U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31,
1996.
COMMISSION FILE NUMBER: 0-3851
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SUNGROUP, INC.
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(Name of small business issuer in its charter)
Tennessee 62-0790469
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2201 Cantu Court, Suite 102A Sarasota, Florida 34232-6254
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 941-377-6710
Securities to be registered pursuant to Section 12(b) of the Act: NONE
Securities to be registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, NO PAR VALUE
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(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year. $8,950,038.
As of March 26, 1997, the aggregate market value of the Common Shares (based
on the average bid and asked price of $.375 per share in the over-the-counter
market) held by non-affiliates was approximately $700,973.
As of March 26, 1997, there were 6,543,700 Common Shares outstanding.
Transitional Small Business Disclosure Format. (Check One): Yes No X
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Page 1
Exhibit Index on Page 22
<PAGE>
TABLE OF CONTENTS
ITEM PAGE
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PART I
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1 Description of Business 3
2 Description of Property 8
3 Legal Proceedings 9
4 Submission of Matters to a Vote of Security Holders 9
PART II
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5 Market for Common Equity and Related
Stockholder Matters 9
6 Management's Discussion and Analysis 10
7 Financial Statements 12
8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 12
PART III
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9 Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act 12
10 Executive Compensation 14
11 Security Ownership of Certain Beneficial Owners and Management 15
12 Certain Relationships and Related Transactions 17
13 Exhibits and Reports on Form 8-K 18
Signatures 21
Index to Exhibits 22
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PART I
Item 1. Description of Business
General
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SunGroup, Inc. ("Corporation") was incorporated in 1967 in the State
of Tennessee. The Corporation's original name was Mooney Broadcasting
Corporation. At a special stockholders meeting in 1984, a new Board of
Directors and corporate officers were elected and the Corporation's name was
changed to SunGroup, Inc.
For the past five years, the Corporation's focus has been on
restructuring its debt obligations to generate sufficient cash flow to service
these requirements. Since mid-1991, the Corporation has attempted to deal
with its liquidity needs. There has been significant efforts to restructure
or pay down debts through negotiation and asset sales. The Corporation is now
looking to outside sources to refinance and consolidate its restructured debt.
Failure to secure this restructured debt will severely hamper the
Corporation's ability to continue as a going concern.
Change in Equity
- ----------------
In 1996, the Corporation's shareholder's equity deficit was
substantially reduced. This improvement resulted from the Corporation's sale
of the assets of its Pensacola radio station and its related debt forgiveness
by the Federal Deposit Insurance Corporation ("FDIC"), significant debt
elimination due to Statutes of Limitations expirations applicable to other
Corporation debt, loan restructurings and equity conversion payments out of
cash flow.
Sale of Assets
- --------------
The Corporation consummated the sale of its FM radio station, WOWW,
in Pensacola, Florida on July 2, 1996. The radio station constituted all of
the operating assets of the Corporation's subsidiary located in Florida. The
assets were sold exclusive of certain retained assets, including, without
limitation, accounts receivable. The sale price of the assets of the radio
station was $2.3 million in cash, plus certain closing costs of approximately
$150,000.
The Corporation previously had entered into an agreement with the
FDIC, the first lien holder of the assets, on the disposition of the sale
proceeds of the Pensacola radio station and release of its lien thereon. The
FDIC received $2.094 million from the Pensacola radio station sale proceeds
and discharged the Corporation of indebtedness totaling approximately $5
million. The Corporation is in the process of dissolving this subsidiary with
all of its outstanding debt eliminated.
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Principal Services
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The Corporation itself and through its subsidiary corporations is
principally engaged in the ownership, operation and management of commercial
radio stations in the United States. As of December 31, 1996, the Corporation
owned and operated six radio stations located in Albuquerque/Santa Fe, New
Mexico (KKSS-FM); Shreveport, Louisiana (KMJJ-FM); Bryan/College Station,
Texas (KKYS-FM); Abilene, Texas (KEAN-AM and FM); and Longview, Texas
(KYKX-FM). A summary of information in chart form regarding each of the
Corporation's owned stations is set forth under "Item 2. Properties".
On June 6, 1996, the Corporation entered into an Asset Purchase
Agreement with Foster Communications Company for the purchase of the
construction permit of KFXJ in Abilene, Texas. The Federal Communications
Commission approved the transfer of the license for the construction permit to
the Corporation on September 25, 1996. The Corporation is in the process of
obtaining a suitable site for a broadcast tower and constructing a new radio
broadcast studio at its current facilities at KEAN in Abilene. The new
station was placed in operation during 1996.
Company Strategy
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Because of the Corporation's financial difficulty over the past five
(5) years, it is focusing its operations in the media markets where it is now
positioned. The Corporation desires to develop a strong profit base with its
current stations and continue its efforts to refinance and restructure the
Corporation's debt in order to enhance the financial stability of the
Corporation.
