year was $2,386,000 or 27.4%.
STATION OPERATING EXPENSES EXCLUDING DEPRECIATION AND AMORTIZATION for the
nine months ended September 30, 1999 were $16,799,000 compared with $12,751,000
for the nine months ended September 30, 1998, an increase of $4,048,000 or
31.7%. This increase was due principally to the start-up operations of 92 KISS
FM in November 1998 and "The Edge" in July 1999 and the increased station
operating expenses of "The EightiesChannel" throughout the nine months ended
September 30, 1999, offset by a decrease in station operating expenses at
WRKL-AM of $1,219,000 for the corresponding nine month period in 1998 due to its
sale in March 1999.
CORPORATE, GENERAL AND ADMINISTRATIVE EXPENSES for the nine months ended
September 30, 1999 were $2,506,000 compared with $2,063,000 for the nine months
ended September 30, 1998, an increase of $443,000 or 21.5%. This increase was
due primarily to increased administrative expenses to support the growth of the
company.
DEPRECIATION AND AMORTIZATION EXPENSES for the nine months ended
September 30, 1999 were $2,704,000 compared with $1,737,000 for the nine months
ended September 30, 1998, an increase of $967,000 or 55.7%. This increase was
due primarily to the amortization of intangibles and depreciation of capital
assets of the Phoenix stations which were acquired in July 1999 and Chicago
stations which were acquired in August 1998 and February 1999.
INTEREST EXPENSE for the nine months ended September 30, 1998 was
$12,601,000 compared with $8,664,000 for the nine months ended September 30,
1998, an increase of $3,937,000 or 45.4%. In the nine months ended
September 30, 1999 and 1998, the average outstanding total debt for the Company
was $144,644,000 and $102,672,000 respectively. The average rate of interest on
the outstanding debt was 11.27% and 11.21% respectively. Interest income for the
nine months ended September 30, 1999 were $1,751,000 compared with $2,263,000
for the nine months ended September 30, 1998.
NET LOSSES for the nine months ended September 30, 1999 were $18,452,000
compared with $12,937,000 for the nine months ended September 30, 1998. The
increase in the net loss of $5,515,000 was primarily attributable to higher
station operating expenses, depreciation and amortization expenses, corporate,
general and administrative expenses, and net interest expense as well as the
lack of income tax benefit. These increases were offset by a gain on sale of a
station of $663,000, no extraordinary loss on extinguishment of debt, net of
income taxes of $495,000 or employment stock incentive of $808,000 and increased
net revenues for the nine months ended September 30, 1999.
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, Y-107
NY, "The EightiesChannel", and 92 KISS FM, and depreciation and amortization
charges relating to the Company's acquisition of radio stations, as well as
12
<PAGE>
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 its
markets 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), borrowings under the Old
Credit Facility and the issuance of the Notes. The Company has entered into
various employment contracts with twenty-seven 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 $893,000 in 1999, $3,303,000 in 2000, $1,006,000 in 2001 and
$475,000 in 2002.
The Company has never paid cash or stock dividends on shares of common
stock. Furthermore, it intends to retain any 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 both the nine months ended September 30, 1999 and 1998, the Company used
cash in its operations. In the nine months ended September 30, 1999, the deficit
was predominantly due to the start-up operating losses of 92 KISS FM and "The
EightiesChannel". In the nine months ended September 30, 1998 this negative cash
flow was predominantly due to the funding of the start-up operations of Y-107
New York and "The EightiesChannel".
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (excluding acquisitions of radio stations) were
$2,677,000 and $1,551,000 for the nine months ended September 30, 1999 and 1998,
respectively. 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, and computer
support equipment.
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 Stuart Subotnick, the
Company's Chairman and a holder of its Class B Common Stock, 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 Notes Offering on March 17, 1998.
The Company completed the Notes offering of $174.0 million aggregate
principal amount at maturity of 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. The Company has used for past acquisitions and has
committed for future acquisitions of radio station properties approximately
$66.4 million and intends to use the remaining proceeds for general, corporate
and working capital purposes.
The Notes were 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 14, 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, 2002,
2003 and 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
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<PAGE>
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 at a price equal to the principal amount of such Notes if such
repurchase occurs thereafter. 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 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 basis by the
Company's Restricted Subsidiaries, as defined in the Indenture governing the
Notes; as of November 5, 1999, all of the Company's subsidiaries were 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,
restriction on 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 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.
On July 6, 1998, the Company completed an exchange offer for the Notes, in
which the holders of substantially all outstanding Notes exchanged their Notes
for newly-issued Notes registered under the Securities Act of 1933. The new
Notes have the same terms as the exchanged Notes, except that the new Notes are
so registered. The amount exchanged was $172,500,000 aggregate principal amount
at maturity of Notes.
In connection with the consummation of the Notes Offering, the Company
entered into the Revolving Credit Facility with The Chase Manhattan Bank
("Chase") providing for up to $15.0 million of availability, based upon a
multiple of the Company's radio stations' positive rolling four quarter
broadcast cash flow. The Revolving Credit Facility will mature on the fifth
anniversary of March 17, 1998 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 achieving 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
achieving 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 station subsidiaries'
assets. The Company will pay fees 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
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<PAGE>
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.
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 defaults upon the revocation of any of the Company's
broadcast licenses. 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, as defined.
As of the date of this report, the Company has no binding commitments for
any such acquisitions, except for those detailed in footnotes 4 and 5, "Recent
Developments" and "Subsequent Events," in the Notes to Consolidated Financial
Statements. After giving effect to the Notes Offering and application of net
proceeds therefrom, the Company had available approximately $12.0 million of
cash and cash equivalents on hand and marketable securities at September 30,
1999 and has unused borrowing capacity of $6.5 million under the Revolving
Credit Facility, which can be used for working capital purposes, including
financing any such acquisitions. Cash and cash equivalents on hand, marketable
securities, 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 Notes 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 September 30, 2000.
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
The Company is currently working to evaluate and resolve the potential
impact of the Year 2000 on the processing of date-sensitive information and
network systems. The Year 2000 problem is the result of computer programs being
written using two digits (rather than four) to define the Year 2000, which could
result in miscalculations or system failures resulting from recognition of a
date using "00" as the year 1900 rather than the year 2000. The Company's
analysis of the Year 2000 threat is on-going and will be continuously updated
throughout 1999 as necessary.
The Company has delegated responsibility to a group of executives to
coordinate the identification, evaluation and implementation of changes to
computer systems and applications necessary to achieve the Company's goal of a
Year 2000 date conversion which would minimize the effect on its customers and
avoid disruption to business operations. The Company has also focused on
hardware and software tools,
15
<PAGE>
programming and outside forces that may affect the Company's operations,
including the Company's vendors, banks and utility companies.
The Company has written and distributed a questionnaire and project plan to
the Company's systems and operating personnel to identify all business and
computer applications, so the Company can identify potential compliance
problems. The Company has initiated communications with all of its significant
customers, suppliers and contractors to determine their plans for remediating
any Year 2000 issues that arise in the interface with the Company. As of
September 30, 1999 the evaluation of the questionnaire results is substantially
complete. While a small percentage of suppliers have not returned the
questionnaires, most of our important suppliers have certified current Year 2000
compliance or have projected compliance or readiness by December 31, 1999. The
Company has developed a contingency plan should the planned Year 2000 remedial
measures prove to be less than comprehensive.
The contingency plan addresses Year 2000 related problems that are
unanticipated or outside of the Company's control. The objective of the
contingency plan is to provide for rapid response and minimal disruption of
operations in the event of unforeseen Year 2000 related problems. As part of its
overall contingency plan, the Company has put in place power generators and
other back-up measures. Management believes that its plans provide reasonable
assurance that the Company will not be materially impacted by a Year 2000
problem. The Company cannot provide assurance that all principal customers and
suppliers will successfully complete Year 2000 compliance plans in a timely
manner or that unexpected events will not occur. However, management believes
that its plans should reduce the risk of business interruptions due to such
occurrences.
Based on the preliminary data, the Company's estimate is that the Year 2000
effort will cost $50,000, covering the period from January 1, 1998 through
December 31, 2000, out of a total expected cost of information systems of
$200,000 for this period, although there can be no assurance as to the ultimate
cost of the Year 2000 effort or the total cost of information systems. Such
costs will be expensed as incurred, except to the extent such costs are incurred
for the purchase or lease of capital equipment. The Company expects to make some
of the necessary modifications through its ongoing investment in system
upgrades. The Company believes that its exposure to this issue, based on its
internal systems, is somewhat limited by the fact that the majority of its
existing systems have been purchased or replaced since 1996 or currently remain
under development.
As of September 30, 1999, the Company had incurred minimal expenses in
respect of its Year 2000 conversion effort. No other information system projects
of the Company have been deferred due to the Year 2000 efforts. The Company
expects that the source of funds for Year 2000 costs will be cash on hand.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report, including those utilizing 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 of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (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 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 forward-looking statements. Such factors include,
but are not limited to, the following: (i) changes in the Company's and its
stations'
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competitors, (ii) changes in the regulatory framework, (iii) changes in audience
tastes, changes or advances in technology 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
release publicly 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. The Company's ability to avoid interruptions due to Year 2000 problems
involves risks and uncertainties, including, but not limited to, suppliers',
customers' and the Company's ability to complete remediation which could be
affected by factors such as delays and increased costs.
This report constitutes a Year 2000 Readiness Disclosure Statement, and the
statements herein are subject to the Year 2000 Information and Readiness
Disclosure Act. The Company hereby claims the protection of this Act for this
report and all information contained herein.
17
<PAGE>
PART II--OTHER INFORMATION
ITEM 1--LEGAL PROCEEDINGS
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.
ITEM 2--CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3--DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders, through
the solicitation of proxies or otherwise, during the third quarter of 1999.
ITEM 5--OTHER INFORMATION.
None.
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------ -------
<S> <C>
10.16* Merger and Registration Rights Agreement by and among
Hispanic Internet Holdings, Inc. ("HIH"), Shareholders of
HIH, Big City Radio, Inc., and HIH Acquisition, Inc., dated
November 1, 1999.