In developing its radio stations, the Corporation has taken a variety
of actions to improve its radio stations' cash flow. These actions include
cost control programs, implementation of numerous promotional activities,
performing internal and external programming reviews to improve the stations'
products in light of their respective target audiences, and enhancing total
station revenues through the development of alternative revenue sources such
as marketing the radio stations' current database of listeners. The
Corporation has had each station implement a five year strategic business plan
and has developed a new internal control policy to implement within the
Corporation. The Corporation has set up a structure in which the general
managers of the stations meet twice a year to focus on matters affecting the
industry and exchange ideas with the design of developing new ideas to
increase revenues in each of the five local markets. The Corporation has also
implemented an annual meeting for its stations' sales managers to exchange
sales ideas and receive management training. The Corporation has implemented
a company-wide interview process on sales recruiting. It has also started to
focus on non-traditional revenue sources for its radio stations (database
telemarketing, etc.).
The Corporation continues to focus on the latest technology available
to it. The Corporation has created an Intranet System and each station is on
the Internet.
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In operating its radio stations, the Corporation concentrates on the
development of strong, decentralized, local management at the station level
which is responsible for the day to day operations of that station and is
compensated based upon the station's financial performance. Local management
consists of a general manager, sales manager, operations/program director,
engineer, and business manager. Local management, in cooperation with the
Corporation's management, is responsible for programming and sales. Corporate
management is responsible for long-range planning, establishing company-wide
policies and procedures, allocating resources and maintaining overall control
of the stations.
Programming Formats and Structure
- ---------------------------------
Each of the Corporation's radio stations has adopted a programming
format designed to competitively fulfill the needs and tastes of its community
and to provide a public service. In order to compete effectively, each
station seeks to develop a defined group, or target audience, within the total
potential listenership. The format and target audience create each station's
identity and are the determinants of program selection, promotional campaigns,
on-air personnel, and other programming factors. See "Item 2. Properties" for
more information on station programming formats.
Some of the Corporation's radio stations are affiliated with one of
the national networks. Each such affiliation provides non-local news, feature
segments and programming services. Network affiliation is significantly less
important in the radio segment of the broadcasting industry (as opposed to the
television segment). Therefore, radio network affiliations and revenues are
not of major significance to the Corporation.
At most of the Corporation's radio stations, with the exception of
network news and other network programming, the staff of each station
originates, prepares and presents substantially all of the station's non-music
programming. Each station has one or more studios for production and
recording of material for later airing or from which live programming can be
broadcast.
Revenues and Competition
- ------------------------
The Corporation's radio stations principally derive their revenues
from local advertising, national advertising, and activities tied to the radio
station. The local sales staff of each station is responsible for servicing
the needs of advertising clients located in the community in which it is
located. Sales to national advertisers are arranged primarily by a sales
representation firm. Using a network of offices in important cities, this
national firm employs its best efforts to exclusively secure national
advertising for the station under a contractual agreement. The sales
representation firm receives compensation in the form of commissions on net
revenue produced for each station from advertising solicited and sold
nationally.
Advertising rates charged by a radio station are based upon market
analysis of radio advertising results, competitive factors, added value
promotions, and competitive pricing in the marketplace. Success in developing
programming with broad popular appeal, particularly among
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those segments of the listening audience most sought after by advertisers, and
the ability of a sales staff to communicate the advantages of their radio
station's product, are the major competitive variables of revenues. The
future performance of each of the Corporation's radio stations will also
depend upon a number of external factors, including the general strength of
the local and national economy, population growth, overall advertising
revenues, retail sales trends, relative efficiency compared to other media and
future governmental regulation and policies.
The Corporation's radio stations compete for revenues with other
media outlets in their respective areas. In addition to rival radio stations
in all of the Corporation's markets duopolies have been formed which create a
new and more formidable type of competitor. Recently, FCC regulations
regarding local radio station ownership have been relaxed (see "FCC
Regulations"). This change will have a significant impact on both the
Corporation and its competitors. Other sources of competition for advertising
expenditures include television and cable television, newspapers, magazines,
billboards, direct mail, and many local creative advertising sources.
Management believes that the Corporation's radio stations are
generally focused on achieving their competitive goals as measured by overall
ratings and target audience performance, advertiser appeal and establishment
of clear, positive, local market identity. Because of the volatile nature of
radio competition and ever-changing listening audience tastes, maintenance of
the Corporation's current market standings entails risk and is subject to
competitive pressures. Because of a lack of funds, the Corporation does not
have the same ability as better financed stations to protect its format and
market position or to acquire additional stations within the market to enhance
its position. However, the Corporation recently acquired the right to build a
new FM station in Abilene, Texas and has recently had and is involved in
ongoing discussions with several other radio stations with regards to
expanding its coverage in its current markets through operating and purchasing
additional and new stations.
Seasonality
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Advertising expenditures in the radio industry generally tend to
follow overall retail sales seasonal patterns, but expenditures vary by
programming format. Typically, sales are strongest during the fourth quarter
and weakest in the first quarter of the calendar year. The Corporation
continues to work on ways to eliminate the seasonal variations of its revenue.
FCC Regulations
- ---------------
The Corporation's radio broadcasting operations are subject to the
jurisdiction of the FCC under the Communications Act of 1934, as amended. FCC
regulations govern issuance, term, renewal and transfer of licenses necessary
for operation of radio stations. Upon application, and in the absence of
conflicting applications (which would require the FCC to hold a hearing) or
adverse findings as to the licensee's qualifications, existing radio licenses
will be renewed without hearing for additional seven year terms. All of the
Corporation's radio stations are currently licensed under regular renewal
authorizations, with the exception of KMJJ-FM in Shreveport. On February 1,
1996, the Corporation filed under normal circumstances a license renewal
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application for radio station KMJJ-FM. KMJJ's license expired on June 1,
1996. Although the application has been outstanding for sometime, there is no
indication at the present time that the FCC will not grant the requested
license extension.
On February 8, 1996, President Clinton signed into law the
Telecommunications Act of 1996. This law will have a significant impact on
the radio industry. First, the law eliminates the restrictions on the number
of AM and FM stations which may be owned or controlled nationally by one
entity. Previously, the law restricted ownership or control by one entity to
no more than 20 AM and 20 FM stations nationally. Second, the local radio
station ownership rules were changed to be based upon the number of stations
controlled by an entity, not its market share. The number of stations an
entity can control in a market depends upon the number of signals in the
market, but the number of stations which can now be owned by one entity is
significantly greater than in the past.
The statements above do not purport to be a complete summary of the
Communications Act of 1934, as amended, and the rules and regulations of the
FCC or of pending proposals. For a complete statement, reference is made to
the Communications Act, the Telecommunications Act of 1996, and to any related
rules, regulations and proposals.
Below is a table of the Corporation's radio stations and the current
expiration date of each station's FCC authorization:
STATION EXPIRATION DATE
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KEAN-AM/FM - Abilene October 1, 1997
KKYS-FM - Bryan/College Station October 1, 1997
KMJJ-FM - Shreveport June 1, 1996 (in application)
KKSS-RM - Albuquerque/Santa Fe August 1, 1997
KYKX-FM- Longview October 1, 1997
KFXJ-FM - Abilene September 26, 1997
Employees
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The Corporation had 83 full-time and 117 total employees as of
December 31, 1996. Each station normally employs an average of fifteen to
twenty-five people. The Corporation's staff consists of three employees. The
Corporation considers relations with its employees to be good.
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ITEM 2: DESCRIPTION OF PROPERTY
<TABLE>
<CAPTION>
Tower Lease Office Lease
Station/Location Date Acquired Frequency Licensed Power Format Expiration Expiration
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KKSS-FM Albuquerque/ Santa Fe, New 1986 97.3 MHZ 100,000 watts Contemporary 2002 1999
Mexico
KEAN-AM Abilene, Texas 1985 1280 KHz 500 watts Country Own 2000
KEAN-FM Abilene, Texas 1985 105.1 MHZ 100,000 watts Country 1999 2000
KYKX-FM Longview, Texas 1985 105.7 MHZ 100,000 watts Country 2017 Own
KKYS-FM Bryan/College Station, Texas 1989 104.9 MHZ 50,000 watts Contemporary Own 1996
KMJJ-FM Shreveport, Louisiana 1989 99.7 MHZ 50,000 watts Urban 2013 Own
KFXJ-FM Abilene, Texas 1996 92.5 MHZ 50,000 watts Country In Process Own
</TABLE>
8
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Item 2. Description of Property
None of the Corporation's individual properties amounts to ten
percent or more of its total assets. All of the real estate owned by the
Corporation is subject to several mortgages.
The ownership or leasing of tower space by which the Corporation
broadcasts its radio signal is critical to the Corporation. The Corporation's
management believes that its current tower leases are adequate for its
existing operations.
In December, 1996, the Corporation moved its headquarters from
Indianapolis, Indiana to Sarasota, Florida. The Corporation leases
approximately 2,100 square feet of office space in Sarasota under a lease
expiring in December, 2001. The Corporation's subsidiaries typically operate
in approximately 3,000-4,000 square feet of office space.
The Corporation does not invest in real estate other than to own or
lease office space or towers for radio operating purposes. The Corporation
does not own securities in any company involved in real estate activities.
Management believes that there is adequate insurance coverage on its
property and equipment.
Item 3. Legal Proceedings
The Corporation in the normal course of business is a defendant in a
small number of routine lawsuits. Management believes that the results of any
such litigation will not have an material adverse effect upon the conduct of
the Corporation's business or its financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Corporation's security
holders during the fourth quarter of 1996.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
There is no active public trading market for the Corporation's common
stock, but it is traded on the over the counter market and has two market
makers.
As of December 31, 1996, the Corporation had 495 shareholders of
record.
The Corporation has not paid any cash dividends on its common shares
in the last six years and does not expect to pay dividends in the foreseeable
future. Three of the Corporation's subsidiaries are prohibited, pursuant to
loan agreements, from making distributions to the parent
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and most of the Corporation's restructured debt payments are tied to the cash
flow of specific subsidiaries or the cash flow of the consolidated entity.
Lack of distributions to the Corporation as the parent company by its
subsidiaries and debt service payment requirements leave the Corporation with
inadequate cash to pay any cash dividends in the foreseeable future.
Item 6. Management's Discussion and Analysis
Results of Operations: 1996 vs. 1995
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For the years ended December 31, 1996 and 1995, the Corporation
operated the same properties, except for WOWW-FM in Pensacola. Gross revenues
for 1996 were down $48,616 or .5% from 1995. This decrease is attributable to
the sale of the WOWW-FM radio station in Pensacola on July 2, 1996. Excluding
the Pensacola station, revenues increased $281,569 or 3.43% from 1995 to 1996.