10.17* Employment Agreement, between Big City Radio, Inc. and
Charles M. Fernandez, dated November 1, 1999.
11* Computation of Earnings Per Share
27* Financial Data Schedule for the period ended September 30,
1999
</TABLE>
(b) Reports on Form 8-K
No reports were filed during the quarter for which this report was filed.
- ------------------------
*Filed herewith
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
BIG CITY RADIO, INC.
By: /s/ PAUL R. THOMSON
-----------------------------------------
Paul R. Thomson
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AND TREASURER
</TABLE>
Dated: November 12, 1999
19
<PAGE>
Exhibit 10.16
MERGER AND REGISTRATION RIGHTS AGREEMENT
MERGER AND REGISTRATION RIGHTS AGREEMENT made as of the 1st day of
November 1999, by and among (i) HISPANIC INTERNET HOLDINGS, INC., a Florida
corporation ("HIH"), (ii) the shareholders of HIH listed on SCHEDULE I to this
Agreement (the "Shareholders"), (iii) BIG CITY RADIO INC, a Delaware corporation
("BCR"), and (iv) HIH ACQUISITION, INC., a Delaware corporation and a wholly
owned subsidiary of BCR ("Newco"). Capitalized terms used herein and not
otherwise defined shall have the meaning ascribed to such terms in Article VII
hereof.
WITNESSETH
WHEREAS, the Boards of Directors of HIH, BCR and Newco have each
approved the merger of Newco with and into HIH (the "Merger"), upon the terms
and subject to the conditions set forth herein;
WHEREAS, each Shareholder owns, and will own immediately prior to the
Closing, that number of shares (the "Shares") of common stock of HIH (the "HIH
Common Stock") set forth opposite his or her name on SCHEDULE I.
WHEREAS, pursuant to the Merger, the Shareholders will receive the
Merger Consideration specified herein;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual agreements and covenants contained herein, and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I
MERGER
1.1 THE MERGER; SURVIVING CORPORATION. Upon the terms and subject to
the conditions set forth herein, and in accordance with the provisions of this
Agreement and the Florida Business Corporation Act (the "FBCA"), at the
Effective Time, Newco shall be merged with and into HIH, with Newco being the
surviving corporation (hereinafter sometimes called the "Surviving
Corporation").
1.2 ARTICLES OF INCORPORATION. The Articles of Incorporation of Newco,
as in effect at the Effective Time, shall be the Articles of Incorporation of
the Surviving Corporation until thereafter amended as provided by law.
1.3 BYLAWS. The Bylaws of Newco, as in effect at the Effective Time,
shall be the Bylaws of the Surviving Corporation until thereafter amended as
provided by law.
<PAGE>
1.4 DIRECTORS AND OFFICERS. The directors and officers of Newco
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation at the Effective Time until thereafter changed in
accordance with applicable law and appropriate corporate actions.
1.5 EFFECTIVE TIME. The Merger shall become effective in accordance
with the terms of articles of merger (the "Delaware Articles of Merger") in the
form attached hereto as EXHIBIT "A" to be filed with the Delaware Department of
State pursuant to Delaware law. The date and time when the Merger shall become
effective are herein referred to as the "Effective Time."
1.6 EFFECTUATION OF THE MERGER. The parties shall file the Delaware
Articles of Merger and take any and all other lawful actions and do any and all
other lawful things necessary to cause the Merger to become effective.
1.7 CONVERSION OF COMMON STOCK; MERGER CONSIDERATION. By virtue of the
Merger and without any action on the part of any holder of capital stock of
Newco or HIH:
(a) The Shares of HIH issued and outstanding immediately prior
to the Effective Time (except for Shares which are held by HIH in its treasury)
shall be converted at the Effective Time into and represent the right to receive
the Merger Consideration (as defined below) in accordance with the terms hereof.
(b) Each share of HIH common stock held in its treasury
immediately prior to the Effective Time shall be canceled or retired and cease
to exist at the Effective Time without any conversion thereof.
(c) The term "Merger Consideration" shall mean (i) an
aggregate amount of 400,000 shares of Common Stock (the "Closing Date Shares"),
$.01 par value (the "BCR Common Stock") of BCR, to be allocated among the
Shareholders in accordance with such Shareholder's Pro Rata Portion, and (ii)
the Earnout specified in Section 1.13 hereof (the "Earnout Shares" and
collectively with the Closing Date Shares, the "Merger Consideration Shares").
1.8 PAYMENT OF THE MERGER CONSIDERATION. BCR shall deliver, or cause to
be delivered, the Merger Consideration Shares to the Shareholders as follows:
(i) the Closing Date Shares shall be delivered to the Shareholders, in
accordance with their Pro Rata Portion, on the Closing Date, and (ii) the
Earnout Shares shall be delivered to the Shareholders, in accordance with their
Pro Rata Portion, within five business days of reaching the goals set forth in
Section 1.13 hereof.
1.9 NO OTHER RIGHTS. Upon consummation of the Merger, until surrendered
to the Surviving Corporation, each certificate for Shares which immediately
prior to the Effective Time represented outstanding Shares shall represent
solely the right to receive the Merger Consideration relating thereto at and
after the Effective Time.
2
<PAGE>
1.10 NEWCO COMMON STOCK. Each share of common stock, $.01 par value per
share, of Newco issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, be converted at the Effective Time into one fully paid and
non-assessable share of common stock, par value $.01 per share, of the Surviving
Corporation.
1.11 FURTHER ASSURANCES. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any further documents,
instruments or assurances in law or any other acts are necessary, desirable or
proper to carry out the intent and accomplish the purposes of this Agreement,
BCR agrees that the Surviving Corporation and its proper officers and directors
will execute and deliver all documents, instruments and assurances in law and do
all acts reasonably necessary, desirable or proper to carry out the intent and
accomplish the purposes of this Agreement, and that the proper officers and
directors of the Surviving Corporation are fully authorized in the name of the
Surviving Corporation or otherwise to take any and all such action.
1.12 THE CLOSING. The consummation of the transaction contemplated by
this Agreement (the "Closing") shall take place at a location and date to be
mutually agreed to by the parties ("Closing Date").
1.13 EARN OUT. The Shareholders shall be entitled to payment of
additional consideration (the "Earnout") as follows, based upon achievement of
the Earnout Milestones (as defined below):
(a) (i) an aggregate amount of 120,000 shares of BCR Common Stock
if Gross Revenues (as defined in (b) below) of HIH for the
2000 calendar year equal or exceed $1,800,000 (the "Y2000
Milestone"), (ii) an additional aggregate amount of 120,000
shares of BCR Common Stock if Gross Revenues of HIH for the
2001 calendar year equal or exceed $4,500,000 (the "Y2001
Milestone"), (iii) an additional aggregate amount of 120,000
shares of BCR Common Stock if Gross Revenues of HIH for the
2002 calendar year equal or exceed $8,500,000 (the "Y2002
Milestone"), (iv) an additional aggregate amount of 120,000
shares of BCR Common Stock if Gross Revenues of HIH for the
2003 calendar year equal or exceed $11,500,000 (the "Y2003
Milestone"), and (v) an additional aggregate amount of 120,000
shares of BCR Common Stock if Gross Revenues of BCR Common
Stock if Gross Revenues of HIH for the 2004 calendar year
equal or exceed $15,000,000 (the "Y2004 Milestone") (such
additional shares issued upon payment of the Earnout are
referred to as the "Earnout Shares" and the Y2000 Milestone,
the Y2001 Milestone, the Y2002 Milestone, the Y2003 Milestone
and the Y2004 Milestone shall be each be an "Earnout
Milestone" and shall be collectively referred to as the
"Earnout Milestones"). The Earnout Shares shall be issued to
the Shareholders in accordance with their Pro Rata Portion and
if the Earnout Milestone for a calendar year during the 2000
to 2004 calendar years is met during such calendar year. If in
any given calendar year, Gross Revenues are at least equal to
the Earnout Milestones for the first subsequent calendar year,
then the Earnout Milestones for the first such subsequent
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calendar year will be equal to the average of the original
Earnout Milestones for the first such subsequent calendar year
and the year immediately proceeding the first such subsequent
calendar year. If in any given calendar year, the Gross
Revenues are at least equal to the Earnout Milestones for the
second, third, fourth or fifth subsequent calendar year and if
in the first such subsequent year the Gross Revenues are at
least equal to the Earnout Milestones for the second, third,
fourth or fifth years, then the Earnout Shares associated with
the Earnout Milestone attained in these two consecutive years
shall be awarded at the close of such subsequent calendar
year. For example, if Gross Revenues for the 2000 calendar
year equal $6,000,000, the Shareholder shall be granted
120,000 shares. The additional 120,000 shares will be granted
if and only if the revenues at the end of calendar Y2001 are
at least equal to the average of Y2000's and Y2001's Earnout
Milestones. If, for example, Gross Revenues for calendar Y2000
equal $10,000,000, the Shareholder shall be granted 120,000
shares. At the end of the calendar year 2001, 120,000 shares
will be granted if the revenues at the end of calendar Y2001
are at least equal to the average of the Y2000's and Y2001's
Earnout Milestones and an additional 120,000 shares will be
granted if revenues at the end of calendar Y2001 are at least
equal to Y2002's Earnout Milestone.
(b) For purposes of this Agreement, "Gross Revenues of HIH" mean actual
cash revenues from whatever source derived, excluding any barter revenue.
(c) BCR shall make available to the Shareholders all such information
and copies of documents and records necessary for evaluating the achievement of
the Earnout Milestones. If any Shareholder disputes such determination, then
such Shareholder shall give written notification to BCR setting forth such
dispute. As promptly as reasonably possible after receipt of such notice,
representatives of BCR and such Shareholder(s) shall meet to attempt to
reconcile their differences. If the dispute has not been resolved within fifteen
(15) business days after notice of dispute has been given, then within five (5)
business days thereafter any party may give notice to the other of its desire to
arbitrate such disputed items and, at the request of the notifying party, such
disputed items shall be submitted for arbitration to an arbitrators mutually
acceptable to the parties. The costs of such arbitrators shall be borne by the
non-prevailing party. Any Earnout Shares not subject to dispute shall be paid in
accordance with this Section 1.13.
(d) If a Sale or Spin-off of the Surviving Corporation shall occur at
any time prior to the fifth anniversary date of this Agreement and the
Shareholders shall have (i) complied with the terms and conditions of this
Agreement and (ii) the Sale price or, in the case of a Spin-off, the Equity
Value, of the Surviving Corporation, shall be at least Ten Million Dollars
($10,000,000), the Earnout Milestones shall be deemed to have been achieved, as
of the date of such Sale, and the Shareholders shall be issued the Earnout
Shares in accordance with their Pro Rata Portion. For purposes of this
Agreement, "Sale" shall mean the acquisition by any person, group of affiliated
persons or entity, of (1) all of the stock of the Surviving Corporation, or BCR,
as the case may be or (2) all or substantially all of the assets of the
Surviving Corporation, or BCR, as the case may be. For purposes of this
Agreement, "Spin-off" shall mean (x) the distribution by BCR of 100% of its
ownership interests in the Surviving Corporation as a dividend to its existing
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shareholders or (y) an initial public offering of all or part of BCR's ownership
interests in the Surviving Corporation. If a Sale of BCR shall occur at any time
prior to the fifth anniversary of this Agreement and the Sale price shall be at
least $4.00 per share of Class A Common Stock, the Earnout Milestones shall be
deemed to have been achieved, as of the date of such Sale, and the Shareholders
shall be issued the Earnout Shares in accordance with their Pro Rata Portion.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BCR
In order to induce each Shareholder to enter into this Agreement, BCR
represents and warrants to each Shareholder the following as of the Closing
Date.
2.1 ORGANIZATION AND CORPORATE POWER. BCR is a corporation duly
organized and validly existing under the laws of the State of Delaware. Newco is
a corporation duly organized and validly existing under the laws of the State of
Delaware. Each of BCR and Newco has all required corporate power and authority
to own its property and to carry on its businesses as presently conducted. Each
of BCR and Newco has all required corporate power and authority to enter into
and perform this Agreement, and to carry out the transactions contemplated
hereby, including, without limitation, the issuance of the Merger Consideration
Shares.
2.2 AUTHORIZATION AND NON-CONTRAVENTION. This Agreement is a valid and
binding obligation of BCR and Newco, enforceable against BCR and Newco in
accordance with its terms, except as such enforceability may be limited by
bankruptcy laws and general principles of equity. The execution, delivery and
performance of this Agreement and the issuance of the Merger Consideration
Shares, have been duly authorized by all necessary corporate action of BCR and
Newco. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (i) violate or
conflict with BCR's or Newco's charter or bylaws, (ii) conflict with or
constitute a breach of any material agreement to which BCR or Newco or any of
its subsidiaries are a party, except where such breach would not have a Material
Adverse Effect, or (iii) violate any applicable law, rule, regulation, judgment,
order, writ or decree to which BCR or Newco is subject, except for such
violations that would not have a Material Adverse Effect.
2.3 CAPITALIZATION. As of the Closing, and prior to giving effect to
the transactions contemplated hereby, the authorized and issued capital stock of
BCR is as set forth in SCHEDULE 2.3 attached hereto.
2.4 REPORTS AND FINANCIAL STATEMENTS. The historical financial
statements included in the Incorporated Documents present fairly in all material
respects the financial position of BCR and its consolidated subsidiaries at the
dates indicated and the statement of operations, stockholders' equity and cash
flows of BCR and its consolidated subsidiaries for the periods specified were
prepared in conformity with GAAP applied on a consistent basis throughout the
periods presented except as disclosed therein. Since the date of the most recent
financial statements included in the Incorporated Documents, there has been no
Material Adverse Change.
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2.5 INCORPORATED DOCUMENTS. The Incorporated Documents comply in all
material respects with the requirements of the Exchange Act and as of their
respective dates, did not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
2.6 REGULATORY MATTERS. Except to the extent as would not have a
Material Adverse Effect, BCR is in compliance with (i) the Communications Act of
1934, as amended by the Telecommunications Act of 1996 (the "Communications
Act") and with all applicable rules, regulations and policies of the Federal
Communications Commission (the "FCC"), and (ii) all state and local laws
relating to telecommunications.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF HIH
In order to induce BCR and Newco to enter into this Agreement, HIH
represents and warrants to BCR the following as of the Closing Date.
3.1 ORGANIZATION AND CORPORATE POWER. HIH is a corporation duly
organized and validly existing under the laws of the State of Florida. HIH has
all required corporate power and authority to own its property and to carry on
its businesses as presently conducted. HIH has all required corporate power and
authority to enter into and perform this Agreement, and to carry out the
transactions contemplated hereby.
3.2 AUTHORIZATION AND NON-CONTRAVENTION. This Agreement is a valid and
binding obligation of HIH, enforceable against HIH in accordance with its terms,
except as such enforceability may be limited by bankruptcy laws and general
principles of equity. The execution, delivery and performance of this Agreement
have been duly authorized by all necessary corporate action of HIH. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby will not (i) violate or conflict with HIH's
charter or bylaws, (ii) conflict with or constitute a breach of any material
agreement to which HIH or any of its subsidiaries are a party, except where such
breach would not have a Material Adverse Effect, or (iii) violate any applicable
law, rule, regulation, judgment, order, writ or decree to which HIH is subject,
except for such violations that would not have a Material Adverse Effect.
3.3 CAPITALIZATION. The Shareholders are the record owners of all of
the issued and outstanding shares of HIH Common Stock. All of such shares of HIH
Common Stock are duly authorized, validly issued, fully paid and nonassessable
and were not issued in violation of (i) any preemptive or other rights of any
person to acquire securities of HIH, or (ii) any applicable federal or state
securities laws, and the rules and regulations promulgated thereunder. There are
no outstanding subscriptions, options, convertible securities, rights
(preemptive or other), warrant, calls or agreements relating to any shares of
capital stock of HIH.
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3.4 OWNERSHIP OF WEBSITE. HIH owns and has the right to use the
website, "todoahora.com" free and clear of all liens and encumbrances and has
filed an application for service mark registration in the United States Patent
and Trademark Office, copy of which is attached hereto as Exhibit "B".
3.5 OPTIONS OR OTHER RIGHTS. There is no outstanding right,
subscription, warrant, call, unsatisfied preemptive right, option or other
agreement of any kind to purchase or otherwise to receive from the Company, or
any Stockholder any of the outstanding, authorized by unissued, unauthorized or
treasury shares of the capital stock or any other security of the Company or,
and there is no outstanding security of any kind convertible into any such
capital stock.
3.6 CHARTER DOCUMENTS AND CORPORATE RECORDS. The Stockholders have
heretofore caused to be delivered to BCR true and complete copies of the
Articles of Incorporation and By-laws, or comparable instruments, of the Company
as in effect on the date hereof and has made available for inspection the true
and complete minute books of the Company.
3.7 COMPLIANCE WITH LAWS. The Company is not in violation of any
applicable order, judgment, injunction, award, decree or writ (collectively,
"Orders"), or any applicable law, statute, code, ordinance, regulation or other
requirement (collectively, "Laws"), of any government or political subdivision
thereof, whether federal, state, local or foreign, or any agency or
instrumentality of any such government or political subdivision, any court or
arbitrator (collectively, "Governmental Bodies") the enforcement of which would
have a Material Adverse Effect on the condition of the Company as a whole, and
the Company has not received notice that any such violation is being or may be
alleged.
3.8 PERMITS. The Company has all licenses, permits, orders or approvals
of, and have made all required registrations with, any Governmental Body that
are material to the current conduct of the business of, or the current use of
any of the Properties of, the Company (collectively, "Permits"). All Permits are
listed on Schedule 3.4 and are in full force and effect; no material violations
are or have been recorded in respect of any Permit; and no proceeding is pending
or, to the Knowledge of the Company, threatened to revoke or limit any Permit.
No action by the Stockholders, the Company or BCR is required in order that all
Permits will remain in full force and effect following the consummation of the
transactions provided for herein.
3.9 NO BREACH. The execution, delivery and performance of this
Agreement by the Stockholders and the consummation of the transactions
contemplated hereby, including but not limited to, the merger (the "Contemplated
Transactions") will not (i) violate any provision of the Articles of
Incorporation or By-laws of the Company; (ii) require the Stockholders or the
Company or to obtain any consent, approval or action of, or make any filing with
or give any notice to, any Governmental Body or any other Person, (iii) violate,
conflict with or result in the breach of any of the terms of, result in a
material modification of the effect of, otherwise cause the termination of or
give any other contracting party the right to terminate, or constitute (or with
notice or lapse of time or both constitute) a default under, any contract,
agreement, indenture, note, bond, loan, instrument, lease, conditional sale
contract, mortgage, license, franchise,
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commitment or other binding arrangement (collectively, the "Contracts") to which
the Company is a party or by or to which it or any of its Properties may be
bound or subject, or result in the creation of any Lien upon the Properties of
the Company pursuant to the terms of any such Contract; (iv) if the Required
Consents are obtained, violate any Order of any Governmental Body against, or
binding upon, the Company or upon its securities, Properties or business; (v) if
the Required Consents are obtained, violate any Law of any Governmental Body; or
(vi) if the Required Consents are obtained, violate or result in the revocation
or suspension of any Permit.
3.10 CLAIMS AND PROCEEDINGS. There are no outstanding Orders of any
Governmental Body against or involving the Company. There are no actions, suits,
claims or legal, administrative or arbitral proceedings or investigations
(collectively, "Claims") (whether or not the defense thereof or liabilities in
respect thereof are covered by insurance) pending, or to the Knowledge of the
Company, threatened, against or involving the Company or any of its Properties
and to the Knowledge of the Company, or any of the Stockholders, there is no
fact, event or circumstance that may give rise to any Claim.