The increase is due to a larger portion of political advertisement sales and
slight increases in local and national advertising. Miscellaneous and network
income was flat for 1996.
Agency commissions as a percentage of gross sales were approximately
11.0% in 1996 versus 10.6% in 1995. This increase is attributable to larger
amounts of political advertisements revenue which originates through agencies.
Technical and programming expenses increased 3.05% in 1996 from 1995.
This increase is a result of higher music licensing fees. The Corporation had
a small increase in the percentage royalty it must pay to various music
licensing agencies during 1996 and this percentage is applied directly to the
Corporation's level of sales. Therefore, an increase in sales will increase
this expense commensurately.
Selling, general and administrative expenses, which includes
depreciation and amortization, decreased $357,000 in 1996 from 1995. This
decrease is attributable to the sale of the Pensacola station and a decrease
in depreciation expense as assets become fully depreciated in 1996.
Gain on the disposal of assets is a result of the sale of the WOWW
radio station in Pensacola. The gain on this transaction was $645,730. The
Corporation recorded a loss of $5,375 on the disposal of other assets in the
ordinary course of business.
Interest expense decreased 52.7% in 1996. This was a result of the
sale of the Pensacola station and its subsequent debt elimination and the
related debt interest expense which was also eliminated.
The Corporation also recorded other income of $864,450. This income
is for receipt of the new broadcasting tower and related equipment from
Service Broadcasting Corporation at the Corporation's Longview, Texas station.
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In 1996, other income (expense) consisted of interest income and
other miscellaneous items. The Corporation recorded $190,000 in miscellaneous
income, which is comprised of $120,000 from the settlement of an Alabama
payroll tax claim, $60,000 for refinancing the prior Wichita station sale and
$10,000 in interest income.
The Corporation recorded approximately $9,307,700 in gains from debt
extinguishment during 1996. This gain was attributable to the settlement with
the FDIC at the time of the sale of the Pensacola radio station and the
write-off of several notes whose Statute of Limitations had expired. In 1996,
the Corporation recorded gains from debt extinguishment in the amount of
$180,285.
The Corporation recognized $972,071 of income tax expense on income
before the extraordinary gain. This is due to the Corporation reflecting
income before tax of $2,169,300 in the current year compared to a loss of
$71,972 in the prior year. There is also $729,600 of taxes allocated to the
extraordinary gain.
Liquidity and Capital Resources
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The Corporation's principal source of funds is cash flow provided by
the operation of its radio stations. Its primary needs include working
capital, capital expenditures to maintain property, plant, and equipment, and
repayment of debt. During 1996, the Corporation generated sufficient funds
for working capital, scheduled debt repayment and capital expenditures. In
1996, the Corporation generated approximately $1.33 million in cash before
debt service and capital expenditures. This compares to $916,000 in 1995.
The cash flow from operating activities for 1996 was generated from the
operating revenue of the Corporation.
In 1997, the Corporation expects to spend $150,000 on capital
expenditures and currently has debt payments of approximately $2,898,000 on
its current restructured notes.
On December 15, 1996, the Corporation reached agreement with First
Savings Bank, Arlington, Texas, ("FSB") to purchase one of the Corporation's
loans, which was to have matured on December 15, 1996. The note has a
principal balance of $2,184,322 and has been renegotiated to mature on
December 15, 1997. The note calls for monthly interest payments of $21,843.
The Corporation plans to spend sufficient funds to maintain its
capital equipment in a competitive working condition. However, these
expenditures are limited by the Corporation's lenders. Such expenditures are
not anticipated to exceed average expenditures in previous years. The
Corporation is committed to make its radio stations as technologically
competitive as possible in their markets, within the financial limits set by
its lenders. Capital needs are expected to be paid from operating revenues as
they become available.
The Corporation plans to deal with its weak financial condition by
continuing to develop a strong profit base with its current stations and
focusing on the restructuring of secured and unsecured debts. The Corporation
continues to work with its secured lenders in order to
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restructure its debt obligations in such a way that they can be paid out of
the net cash now being generated by the Corporation's broadcast properties.
The Corporation has had success in the past in renegotiating with
creditors for extended payments. At present, the Corporation is generating
sufficient cash flow to meet its current obligations. The Corporation has had
several discussions with lenders with regard to refinancing the total
outstanding obligations of the Corporation and continues to work and focus
these efforts on refinancing the total loan package. However, without
restructuring of this debt, the Corporation's ability to meet future
obligations may be in jeopardy.
Item 7. Financial Statements
The information called for by this Item is included on pages 45
through 62 inclusive, of Exhibit 99 to this report on Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16 (a) of the Exchange Act
Listed below are the Directors of the Corporation as of December 31,
1996, their years of service as a Director, and ages:
DIRECTOR AGE SERVICE AS DIRECTOR TERM EXPIRES
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John W. Biddinger 56 August, 1984 - Present 2000
James M. Elliott 54 November, 1984 - Present 1997
Dan E. Young 67 December, 1985 - Present 1997
Biographical information concerning Mr. Biddinger is set forth below
under the caption "Executive Officers".
James M. Elliott has been President of Elliott and Associates, an
investment advisor and investment manager, since 1991. Prior thereto, he was
Vice President and Chief Financial Officer of the Indiana University
Foundation.
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Dan E. Young has been President of Young Investments, Inc. since
1979. He has been active in the ownership and management of automobile
franchise operations and is a multi-dealership owner.
Executive Officers
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Listed below are the Executive Officers of the Corporation as of
December 31, 1996, their positions, offices and ages:
Officer Age Position
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John W. Biddinger 56 President
James A. Hoetger 43 Vice President, Treasurer and Secretary
John W. Biddinger was elected President on May 24, 1991, and had been
Chairman of the Executive Committee of the Corporation since 1984. Mr.
Biddinger is also President and a Director of Biddinger Investment Capital
Corporation, a leverage buy-out and workout specialist firm.
James A. Hoetger became Vice President/Finance and Chief Financial
Officer of the Corporation in September, 1996, replacing John Southwood, Jr.,
who resigned to pursue other interests. Previously, he was Vice President and
Corporate Controller of Tak Communications, Inc., Madison, Wisconsin, and was
responsible for all accounting and certain collection functions.
Term of Office
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The executive officers and Directors of the Corporation serve annual
terms or until their successors are duly elected and qualified.
Indemnification
- ---------------
The Corporation's By-Laws provides for the indemnification of any and
all of its directors and/or officers. The By-Laws require the Corporation to
indemnify the covered individuals for liabilities incurred by them because of
any act or omission, or neglect or breach of duty, committed while acting in
the capacity as an officer or director of the Corporation to the fullest
extent permitted by law. Certain actions, including acts for which
indemnification is found by a court to be illegal or contrary to public policy
are excluded from such coverage.
Compliance With Section 16(a) of the Exchange Act
- -------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Corporation's directors, executive officers and persons who own
more than ten percent of the Corporation's common stock to file with the
Securities and Exchange Commission initial reports
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of ownership and reports of changes in ownership of common stock of the
Corporation. Officers, directors and greater than ten percent shareholders
are required by the Securities and Exchange Commission regulations to furnish
the Corporation with copies of all Section 16(a) forms they file.
Specific due dates for these reports have been established, and the
Corporation is required to disclose in this report any failure to file such
forms by these dates during 1996. To the Corporation's knowledge, based
solely on review of the copies of such reports furnished to the Corporation
and written representations that no other reports were required, with respect
to the fiscal year ended December 31, 1996, all Section 16(a) filing
requirements applicable to the Company's officers, directors and greater than
ten percent shareholders were complied with.
Item 10. Executive Compensation
The following table summarizes the compensation paid by the
Corporation to its current Chief Executive Officer, as of December 31, 1996,
for the past three fiscal years. The Corporation had no other executive
officers at December 31, 1996 whose total annual salary and bonus from the
Corporation exceeded $100,000 during the past fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------------------------------------------------------------------------
Name and Principal Salary Bonus Other Annual All Other
Position Year ($) ($) Compensation ($) Compensation(s)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John W. Biddinger, 1996 132,200 0 0 0
CEO 1995 132,200 0 0 0
1994 132,200 0 0 0
</TABLE>
Compensation of Directors
- -------------------------
Members of the Board of Directors who are not officers of the
Corporation receive $1,000 per meeting for their attendance at regularly
scheduled Board meeting. There were four such meetings in 1996. Messrs.
Elliott and Young attended all such meetings.
Board Committees
- ----------------
The Corporation's Compensation Committee consists of Mr. Elliott.
The duties of this Committee are to review the compensation of the
Corporation's executive officers. The Corporation has no audit or nominating
committee.
Employment Agreements
- ---------------------
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The Corporation entered into a three year employment agreement with
John W. Biddinger effective in 1991. This agreement has been extended through
May 31, 2000. The agreement calls for a minimum annual compensation of
$125,000 and annual bonuses of up to 50% of annual salary. The agreement
calls for Mr. Biddinger to receive 24 months of annual compensation should he
be dismissed without cause or if there is a change in control of the
Corporation (as defined in the agreement).
The agreement provides for a death benefit to Mr. Biddinger's estate
of two and one half times the current annual base salary and a lump sum
payment equal to two times the current annual base salary if he should become
permanently disabled (as defined in the agreement). The Corporation is not
insured against either of these events. The agreement also grants Mr.
Biddinger the option to "put" all of his stock back to the Corporation at a
mutually agreed upon fair market value (as defined in the agreement).
Mr. Biddinger has agreed in restructuring part of the Corporation's
debt to hold his compensation at $132,200 per year.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following tables set forth information as of December 31, 1996,
as to the beneficial ownership, direct or indirect, of the Corporation's
common stock by all Directors, all current Directors and Officers as a group,
and all persons known by the Corporation to own beneficially more than 5% of
the Corporation's common stock.
The aggregate percentage of ownership is based on 6,543,700 shares of
common stock outstanding and all exercisable options and warrants related to
individuals listed in the tables.