3.11 CONTRACTS. (a) Schedule 3.11 sets forth all of the following
Contracts to which the Company is a party or by or to which it or its Properties
may be bound or subject: (i) Contracts with any current or former officer,
director, shareholder, employee, consultant, agent or other representative or
with an entity in which any of the foregoing is a controlling Person; (ii)
Contracts with any labor union or association representing any employee or
former employee; (iii) Contracts for the sale of any Properties other than in
the ordinary course of business or for the grant to any Person of any option or
preferential rights to purchase any Properties; (iv) partnership or, joint
venture agreements or Contracts; (v) Contracts under which the Company agrees to
indemnify any party or to share tax liability of any party; (vi) material
Contracts which cannot be cancelled without liability, premium or penalty only
on 90 days' or more notice; (vii) Contracts containing covenants of the Company
not to compete in any line of business or with any Person in any geographical
area or covenants of any other Person not to compete with the Company in any
line of business or in any geographical area; (viii) Contracts relating to the
acquisition by the Company of any operating business or the capital stock of any
other Person; (ix) Contracts relating to the borrowing of money; (x) Contracts
containing obligations or liabilities of any kind to holders of the capital
stock of the Company as such (including, without limitation, an obligation to
register any of such securities under any federal or state securities laws);
(xi) Contracts pursuant to which the Company may hold or use any interest owned
or claimed by the Company in or to any material Property; (xii) management
Contracts and other similar agreements with any Person; (xiii) any other
Contracts pursuant to the terms of which there is either a current or future
obligation or right of the Company to make payments in excess of $10,000 or
receive payments in excess of $25,000;
(b) There have been delivered to BCR true and complete copies of
all of the Contracts set forth on Schedule 3.11 or on any other Schedule. All of
the Contracts are valid and binding upon the Company in accordance with their
terms. The Company is not in default in any material respect under any of such
Contracts, nor does any condition exist that with notice or lapse of time or
both would constitute such a material default thereunder. To the Knowledge of
the Company, no other party to any such Contract is in default thereunder in any
material respect
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nor does any condition exist that with notice or lapse of time or both would
constitute such a material default thereunder.
3.12 INTELLECTUAL PROPERTY. Schedule 3.14 sets forth a list of the
Company's registered patents, registered trademarks, domain names, registered
service marks, registered trade names, registered copyrights and franchises, all
applications for any of the foregoing and all permits, grants and licenses or
other rights running to the Company relating to any of the foregoing that are
material to the business of the Company. The Company owns, or is licensed or
otherwise has the right, to use all registered patents, registered trademarks,
domain names, registered service marks, registered trade names, registered
copyrights and franchises set forth on Schedule 3.14, and (ii) the Company's
rights in the property set forth on such list are free and clear of any Lien or
other encumbrances and the Company has not received written notice of any
adversely-held patent, invention, trademark, service mark or trade name of any
other person, or notice of any charge or claim of any person relating to such
intellectual property or any process or confidential information of the Company
and to the Company's Knowledge there is no basis for any such charge or claim.
3.13 TITLE TO PROPERTIES. Except as set forth in the Schedules hereto,
the Company own outright and have good and marketable title to all of their
Properties, including, without limitation, all of the assets reflected on the
Balance Sheet or currently used in the operation of their businesses, in each
case free and clear of any Lien.
3.14 OFFICERS, DIRECTORS AND KEY EMPLOYEES. Schedule 3.16 sets forth (i)
the name and the 1999 total compensation of each officer and director of the
Company, (ii) the name and total compensation of each other employee,
consultant, agent or other representative of the Company (iii) any accrual for,
or any commitment or agreement by the Company to pay, such increases, bonuses or
pay.
3.15 POTENTIAL CONFLICTS OF INTEREST. No executive officer or director
of the Company, no Stockholder, no relative or spouse (or relative of such
spouse) of any such officer, director or a Stockholder and no entity controlled
by one or more of the foregoing:
(i) owns, directly or indirectly, any interest in
(excepting less than 1% stock holdings for investment purposes in securities of
publicly held and traded companies), or is an officer, director, employee or
consultant of, any Person which is, or is engaged in business as, a competitor
or customer of the Company;
(ii) owns, directly or indirectly, in whole or in
part, any Property that the Company uses in the conduct of its business; or
(iii) has any cause of action or other claim
whatsoever against, or owes any amount to, the Company, except for claims in the
ordinary course of business such as for accrued vacation pay, accrued benefits
under employee benefit plans, and similar matters and agreements existing on the
date hereof.
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3.16 PROJECTIONS. The projections relating to operations of the Company
through the fiscal year ending 2005 (the "Projections"), heretofore delivered by
the Company to BCR, have been prepared in good faith on a reasonable basis. The
assumptions on which the Projections are based are stated in Schedule 3.17 and
are consistent with past practices of the Company and with historical conditions
applicable to the business of the Company. Nothing has come to the attention of
the Company, or any of the Stockholders to indicate that the Projections or the
assumptions upon which they are based are not reasonable.
3.17 FULL DISCLOSURE. All documents, Contracts, instruments,
certificates, statements, schedules (including Schedules to this Agreement),
exhibits (including Exhibits to this Agreement), Projections through the year
ending 2004, and any other papers whatsoever (collectively, "Documents")
delivered by or on behalf of the Stockholders or the Company in connection with
this Agreement and the Contemplated Transactions are authentic if original or
true and correct copies of the originals. No representation or warranty of the
Stockholders contained in this Agreement, and no Document furnished by or on
behalf of the Stockholders or the Company to BCR pursuant to this Agreement or
in connection with the Contemplated Transactions, contains an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements made, in the context in which made,
not materially false or misleading. Except as otherwise set forth in this
Agreement, there is no material fact that the Stockholders have not disclosed to
BCR in writing that materially adversely affects or, so far as any of the
Stockholders can now foresee, will have a Material Adverse Effect on the Company
or the ability of the Stockholders to perform this Agreement.
ARTICLE IV
REGISTRATION RIGHTS AND LOCK-UP
4.1 SHELF REGISTRATION. Not later than twelve (12) months from the
Closing Date, BCR will file a registration statement (the "Shelf Registration
Statement") covering the number of shares representing the maximum amount of
Merger Consideration Shares and thereafter shall use its reasonable efforts to
(i) cause the Shelf Registration Statement to be declared effective as soon as
practicable following such filing, and (ii) maintain such effectiveness (the
"Registration Period") until the earlier of (x) the time at which each
Shareholder is no longer subject to the volume limitations under Rule 144 of the
Securities Act, or (y) such time as all of the Merger Consideration Shares have
been sold.
4.2 REGISTRATION PROCEDURES. BCR will, as expeditiously as possible:
(a) prepare and file with the Commission a Shelf Registration
Statement with respect to the Merger Consideration Shares and use its best
efforts to cause such Shelf Registration Statement to become and remain
effective for a period of time required for the disposition of Merger
Consideration Shares by each Shareholder;
(b) prepare and file with the Commission such amendments and
supplements to the Shelf Registration Statement and the prospectus used in
connection therewith as may be
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necessary to keep such Shelf Registration Statement effective and to comply with
the provisions of the Securities Act with respect to the sale or other
disposition of the Merger Consideration Shares covered by the Shelf Registration
Statement until such time as all of such securities have been disposed of by
each Shareholder;
(c) furnish each Shareholder such number of copies of a
summary prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents, as each Shareholder may reasonably request;
(d) use its reasonable efforts to register or qualify the
Merger Consideration Shares covered by the Shelf Registration Statement under
such other securities or blue sky laws of such jurisdictions within the United
States and Puerto Rico as each Shareholder shall reasonably request (provided,
however, BCR shall not be obligated to qualify as a foreign corporation to do
business under the laws of any jurisdiction in which it is not then qualified or
to file any general consent to service or process),and do such other reasonable
acts and things as may be required of it to enable each Shareholder to
consummate the disposition in such jurisdiction of the securities covered by the
Shelf Registration Statement; and
(e) promptly notify in writing each Shareholder of the
happening of any event, during the period of distribution, as a result of which
the Shelf Registration Statement includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances then
existing.
4.3 EXPENSES. All expenses incurred in complying with this Article IV,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for BCR shall be paid by BCR.
4.4 LOCK-UP. Prior to the first anniversary of this Agreement, no
Shareholder shall sell, assign, transfer, pledge, or encumber or grant any
rights or interests or in respect of (any such transfer, disposition or
encumbrance being hereinafter referred to as "Transfer") any Merger
Consideration Shares. Any purported Transfer in violation of this Agreement
shall be null and void and of no force and effect. Upon a Sale of the Company,
the foregoing prohibition on the Transfer of Merger Consideration Shares shall
terminate.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder hereby represents to BCR on behalf of such Shareholder
that:
(a) Such Stockholder has the full legal right and power and all authority and
approvals required to execute and deliver this Agreement and to perform fully
such Stockholder's obligations hereunder. This Agreement has been duly executed
and delivered by such Stockholder and (assuming the due authorization, execution
and delivery hereof by BCR) is a valid and binding obligation of such
Stockholder enforceable in accordance with its terms. The
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execution and delivery by such Stockholder of this Agreement, the consummation
of the Contemplated Transactions and the performance by such Stockholder of this
Agreement in accordance with its terms will not (i) require the approval or
consent of any Governmental Body or the approval or consent of any other Person;
(ii) conflict with or result in any breach or violation of any of the terms and
conditions of, or constitute (or with notice or lapse of time or both
constitute) a default under, any Law or Order of any Governmental Body
applicable to such Stockholder or to the Shares held by such Stockholder, or any
Contract to which such Stockholder is a party or by or to which such Stockholder
is or the Shares held by such Stockholder are bound or subject; or (iii) result
in the creation of any Lien on the Shares held by such Stockholder.
(b) Such Shareholder is acquiring the Merger Consideration
Shares for its own account, for investment, and not with a view to any
"distribution" thereof within the meaning of the Securities Act, and such
Shareholder has no present or presently contemplated agreement, undertaking,
arrangement, obligation, indebtedness or commitment providing for the
distribution thereof.
(c) Such Shareholder understands that because the Merger
Consideration Shares have not been registered under the Securities Act, it
cannot dispose of any or all of the Merger Consideration Shares unless the
relevant shares are subsequently registered under the Securities Act or
exemptions from such registration are available. Such Shareholder understands
that each certificate representing the Merger Consideration Shares will bear the
following legend or one substantially similar thereto:
The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"). These
securities have been acquired for investment and not with a
view to distribution or resale, and may not be sold,
mortgaged, pledged, hypothecated or otherwise transferred
without an effective registration statement for such
securities under the Act or an opinion of counsel satisfactory
to Big City Radio Inc. is obtained to the effect that an
exemption from such registration requirements is available.