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<PAGE>
OWNERSHIP BY MANAGEMENT
OF THE CORPORATION'S COMMON STOCK
<TABLE>
<CAPTION>
Amount and Nature of Beneficial
Name and Address Ownership (1) Percent of Class (2)
- ---------------- ------------------------------- --------------------
<S> <C> <C>
John W. Biddinger 2,420,056 37.0%
7491 Albert Tillinghast Drive
Sarasota, FL 34240
James M. Elliott 20,000 .3%
230 Fountain Square
Bloomington, IN 47404
Dan E. Young (3) 626,179 9.6%
3210 E. 96th Street
All Present Directors and Executive 3,116,435 47.6%
Officers as a Group (4 persons)
FIVE PERCENT SHAREHOLDERS
OF THE CORPORATION'S COMMON STOCK
Amount and Nature of Beneficial
Name and Address Ownership (1) Percent of Class (2)
---------------- ------------------------------- ----------------
John W. Biddinger 2,420,056 37.0%
7491 Albert Tillinghast Drive
Sarasota, FL 34240
Conseco, Inc. (3) 5,972,060 47.7%
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Radio USA, Ltd. 1,913,007 29.7%
601 Jefferson Street
Houston, Texas 77002
Dan E. Young (3) 626,179 9.6%
3210 East 96th Street
Indianapolis, Indiana
</TABLE>
16
<PAGE>
(1) All shares are held directly unless otherwise noted.
(2) Pursuant to applicable Securities and Exchange Commission rules, a
person is deemed beneficial owner of those shares not outstanding
which are subject to options, warrants, rights or conversion
privileges if that person can exercise such options, warrants, rights
or privileges within 60 days. Any such shares are deemed to be
outstanding for the purpose of computing the percentage of
outstanding common stock owned by such person individually, but are
not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.
(3) The Corporation has issued the following warrants to purchase shares
of its common stock:
Conseco, Inc. 5,972,060
Dan Young, IRA 304,803
All of the warrants for Dan Young, IRA are exercisable for $.11 (in
total, not per share), and all of the warrants for Conseco are
exercisable for $1.00 (in total, not per share), are presently
exercisable, and terminate if not previously exercised by February
15, 2003.
Potential Change in Control
- ---------------------------
As outlined in Footnote 2, Conseco, Inc. holds exercisable warrants
for 5,972,060 shares at a total exercise price of $1.00. If these warrants
were exercised, Conseco would control 45.9% of the Corporation's common stock
on a fully diluted basis. The warrants expire on February 15, 2003 and are
nontransferable until February 15, 1997. If by February 15, 1998, certain
restructured notes owed to Conseco are not repaid, it will receive additional
warrants for 10% of the Corporation's common stock on a fully diluted basis.
Item 12. Certain Relationships and Related Transactions
There are no reportable events under this item.
17
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No Description of Exhibit
- ----------- ----------------------
3 (i) Articles of Incorporation(1)
(ii) By-Laws as presently in effect(1)
10 Material Contracts
(a) Reinstatement, modification, renewal and
extension agreement between SunGroup, Inc. and Kenneth
R. Reynolds in the amount of $2,500,000.(2)
(b) Reinstatement, modification, renewal and
extension agreement between SunGroup, Inc. and Arden
Wilson Osburn in the amount of $1,250,000.(2)
(c) Reinstatement, modification, renewal and
extension agreement between SunGroup, Inc. and John D.
Osburn in the amount of $1,250,000.(2)
(d) Promissory Note for $880,000 between SunGroup,
Inc. and Bankers National Life Insurance Company with
related warrant A-1 for 592,875 shares.(2)
(e) Promissory Note for $4,000,000 between SunGroup,
Inc. and Western National Life Insurance Company with
related warrant A-2 for 2,892,000 shares.(2)
(f) Promissory Note for $93,333.06 between SunGroup,
Inc. and John W. Biddinger with a related warrant A-3
for 59,287 shares.(2)
(g) Promissory Note for $124,469.18 between SunGroup,
Inc. and Robert A. Davies and related warrant A-4 for
81,575 shares.(2)
- ---------------------
(1) Incorporated by reference to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1984.
(2) Incorporated by reference to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1992.
18
<PAGE>
(h) Promissory Note for $176,800 between SunGroup,
Inc. and Indiana University Foundation with related
warrant A-5 for 118,575 shares.(2)
(i) Promissory Note for $265,200 between SunGroup,
Inc. and Dan E. Young - IRA Trust with related warrant
A-6 for 177,862 shares.(2)
(j) Agreement by and among RadioSunGroup of
Bryan/College Station, Inc., SunGroup Broadcasting of
Louisiana, Inc., SunGroup, Inc. and Radio USA, Ltd.
regarding exchange of common stock for debt.(3)
(k) Second Amended and Restate Promissory Note dated
September 30, 1993 executed by RadioSunGroup of
Bryan/College Station, Inc. ("RSG") and SunGroup
Broadcasting of Louisiana, Inc. ("SGBL"), payable to the
order of the Federal Deposit Insurance Corporation
("FDIC") in the original principal amount of
$2,205,509.02 and its related First Amendment to
Assumption Agreement and Amended and Restated Loan
Agreement dated September 30, 1993.(3)
(l) Adjustment letter related to warrant A-1 issued
to Bankers National Life Insurance Company in the
original amount of 592,875 shares amended to 1,016,010
shares.(3)
(m) Adjustment letter related to warrant A-2 issued
to Western National Lie Insurance Company in the
original amount of 2,892,000 shares amended to 4,956,050
shares.(3)
(n) Adjustment letter related to warrant A-4 issued
to Robert N.Davies in the original amount of 81,575
shares amended to 139,797 shares.(3)
(o) Adjustment letter related to warrant A-5 issued
to IU Foundation in the original amount of 118,575
shares amended to 203,202 shares.(3)
(p) Adjustment letter related to warrant A-6 issued
to Dan Young IRA in the original amount of 177,862
shares amended to 304,803.(3)
(q) Employment agreement with John W. Biddinger,
President.(3)
(r) Amendment number one to the John W. Biddinger
Employment Agreement.(3)
- ---------------------
(3) Incorporated by reference to the Corporation's Annual Report on Form
10-KSB for the year ended December 31, 1993.