(d) Such Shareholder is sufficiently knowledgeable and
experienced in the making of investments so as to be able to evaluate the risks
and merits of its investment in BCR, and is able to bear the economic risk of
loss of its investment in BCR.
(e) Such Shareholder has been advised that the Merger
Consideration Shares have not been and are not being registered under the
Securities Act or under the "blue sky" laws of any jurisdiction and that BCR in
issuing the Merger Consideration Shares is relying upon, among other things, the
representations and warranties of such Shareholder contained in this Article V.
(f) Such Shareholder has been afforded the opportunity to ask
questions of, and receive answers from, BCR and all of its executed officers and
directors and to obtain any
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additional information, to the extent that BCR possesses such information or
could have acquired it, necessary to verify the accuracy of the information
contained in any documents delivered to each Shareholder concerning BCR and has
in general had access to all information each Shareholder deemed material to an
investment decision with respect to the acquisition of the Securities.
(g) Such Shareholder is an "accredited investor" as defined in
Rule 501 of Regulation D promulgated under the Securities Act.
(h) Such Shareholder owns his or her shares of HIH Common
Stock free and clear of any and all liens, mortgages, adverse claims, charges,
security interests, encumbrances or other restrictions or limitations whatsoever
(except for limitations imposed under U.S. federal or applicable state
securities laws) and, upon delivery of and payment for such Shares as herein
provided, such Stockholder will convey to BCR good and valid title thereto, free
and clear of any Lien.
(k). The representations of the Company set forth in Section
3 are true, correct and complete in all material respects.
ARTICLE VI
INDEMNIFICATION.
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by each party in this Agreement shall survive the Closing Date
for a period of three (3) years from the Closing Date. The covenants of the
parties shall survive the Closing Date as provided herein.
6.2 INDEMNIFICATION BY BCR. BCR shall indemnify and defend and hold
harmless each Shareholder against and with respect to any and all damages,
claims, losses, penalties, liabilities, actions, fines, costs and expenses
(including, without limitation, reasonable attorney's fees and expenses) (all of
the foregoing hereinafter collectively referred to as a "Loss"), with respect to
the following items: (i) any misrepresentation or breach of warranty or covenant
by BCR under this Agreement; or (ii) any untrue statement of a material fact
contained in the registration statement referenced in Article II hereof, or the
omission therefrom of a material fact necessary to make statements therein, in
light of the circumstances under which they were made, not misleading (other
than statements provided by each Shareholder).1
6.3 INDEMNIFICATION BY SHAREHOLDER. Each Shareholder shall indemnify
and defend and hold harmless BCR against any Losses with respect to any
misrepresentation or breach of warranty or covenant by such Shareholder, or HIH
under this Agreement, but each case only to the extent such Losses do not exceed
such Shareholder's Pro Rata Portion of cash received by the Shareholder upon
sale of the Merger Consideration Shares, and subject to the next sentence, in no
event shall the Shareholder's Indemnification Obligation for Losses exceed the
greater of (a)
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the value of the Merger Consideration Shares as of the date hereof and (b) the
value of the Merger Consideration Shares as of the date the Indemnification
Obligation is to be paid. In the event that the stock or assets of Hispanic
Internet Holdings shall be determined by any court of competent jurisdiction to
not have been the property of HIH and to be the property of another person or
entity (other than the Shareholders), and as a result thereof, BCR shall be
required to forfeit the todoahora.com site and/or related assets, or to incur
Losses to retain such site and/or assets, all of the Merger Consideration Shares
shall be promptly transferred to BCR by the Shareholders, without consideration,
the Shareholders shall indemnify and hold harmless BCR against any Losses with
respect to such determination.
ARTICLE VII
DEFINITIONS
As used herein, the following terms shall have the following respective
meanings:
CLOSING. "Closing" shall have the meaning ascribed to such term in
Section 1.12 hereof.
CLOSING DATE. "Closing Date" shall have the meaning ascribed to such
term in Section 1.12 hereof.
CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended.
COMMISSION. "Commission" means the Securities and Exchange Commission.
EXCHANGE ACT. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
GAAP. "GAAP" means generally accepted accounting principles.
INCORPORATED DOCUMENTS. "Incorporated Documents" shall mean BCR's most
recent Annual Report on Form 10-K filed with the Commission and each Form 10-Q
Quarterly Report and each Current Report on Form 8-K filed with the Commission
since the end of the fiscal year to which such Annual Report relates, including
any amendments thereto.
LOSS. "Loss" shall have the meaning ascribed to such term in Section
5.2 hereof.
MATERIAL ADVERSE CHANGE or MATERIAL ADVERSE EFFECT. "Material Adverse
Change" or "Material Adverse Effect" shall mean a material adverse effect on the
business or financial condition of BCR and its subsidiaries, taken as a whole,
or HIH taken as a whole, as the case may be.
PRO RATA PORTION. "Pro Rata Portion" shall mean the percentage set
forth opposite such Shareholder's name on SCHEDULE I.
REGISTRATION PERIOD. "Registration Period" shall have the meaning
ascribed to such term in Section 4.1 hereof.
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SECURITIES ACT. "Securities Act" means the Securities Act of 1933, as
amended.
SHELF REGISTRATION STATEMENT. "Shelf Registration Statement" shall have
the meaning ascribed to such term in Article IV hereof.
ARTICLE VIII
GENERAL
8.1 AMENDMENTS, WAIVERS AND CONSENTS. No failure or delay on the part
of any party hereto in exercising any right, power or remedy hereunder shall
operate as a waiver thereof. The remedies provided for herein are cumulative and
are not exclusive of any remedies that may be available to any party hereto at
law or in equity or otherwise. This Agreement may be amended only with the prior
written consent of BCR and each Shareholder.
8.2 GOVERNING LAW. This Agreement shall be deemed to be a contract made
under, and shall be construed in accordance with, the laws of the State of New
York, without giving effect to conflicts of laws principles thereof.
8.3 SECTION HEADINGS. The descriptive headings in this Agreement have
been inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provision thereof or hereof.
8.4 COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute but one
and the same document.
8.5 NOTICES AND DEMANDS. Any notice or demand which is required or
provided to be given under this Agreement shall be deemed to have been
sufficiently given and received for all purposes when received and may be
delivered by hand, telecopy, telex or other method of facsimile, certified or
registered mail, postage and charges prepaid, return receipt requested, or by
overnight delivery, to the address set forth on the signature page hereto.
8.6 SEVERABILITY. Each provision of this Agreement shall be interpreted
in such a manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be deemed prohibited or invalid under such
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, and such prohibition or invalidity shall not
invalidate the remainder of such provision or the other provisions of this
Agreement.
8.7 INTEGRATION. This Agreement, including the exhibits, documents and
instruments referred to herein or therein, constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, including, without
limitation, the letter of intent between the parties hereto in respect of the
transactions contemplated herein.
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8.8 BROKERS. Each party represents that no broker, finder, agent or
similar intermediary has acted on behalf of BCR or such Shareholder in
connection with this Agreement or the transactions contemplated hereby.
8.9 PUBLICITY. BCR shall not issue any public release or announcement
concerning this Agreement or the transactions contemplated hereby that
identifies such Shareholder without the prior written consent of such
Shareholder, except as required by law (in which case, so far as possible, there
shall be consultation between the parties prior to such announcement).
8.10 EXPENSES. Each party shall bear its own expenses with respect to
the transactions contemplated hereby.
* * * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Investment
and Registration Rights Agreement on the date first written above.
HISPANIC INTERNET HOLDINGS, INC.
By:
--------------------------------
BIG CITY RADIO INC.
By:
--------------------------------
SHAREHOLDERS:
------------------------------------
Charles M. Fernandez
------------------------------------
Phillip Frost, M.D.
------------------------------------
Deisy Fernandez
------------------------------------
EARLE MACK
------------------------------------
Carlos Padron
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SCHEDULE I
LIST OF SHAREHOLDERS
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES OF HIH PRO RATA PORTION
---- ----------------------- ----------------
<S> <C> <C>
Charles M. Fernandez 560,000 56%
Phillip Frost, M.D. 175,000 17.5%
Deisy Fernandez 140,000 14%
Earle Mack 90,000 9%
Carlos Padron 35,000 3.5%
--------- -----
TOTALS 1,000,000 100%
========= =====
</TABLE>
<PAGE>
Exhibit 10.17
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this 1st day of November, 1999, by and between BIG CITY RADIO, INC., a Delaware
Corporation (hereinafter called the "Company"), and Charles M. Fernandez
(hereinafter called the "Executive").
The Company wishes to employ the Executive, and the Executive wishes to
enter into the employ of the Company, upon the terms and subject to the
conditions contained in this Agreement.
Accordingly, in consideration of the foregoing and of the mutual
promises hereinafter set forth, the parties hereby agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT AND TERM. The Company shall employ the
Executive and the Executive shall serve the Company, on the terms and conditions
set forth herein, for the period (the "Term") commencing the date hereof and
expiring October 31, 2002, unless sooner terminated as hereinafter set forth;
provided, however, that the Term of this Agreement shall be extended for a one
(1) year period unless, at least sixty (60) days prior to the expiration of the
Term, the Company shall have delivered to the Executive notice that this
Agreement will not be renewed. The parties hereto agree that the terms of any
renewal of this Agreement shall be negotiated in good faith at the time of any
such renewal.
1.2 DUTIES OF EXECUTIVE. The Executive shall serve as the
President and Chief Executive Officer of the Company and a member of the Board
of Directors, and shall perform the duties commensurate with such position,
shall diligently perform all services as may be reasonably assigned to him by
the Board of Directors of the Company (the "Board") and shall exercise such
power and authority as may from time to time be delegated to him by the Board.
The Executive's duties shall also include the development of the web site
presently called todoahora.com or any other name that may be provided to this
web site or similar web site. Nothing contained in this Agreement shall be
deemed to preclude Executive from maintaining any ownership interest in any
entity other than the Company so long as such ownership does not conflict or
interfere with the performance by the Executive of his duties hereunder. It is
expressly recognized that the Executive is a member of the Board of Directors of
Hispanic Internet Holdings, Inc.(todoahora.com), Continucare Corporation and
Ivax Corporation which requires the Executive to devote a limited amount of his
business time and efforts to fulfill his duties as director to these
corporations. The Executive represents and warrants that the performance by the
Executive of his duties for these named corporations shall not affect the
Executive's performance of his duties as Chief Executive Officer and President
of the Company. However, the parties hereto expressly agree that the performance
by the Executive of his duties to Hispanic Internet Holdings,
Inc.(todoahora.com), Continucare Corporation and Ivax Corporation, in each case,
as a director only, shall not be deemed to constitute a breach in any manner of
this Agreement or Executive's duties to the Company
<PAGE>
hereunder. The Executive shall devote substantially all of the Executive's time,
attention, skills and energies to the business and affairs of the Company to the
best of Executive's abilities and to the satisfaction of the Company and to the
exclusion of all other employment and to the exclusion of any business
activities which conflict or interfere with the performance of the Executive's
duties hereunder. The Company shall not be obligated to utilize the Executive's
services hereunder and its entire obligation to the Executive shall be fulfilled
by making all of the payments and providing all of the benefits due to the
Executive under Sections 2 and 3 of the Agreement. The Executive's performance
of duties hereunder shall be subject to the direction and control of the
Chairman of the Board of Directors of the Company or his or his designee. The
Executive agrees to accept and perform without further consideration the duties
of such offices, directorships and titles to which the Executive is selected or
named by the Company. The Executive shall perform the Executive's duties at such
locations, subject to Section 1.3, and shall perform all travel requested by the
Company or otherwise necessary in the performance of such duties.
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1.3 PLACE OF PERFORMANCE. The Company agrees the Executive
shall remain a Florida resident and Executive will operate out of the offices
currently maintained in New York City, New York by the Company and the offices
of Hispanic Internet Holdings, Inc. in Miami, Dade County Florida.
2. COMPENSATION.
2.1 ANNUAL BASE SALARY. Subject to Section 2.2, the Executive
shall receive a base salary during the Term at a calculated initial annual base
salary of Four Hundred and Fifty Thousand Dollars ($450,000.00) (the "Base
Salary"), such Base Salary to be payable in substantially equal installments
consistent with the Company's normal payroll schedule, subject to applicable
withholding and other taxes.
2.2 COST OF LIVING INCREASES. Upon each anniversary of this
Agreement during the Term, commencing November 1, 2000, the Base Salary of the
immediately preceding year shall be increased by the greater of (i) that
percentage by which the Consumer Price Index (All Items Less Shelter), Urban
Wage Earners and Clerical Workers, for the Miami, Florida, area published by the
United States Government (the "Index") for the immediately preceding calendar
year exceeds such Index for the then current year, or (ii) five percent (5%) of
the Base Salary during the immediate preceding year. If publication of the Index
is discontinued, the parties hereto shall accept comparable statistics on the
cost of living for the Miami, Florida, area as computed and published by an
agency of the United States government or, if no such agency computes and
publishes such statistics, by any regularly published national financial
periodical that does compute and publish such statistics.
2.3 ANNUAL BONUS. The Executive shall be entitled to receive
such annual bonus payments or incentive compensation (the "Bonus") as may be
determined at any time or from time to time by the Board (or any authorized
committee thereof) in its discretion. The Bonus shall be paid within 90 days
after the end of each fiscal year of the Company and shall be paid on a pro rata
basis for any portion of any fiscal year of the Company that Executive renders
services to the Company hereunder.
2.4 SIGNING BONUS. Within five (5) business days of the
execution of this Agreement, the Company shall pay the Executive a signing bonus
of ten thousand dollars ($10,000).
2.5 AUTOMOBILE ALLOWANCE. During the term, the Company shall
provide the Executive with reasonable business and personal use of the Company's
car and driver.
2.6 HOUSING ALLOWANCE. During the term, the Company shall pay
the Executive $1,900 per month as a housing allowance .
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<PAGE>
2.7 STOCK OPTIONS. Upon execution of this Agreement, the
Executive shall receive an option to purchase two hundred and fifty (250,000)
shares (the "Initial Options") of Common Stock of the Company ("Class A Common
Stock"). In addition, the Executive shall be eligible to receive an option to
purchase up to an aggregate of seven hundred and fifty thousand (750,000) shares
of such stock (the "Performance Options"), subject to the conditions set forth
in Subsection 2.7.1. The Initial Options and the Performance Options shall be
collectively referred to herein as the "Options".
2.7.1 PERFORMANCE OPTIONS.
(a) (i) If the average Closing Price (as defined below) of the
Class A Common Stock over a period of six consecutive months
is equal to at least $6.00 per share, the Executive shall
receive two hundred and fifty thousand (250,000) Performance
Options, (ii) if the average Closing Price of the Class A
Common Stock over a period of six consecutive months is equal
to at least $8.00 per share, the Executive shall receive two
hundred and fifty thousand (250,000) Performance Options, and
(iii) if the average Closing Price of the Class A Common Stock
over a period of six months is equal to at least $10.00 per
share, the Executive shall receive two hundred and fifty
thousand (250,000) Performance Options. If there is a Sale (as
defined below) of the Company and the Sale price is equal to
at least $6.00 per share, the Executive shall receive the
number of Performance Options set forth in (i) above if they
have not been previously awarded under (i) above; if the Sale
price is equal to at least $8.00 per share, the Executive
shall receive the number of Performance Options set forth in
(ii) above if they have not been previously awarded under (ii)
above; if the Sale price is equal to at least $10.00 per
share, the Executive shall receive the number of Performance
Options set for the in (iii) above if they have not been
previously awarded under (iii) above. In no event will the
Executive be entitled to receive more than seven hundred and
fifty thousand (750,000) Performance Options in the aggregate,
provided, however, that the Board of Directors of the Company,
may in its sole discretion elect to grant additional Options
to the Executive
(b) For purposes of this Agreement, the "Closing Price" on any day
means the reported closing sales price or, in the case no such
sale takes place, the average of the reported closing bid and
asked prices on the principal securities exchange on which
such Class A Common Stock is listed, or if such stock is not
listed on any such exchange, the highest closing sales price
or bid quotations for such stock on the National Association
of Securities Dealers, Inc. Automated Quotations system
("NASDAQ") or any system on which the Class A common stock is
traded.
(c) For purposes of this Agreement, "Sale" shall mean the
acquisition by any person, group of affiliated persons or
entity, of (a) all of the stock of the Company, (b) all
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<PAGE>
or substantially all of the assets of the Company.
2.7.2 PRICE. The exercise price of the Initial
Options and the Performance Options shall be $4.00 per share.
2.7.3 VESTING TIME PERIOD: The Initial Options shall
be fully vested when granted. Any Performance Options which
have been awarded to the Executive shall vest in four equal
parts between the date of grant to November 1, 2002,
determined by dividing by four (4) the number of months (or
portion thereof) between the date of grant and November 1,
2002. For example, if the Executive is awarded two hundred and
fifty thousand (250,000) Performance Options on July 1, 2000,
such Performance Options shall vest twenty five percent (25%)
on each of February 1, 2001, September 1, 2001, April 1, 2002
and November 1, 2002. Upon a Change of Control of the Company,
any Performance Options which have been awarded prior to the
date of such Change of Control, but which are unvested as of
such date, shall vest as of such date.
2.7.4 TIME PERIOD TO EXERCISE OPTION: As long as the
Executive is employed with the Company, the Executive shall
have ten (10) years from the date of grant of each Option to
exercise such Option. Failure to exercise an Option within
said time period shall terminate such Option.
2.7.5 TERMINATION OF AGREEMENT. Upon termination of
Executive's employment with the Company for any reason the
Executive shall have ninety (90) days from the date of
termination to exercise any vested Options. Failure to
exercise within said time period shall terminate such Options.
Any Options which are, as of the date of termination not
vested, shall terminate as of such date.
2.8 TAXES. The Executive shall be responsible for the payment
of any and all state, local or Federal taxes which may be imposed on him with
respect to the non-cash compensation paid to the Executive under this Agreement.
3. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
3.1 EXPENSE REIMBURSEMENT. During the Term, the Company, upon
the submission of supporting documentation by the Executive, shall reimburse the
Executive for all direct, reasonable expenses actually paid or incurred by the
Executive in the course of and pursuant to the business of the Company,
including, but not limited to direct, reasonable expenses for travel,
entertainment and lodging outside of Dade County, Florida. The Company shall
also provide executive with a Company credit card to be used by Executive for
Company expenses.
3.2 OTHER BENEFITS. The Company shall obtain or shall continue
in force
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comprehensive major medical and hospitalization insurance coverages, including
dental coverages, either group or individual, for the Executive and his
immediate family, and shall provide such other benefits as are not less
favorable to the Executive than those currently in existence and described on
Schedule 1 hereto (collectively, the "Benefits"), which Policies the Company
shall keep in effect at its sole expense throughout the Term. Nothing paid to
the Executive under any plan or arrangement presently in effect or made
available in the future shall be deemed to be in lieu of the Base Salary or
Bonus payable to the Executive pursuant to this Agreement. The Company shall
also provide annually, the executive with officers and directors liability
coverage.
3.3. WORKING FACILITIES. The Company shall furnish the
Executive with an office, a secretary and such other facilities and services
suitable to his position and adequate for the performance of his duties
hereunder.
3.4 VACATION. The Executive shall be entitled to four (4)
weeks paid vacation during each year of the Term (prorated for calendar year
1999 based on the Executive's employment during such year), provided that the
Company has approved the dates of such vacations, which approval shall not be
unreasonably withheld and provided, further, that the Executive shall not be
permitted to accrue more than twenty (20) calendar vacation days until such time
as the Executive has used up one (1) vacation day. Each time the Executive has
reached the maximum accrual level of twenty (20) days, the Executive shall not
be permitted to accrue further vacation time until another vacation day has been
used. The Executive shall also be entitled to take official Company holidays
with pay.