19
<PAGE>
(s) Amendment number two to the John W. Biddinger
Employment Agreement.
(t) Key Employee Incentive Stock Plan of 1986.(4)
(u) Act of Loan Modification and Acknowledgment by
RadioSunGroup of Bryan/College Station, Inc., SunGroup
Broadcasting of Louisiana, Inc. and SunGroup, Inc. in
favor of First Savings Bank of Arlington, Texas.
21 Subsidiaries of the Registrant
27 Financial Data Schedule
99 Financial Statements
(b) No Reports on Form 8-K were filed during the last quarter
of 1996.
- ---------------------
(4) Incorporated by reference to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1986.
20
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SUNGROUP, INC.
DATED: March 27, 1997 By: /s/ John W. Biddinger
Sarasota, Florida ------------------------------------
John W. Biddinger, President
In accordance of the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
DATED: March 27, 1997 /s/ John W. Biddinger
----------------------------------------
John W. Biddinger, Director and
(Principal Executive Officer)
DATED: March 27, 1997 /s/ James M. Elliott
----------------------------------------
James M. Elliott, Director
DATED: March 27, 1997 /s/ James A. Hoetger
----------------------------------------
James A. Hoetger, Treasurer, Secretary
and Vice President
(Principal Accounting/Financial Officer)
DATED: March 27, 1997 /s/ Dan E. Young
----------------------------------------
Dan E. Young, Director
21
<PAGE>
INDEX OF EXHIBITS
Exhibit No. Description of Exhibit Page No.
3 (i) Articles of Incorporation(1) N/A
(ii) By-Laws as presently in effect(1)
10 Material Contracts
(a) Reinstatement, modification, renewal and N/A
extension agreement between SunGroup, Inc. and
Kenneth R. Reynolds in the amount of $2,500,000.(2)
(b) Reinstatement, modification, renewal and N/A
extension agreement between SunGroup, Inc. and Arden
Wilson Osburn in the amount of $1,250,000.(2)
(c) Reinstatement, modification, renewal and N/A
extension agreement between SunGroup, Inc. and John
D. Osburn in the amount of $1,250,000.(2)
(d) Promissory Note for $880,000 between N/A
SunGroup, Inc. and Bankers National Life Insurance
Company with related warrant A-1 for 592,875
shares.(2)
(e) Promissory Note for $4,000,000 between N/A
SunGroup, Inc. and Western National Life Insurance
Company with related warrant A-2 for 2,892,000
shares.(2)
(f) Promissory Note for $93,333.06 between N/A
SunGroup, Inc. and John W. Biddinger with a related
warrant A-3 for 59,287 shares.(2)
(g) Promissory Note for $124,469.18 between N/A
SunGroup, Inc. and Robert A. Davies and related
warrant A-4 for 81,575 shares.(2)
- ----------------------
(1) Incorporated by reference to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1984.
(2) Incorporated by reference to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1992.
22
<PAGE>
(h) Promissory Note for $176,800 between N/A
SunGroup, Inc. and Indiana University Foundation
with related warrant A-5 for 118,575 shares.(2)
(i) Promissory Note for $265,200 between N/A
SunGroup, Inc. and Dan E. Young - IRA Trust with
related warrant A-6 for 177,862 shares.(2)
(j) Agreement by and among RadioSunGroup of N/A
Bryan/ College Station, Inc., SunGroup Broadcasting
of Louisiana, Inc., SunGroup, Inc. and Radio USA,
Ltd. regarding exchange of common stock for debt.(3)
(k) Second Amended and Restate Promissory Note N/A
dated September 30, 1993 executed by RadioSunGroup of
Bryan/College Station, Inc. ("RSG") and SunGroup
Broadcasting of Louisiana, Inc. ("SGBL"), payable to
the order of the Federal Deposit Insurance
Corporation ("FDIC") in the original principal amount
of $2,205,509.02 and its related First Amendment to
Assumption Agreement and Amended and Restated Loan
Agreement dated September 30, 1993.(3)
(l) Adjustment letter related to warrant A-1 N/A
issued to Bankers National Life Insurance Company in
the original amount of 592,875 shares amended to
1,016,010 shares.(3)
(m) Adjustment letter related to warrant A-2 N/A
issued to Western National Lie Insurance Company in
the original amount of 2,892,000 shares amended to
4,956,050 shares.(3)
(n) Adjustment letter related to warrant A-4 N/A
issued to Robert N. Davies in the original amount of
81,575 shares amended to 139,797 shares.(3)
(o) Adjustment letter related to warrant A-5 N/A
issued to IU Foundation in the original amount of
118,575 shares amended to 203,202 shares.(3)
(p) Adjustment letter related to warrant A-6 N/A
issued to Dan Young IRA in the original amount of
177,862 shares amended to 304,803.(3)
- ----------------------
(3) Incorporated by reference to the Corporation's Annual Report on
Form 10-KSB for the year ended December 31, 1993.