3.5 SICK DAYS. The Executive shall be entitled to six (6) days
paid sick days during each year of the Term.
4. TERMINATION.
4.1 TERMINATION FOR CAUSE. Notwithstanding anything contained
in this Agreement to the contrary, this Agreement may be terminated by the
Company for Cause. As used in this Agreement, "Cause" shall mean and include,
but shall not be limited to, any of the following events:
(i) fraud, misappropriation or embezzlement of funds or property by the
Executive involving the Company or any Affiliated Company;
(ii) the Executive's arrest or conviction in any jurisdiction for any
crime which constitutes a felony, or which constitutes a misdemeanor
that involves fraud, moral turpitude or material loss to the Company, or
any Affiliated Company, or their respective businesses or reputations;
provided, however, that if the Executive's employment is terminated
based on his arrest for any such crime and he is subsequently found to
be not guilty or all charges are dismissed for any such crime, his
termination shall be considered to have been made without cause and he
shall be entitled to the payments and benefits specified in Section 4.2
hereof;
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(iii) the Executive's gross misconduct in, or gross neglect of, the
performance of his duties and responsibilities hereunder, or the
Executive's violation of any reasonable specific directions of the
Board of Directors of the Company or its designee; or
(iv) the Executive's breach of any material provision of the Agreement,
or the Merger and Registration Rights Agreement, which breach continues
uncured for a period of fifteen (15) days after written notice thereof
is given to the Executive by the Company.
Any termination for Cause pursuant to this Section 4.1 shall
be made in writing to the Executive, which notice shall set forth in reasonable
detail all acts or omissions upon which the Company is relying for such
termination. Upon any termination pursuant to this Section 4.1, the Company
shall pay to the Executive any unpaid Base Salary accrued through the effective
date of termination specified in such notice. Except as provided above, the
Company shall have no further liability hereunder (other than for reimbursement
for business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 3.1).
4.2 TERMINATION WITHOUT CAUSE. Except as otherwise expressly
provided in Sections 4.3 and 4.4 hereof, in the event the Executive is
terminated other than for Cause pursuant to Section 4.1, the Company shall pay
to the Executive upon such termination an amount equal to the sum of: (i) any
unpaid Base Salary accrued through the effective date of termination, together
with any Bonus prorated through such date plus, and (ii) the greater of (a) the
product of the Base Salary then in effect multiplied by two (2), or (b) the net
present value of the Base Salary then in effect multiplied by the number of
years remaining in the Term and (iii) the Executive shall automatically be
vested with all stock options listed in Section 2.5 of this Agreement. Except as
provided above, the Company shall have no further liability hereunder (other
than for reimbursement for business expenses incurred by the Executive prior to
the date of termination, subject, however, to the provisions of Section 3.1). It
is agreed that the Executive shall have no duty to seek employment following any
termination hereunder or to otherwise mitigate any payments by the Company
pursuant to this Agreement. The Company shall be deemed to have terminated the
Executive's employment pursuant to this Section 4.2 if such employment is
terminated by the Executive voluntarily as a result of the occurrence of any of
the following events which is not consented to in writing by the Executive prior
to its occurrence and which is not cured by the Company within ten (10) days
after its receipt of written notice of the Executive's objection to the
occurrence: (a) Executive is assigned to any position, duties or
responsibilities that are significantly diminished when compared with the
position, duties or responsibilities of the Executive on the date of this
Agreement, including the Company's failure to allow the Executive the
development of the web site todoahora.com or (b) the Executive is requested to
engage in conduct that is reasonably likely to result in a violation of law or
(c) the occurrence of a change of control of the Company. For purposes of this
subsection a "change in control" shall mean the acquisition by any person, group
of affiliated persons or entity of the ability, by contract or otherwise, to
elect a majority of the members of the Board or the election of the chairman of
the Board or the power, by contract or
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otherwise, to vote greater than fifty percent (50%) or more of the stock of the
Company or the sale by Stuart Subotnick and Anita Subotnick (in any manner which
they presently own ownership interest of the Company) of fifty percent (50%) or
more of their ownership interest in the Company.
4.3 DISABILITY. Notwithstanding anything contained in this
Agreement to the contrary, the Company, by written notice to the Executive,
shall at all times have the right to terminate this Agreement, and the
Executive's employment hereunder, if the Executive shall, as the result of
mental or physical incapacity, illness or disability, fail to perform his duties
and responsibilities provided for herein for a period of ninety (90) consecutive
days or more, or for shorter non-consecutive periods aggregating more than
ninety (90) days during any twenty four (24) month period over the term of the
Agreement. Upon any termination pursuant to this Section 4.3, the Company shall
pay to the Executive an amount equal to the sum of: any unpaid Base Salary
accrued through the effective date of termination, and the share of Bonus to
which he would have been entitled pro rated based on the percentage of the
current fiscal year that had been completed on the date of termination. Except
as provided above, the Company shall have no further liability hereunder (other
than for reimbursement for reasonable business expenses incurred prior to the
date of termination, subject, however, to the provisions of Section 3.1).
4.4. DEATH. In the event of the death of the Executive during
the Term of his employment hereunder, the Company shall pay to the personal
representative of the estate of the deceased Executive an amount equal to the
sum of: any unpaid Base Salary accrued through the date of his death and the
share of Bonus to which he would have been entitled pro rated based on the
percentage of the current fiscal year that had been completed on the date of his
death. Except as provided above, the Company shall have no further liability
hereunder (other than for reimbursement for reasonable business expenses
incurred prior to the date of the Executive's death, subject, however, to the
provisions of Section 3.1).
5. RESTRICTIVE COVENANTS.
5.1 NON-COMPETITION. During the Term of this Agreement and for
a period of one (1) year from the termination of this Agreement the Executive
shall not be permitted to directly or indirectly engage in or have an interest
in, directly or indirectly, any sole proprietorship, partnership, corporation,
business or any other person or entity (collectively, the "Entities") (whether
as an employee, officer, director, partner, agent, security holder, creditor,
consultant or otherwise) that, directly or indirectly, engages in competition
with the Company in any Territory in which the Company and/or any subsidiary
conducts business during or within one (1) year following the Term. For purpose
of this Agreement, the "business" of the Company and its subsidiary shall mean
(a) the business of radio, in whatever means distributed, including, but not
limited to radio delivered via the internet, (b) the business of providing
information or entertainment via the internet, or (c) all businesses ancillary
to such businesses. For purposes of this Agreement, the "Territory" means the
area within seventy-five (75) miles of the transmitter for any (i) radio station
owned or operated by the Company or (ii) any radio station which the Company has
conducted due diligence, market
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research, otherwise investigated the acquisition or potential acquisition of,
during the employment period, provided however, with respect to (b) or (c)
above, "Territory" shall mean any state in which the Company, and/or any
subsidiary conducts business. Notwithstanding the foregoing, the performance by
the Executive of his duties to Hispanic Internet Holdings, Inc. Continucare
Corporation and Ivax Corporation as provided in Section 1.2 of this Agreement is
expressly permitted and shall not be deemed at any time to constitute a
violation by the Executive of this Agreement, including this Section 5.1,
provided that such performance of duties is relating solely to his position as a
director of such companies.
5.2 NONSOLICITATION OF EMPLOYEES. During the Term and for a
period of one (1) year following the termination of the Executive's employment
with the Company, the Executive shall not, directly or indirectly, for himself
or for any other person, firm, corporation, partnership, association or other
entity, attempt to employ or enter into any contractual arrangement with any
employee or former employee of the Company without the prior written consent of
the Company.
5.3 NO GRANT OF RIGHTS. The Executive will not grant any right
and shall not do any act or enter into any agreement or understanding
whatsoever, which may or will prevent, impair or hinder the Executive's full
performance of the Executive's obligations hereunder.
5.4 NO DISPARAGEMENT. The Executive shall not do any act, fail to
do any act or make any statement whatsoever which may or will impair, impugn,
denigrate, disparage or reflect negatively upon the name, reputation or business
interests of the Company or any Affiliated Company, or any of their respective
officers, directors or employees. For purposes of the Agreement, "Affiliated
Company" means, with respect to the Company, any other person that, directly or
indirectly through one or more intermediaries, controls, is controlled by or is
under common control with the Company.
5.5. FULL POWER AND AUTHORITY. The Executive represents and
warrants that he has full power and authority to execute, deliver and perform
the Agreement and that the execution, delivery and performance by the Executive
will not result in the breach of or default under any other agreement to which
the Executive is a party or is bound, including but not limited to any
employment agreement, or agreement to not compete with any other person or
entity.
6. COMPLIANCE WITH LAW.
6.1 FULL COMPLIANCE WITH LAW. The Executive agrees to perform the
Executive's duties in full compliance with all laws, rules and regulations of
any governmental authority applicable to the Company and its business or to any
Affiliated Company or its business (to the extent the Executive is engaged in
business on behalf of an Affiliated Company) or to the performance of the
Executive's duties pursuant to the Agreement.
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6.2 NO PAYMENT OR TRANSFER OF VALUE. The Executive affirms that
the Executive has not and agrees that the Executive will not, in connection with
the transactions contemplated by the Agreement or in connection with any other
business transactions involving the Company or any Affiliated Company, make or
promise to make any payment or transfer anything of value, directly or
indirectly, (i) to any governmental official or employee (including employees of
government corporations), (ii) to any political party, official of a political
party or candidate (or to an intermediary for payment to any of the foregoing),
(iii) to any officer director, employee, or representative of any actual or
potential customer of the Company or any Affiliated Company or (iv) to any other
person or entity if such payment or transfer would violate the laws of the
country in which made or the laws of the United States.
6.3 NO IMPROPER OR UNLAWFUL MEANS. The Executive will not make or
promise to make or accept any payments or transfers of value which have the
purpose or effect of public or commercial bribery, acceptance of or acquiescence
in extortion, kickbacks or other unlawful or improper means of obtaining
business for the Company or any Affiliated Company. This Section 6.3 shall not,
however, prohibit normal and customary business entertainment or the giving of
business mementos of nominal value.
7. COMPANY POLICIES. The Executive agrees to comply with any and all the
Company's policies, regulations and procedures as currently in effect and as
time to time amended.
8. PROPRIETARY INFORMATION.
8.1 PROPRIETARY INFORMATION. For purposes of this Agreement,
"Proprietary Information" will mean any information relating to the business,
operations or personnel of the Company (including but not limited to any
Affiliated Company for the purposes of the confidentiality provision of this
Agreement) that has not previously been publicly released by a duly authorized
representative of the Company and will include but will not be limited to such
information encompassed in all drawings, designs, plans, proposals, marketing
and sales plans, financial information, costs, pricing information, customer
information, personnel information and all methods, concepts, or ideas used in
and which have or may have a material importance to other business of the
Company.
8.2 NON-USE. The Executive will regard and to the best of his
ability and preserve as confidential, all Proprietary Information that has been
or may be obtained by the Executive during the Term. The Executive will neither
use for his benefit or purposes nor disclose to others any Proprietary
Information, either during the term of this Agreement or thereafter, except as
required by the conditions of the Executive's engagement hereunder. This
provision will not apply to Proprietary Information which has been voluntarily
disclosed to the public by the Company or has been independently developed and
disclosed by others who are not subject to any obligations of confidentiality to
the Company.
10
<PAGE>
8.3 COMPANY PROPERTY. The Executive will not remove from the
premises of the Company or elsewhere, except in the course of the proper
performance of his duties hereunder, any documents or objects containing or
reflecting any Proprietary Information or any other property of the Company. The
Executive recognizes that all such documents and objects, whether developed by
the Executive or by someone else, are the exclusive property of the Company.
Upon termination of this Agreement, the Executive will forthwith deliver to the
Company all Proprietary Information, including, without limitation, all
correspondence, research, accounts, records and any other documents or property
made or held by the Executive or under his control in relation to the business
or affairs of the Company, and no copy of any such Proprietary Information will
be retained by the Executive.
8.4 NON-DISCLOSURE. Under no circumstances and at no time, during
or after the term of this Agreement, will the Executive, directly or indirectly,
disclose, divulge, render or offer any knowledge or information with respect to
any Proprietary Information, except in the course of the proper performance of
his duties hereunder and he acknowledges and agrees that any and all such
information will be received by him in confidential capacity.
8.5 LEGAL PROCESS. If the Executive is required by legal process
to disclose any Proprietary Information, the Executive shall immediately notify
the Company prior to such disclosure and will take such steps as the Company may
request to protect the confidentiality of the Proprietary Information.
9. INVENTIONS.
9.1 For Purposes of this Agreement, "Invention" will mean (i) any
and all machines, apparatuses, compositions of matter, methods, know-how,
processes, designs, configurations, uses thereof, or writing of any kind,
discovered, conceived, developed, made or produced, or any improvements to them,
and will not be limited to the definition of any invention contained in the
United States patent laws; (ii) all matters subject to copyright protection
under trademark laws; and (iii) all matters subject to trademark protection
under trademark laws of the United States or those of any state of the United
States or under common law of any jurisdiction within the United States.
9.2 The Executive understands and agrees that all Inventions, or
patents, trademarks or copyrights relating thereto, which have or may have a
material importance to the business of the Company or any Affiliated Company
which are conceived or made by the Executive during the Term, either alone or
with others, are the sole and exclusive property of the Company, whether or not
they are conceived or made during regular working hours.
9.3 The Executive will immediately disclose to the Company any
and all improvements, discoveries, ideas and inventions (whether or not
patentable) heretofore made or conceived by the Executive while performing
services pursuant to this Agreement, or hereafter made
11
<PAGE>
or conceived at the request of or upon the suggestion of the Company whether or
not resulting from any work done in the course of his services for the Company
hereunder, and whether or not made or conceived during or outside of the hours
of performing services hereunder or upon or not upon any premises of the
Company.
9.4 The Executive hereby assigns and will hereafter assign to the
Company all present or future right, title and interest in and to all Inventions
referred to in Sections 9.2 and 9.3. The Executive will not disclose any such
Inventions to any third party without the written consent of the Company.
9.5 At any time and from time to time during and after the Term,
on the request of the Company, without further consideration the Executive will:
(i) execute specific documents of assignment in favor of the Company, or its
nominee, of any of the Inventions covered by this Agreement; (ii) execute all
papers and perform all acts the Company considers necessary or advisable for the
preparation, application, procurement, maintenance, enforcement, and defense of
patent applications and patents of the United States or other jurisdictions for
such Inventions, for the perfection or enforcement of any trademarks or
copyrights relating to such Inventions, and for the transfer of any interest the
Executive may have in such Inventions; and (iii) execute any and all papers and
documents which the Company considers to be necessary to vest sole right, title
and interest in the Company or its nominee in and to the above Inventions,
patent applications, patents, or any trademarks or copyrights or applications
therefore relating thereto. the Executive will execute all documents (including
those referred to above) and do all other acts which the Company considers to be
necessary to assist in the preservation of all the Company's interests in such
Inventions.
9.6 The Executive has identified on Schedule I attached hereto
a complete list of all Inventions or improvements which have been made or
conceived or first reduced to practice by him alone or in conjunction with
others prior to his employment by the Company or any of its affiliates and which
the Executive desires to exclude from the operation of this Agreement.
10. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Section 5 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
in Section 5 of this Agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to any conflict
of law rule or provision which might result in the application of the laws of
another jurisdiction.
12
<PAGE>
12. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand or when deposited in the United States mail, by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company: Big City Radio, Inc.
c/o Metromedia Company
One Meadowlands Plaza
East Rutherford, NJ 07073
Attention: Chairman
With a copy to: Metromedia Company
General Counsel
One Meadowlands Plaza
East Rutherford, NJ 07073
If to the Executive: Charles M. Fernandez
105 Paloma Drive
Coral Gables, Florida 33143
or to such other address as either party hereto may from time to time give
notice of to the other in the aforesaid manner.
13. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns. Notwithstanding the foregoing, neither party may assign its rights or
benefits or delegate any of its duties, hereunder without the prior written
consent of the other party hereto.
14. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by duration, geographic scope or
both, the otherwise invalid provision will be considered to be reduced to a
period or area which would cure such invalidity.
15. WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent beach
13
<PAGE>
or violation.
16. DAMAGES. Nothing contained herein shall be construed to prevent the
Company or the Executive from seeking and recovering from the other damages
sustained by either or both of them as a result of its or his breach of any term
or provision of this Agreement. In the event that either party hereto brings
suit for the collection of any damages resulting from, or the injunction of any
action constituting, a breach of any of the terms or provisions of this
Agreement, then the party found to be at fault shall pay all reasonable court
costs and attorneys' fees of the other.
17. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
(other than the parties hereto and, in the case of Executive, his heirs,
personal representative(s) and/or legal representative) any rights or remedies
under or by reason of this Agreement.
18. SURVIVAL. The provisions of Sections 2.5, 5.2-5.5, 8 and 18 hereof
shall survive the termination of this Agreement upon the expiration of the Term
or pursuant to Section 4 hereof.
19. INDEMNIFICATION. In addition to any rights under other agreements,
the Company shall cause the Executive to be indemnified to the fullest extent
permitted by Delaware General Corporate Law, against all costs, charges and
expenses incurred or sustained by the Executive in connection with any action,
suit or proceeding to which the Executive may be made a party by reason of the
Executive being an officer, director or employee of the Employer or of any
subsidiary or affiliate of the Company to the extent required to make the
Executive whole in connection with any loss, cost or expense indemnifiable
thereunder. Provided, however, that the Company shall have no obligation to
indemnify the Executive (a) for any matter relating to, or arising out of (i)
his prior employment with Continucare Corporation, or any affiliate thereof his,
or his directorship with Ivax Corporation, or (ii) any breach by the Executive
of any representation or warranty made by the Executive under this Agreement, or
(b) any breach by the Executive of any representation or warranty made by the
Executive under the Merger and Registration Rights Agreement.
14
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
BIG CITY RADIO, INC.,
a Delaware Corporation
By:
------------------------------------
Name:
Title:
---------------------------------------
CHARLES M. FERNANDEZ
15
<PAGE>
EXHIBIT 11
BIG CITY RADIO, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss................................. $(5,697,000) $(4,192,000) $(18,452,000) $(12,937,000)
=========== =========== ============ ============
Weighted average number of shares
outstanding--basic:
Weighted average number of common
shares outstanding................... 14,069,275 14,069,275 14,069,275 14,011,580
Dilutive effect of stock options after
application of treasury stock method... -- -- -- --
----------- ----------- ------------ ------------
Weighted average number of shares
outstanding............................ 14,069,275 14,069,275 14,069,275 14,011,580
=========== =========== ============ ============
Net loss per share:
Basic and dilutive (a)................... $ (0.40) $ (0.30) $ (1.31) $ (0.92)
=========== =========== ============ ============
</TABLE>
- ------------------------
(a) In calculating diluted earnings per share, no potential shares of common
stock are to be included in the computation of diluted earnings per share
when a loss from continuing operations available to common stockholders
exists. For the three and nine months ended September 30, 1999 and 1998, the
Company had a loss from continuing operations.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,965
<SECURITIES> 9,008
<RECEIVABLES> 5,384
<ALLOWANCES> 184
<INVENTORY> 0
<CURRENT-ASSETS> 21,148
<PP&E> 9,638
<DEPRECIATION> 2,363
<TOTAL-ASSETS> 145,130
<CURRENT-LIABILITIES> 3,786
<BONDS> 148,409
0
0
<COMMON> 141
<OTHER-SE> (10,171)
<TOTAL-LIABILITY-AND-EQUITY> 145,130
<SALES> 0
<TOTAL-REVENUES> 14,068
<CGS> 0
<TOTAL-COSTS> 22,009
<OTHER-EXPENSES> (324)
<LOSS-PROVISION> 168
<INTEREST-EXPENSE> 10,850
<INCOME-PRETAX> (18,452)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,452)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,452)
<EPS-BASIC> (1.31)
<EPS-DILUTED> (1.31)
</TABLE>