23
<PAGE>
(q) Employment agreement with John W. Biddinger, N/A
President.(3)
(r) Amendment number one to the John W. N/A
Biddinger Employment Agreement.(3)
(s) Amendment number two to the John W. 25
Biddinger Employment Agreement.
(t) Key Employee Incentive Stock Plan N/A
of 1986.(4)
(u) Act of Loan Modification and Acknowledgment 26
by RadioSunGroup of Bryan/College Station, Inc.,
SunGroup Broadcasting of Louisiana, Inc. and
SunGroup, Inc. in favor of First Savings Bank of
Arlington, Texas.
21 Subsidiaries of the Registrant 44
27 Financial Data Schedule
99 Financial Statements 45
- ----------------------
(4) Incorporated by reference to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1986.
24
Exhibit 10(s)
AMENDMENT NUMBER TWO TO THE
JOHN W. BIDDINGER EMPLOYMENT AGREEMENT
This Agreement amends by adding a longer term to the existing
Amendment Number, One of the Employment Agreement (the "Agreement") dated
April 28, 1993, between SunGroup, Inc. (the "Company"), and John W. Biddinger
(the "Employee").
Amendment Number One dated April 28, 1993, will be amended by
substituting a new Amendment as follows:
1. Employment and Term. Company does hereby employ Employee and
Employee does hereby agree to enter into the employment of
the Company for the compensation provided under the terms and
conditions hereinafter set forth. The term of this Agreement
shall commence on April 7, 1995, (the "Commencement date")
and shall continue for a term ending on the first to occur of
the death of the Employee, or May 3 1, 2000, unless continued
by written agreement of both parties or terminated as set
forth herein. Company and Employee both concur that this
contract should be extended by January 31, 1999, if both
parties want to continue the employment relationship,
Employee should take the responsibility to initiate contract
extension discussions in late 1998.
Dated: April 7. 1995
SUNGROUP, INC.
By: /s/ JAMES M. ELLIOTT
-------------------------------
James M. Elliott, Director
By: /s/ DAN E. YOUNG
-------------------------------
Dan E. Young, Director
EMPLOYEE
By: /s/ JOHN W. BIDDINGER
-------------------------------
John W. Biddinger
25
Exhibit 10(u)
ACT OF LOAN MODIFICATION AND () UNITED STATES OF AMERICA
ACKNOWLEDGMENT ()
()
BY ()
()
RADIOSUNGROUP OF ()
BRYAN/COLLEGE STATION, INC., a ()
Texas corporation ()
()
SUNGROUP BROADCASTING OF ()
LOUISIANA, INC., a ()
Louisiana corporation ()
()
AND ()
()
SUNGROUP, INC., a Tennessee ()
corporation ()
()
IN FAVOR OF ()
()
FIRST SAVINGS BANK, FSB, ()
a federal savings bank ()
BE IT KNOWN, that effective on the 15th day of December, 1996;
BEFORE US, the undersigned duly qualified notary publics in and for
the states and parishes/counties described below and in the presence of the
undersigned competent witnesses:
PERSONALLY CAME AND APPEARED:
RADIOSUNGROUP OF BRYAN/COLLEGE STATION, INC., a corporation organized
under the laws of the State of Texas, whose taxpayer identification number is
62-1406505, and whose registered office in Texas is #26 Manor East Mall, 701
Villa Maria, Bryan, Texas 77805, appearing herein by and through John W.
Biddinger its President and duly authorized representative pursuant to a
resolution of its Board of Directors, a certified extract of which is attached
hereto ("RSG");
SUNGROUP BROADCASTING OF LOUISIANA, INC., a corporation organized
under the laws of the State of Louisiana, whose taxpayer identification number
is 72-1151881, and whose
26
<PAGE>
registered office in Louisiana is 725 Austin Place, Shreveport, Louisiana
7 1 1 0 1, appearing herein by and through John W. Biddinger its President and
duly authorized representative pursuant to a resolution of its Board of
Directors, a certified extract of which is attached hereto ("SGBL");
SUNGROUP, INC., a corporation organized under the laws of the State
of Tennessee, whose taxpayer identification number is 62-0790469, and whose
principal place of business is 2201 Cantu Court, Suite 102A, Sarasota, Florida
34232, appearing herein by and through John W. Biddinger, its President and
duly authorized representative pursuant to a resolution of its Board of
Directors, a certified extract of which is attached hereto ("Guarantor");
AND
FIRST SAVINGS BANK, FSB, a federal savings bank, whose taxpayer
identification number is 75-2072785, and whose principal place of business is
301 S. Center Street, Arlington, Texas 76010, appearing herein by and through
its President, Richard J. Driscoll ("Lender").
WHO DECLARED THAT:
RECITALS
--------
WHEREAS, RSG and SGBL, or their predecessors in title (collectively
hereinafter "Borrower") and Guarantor executed those certain promissory notes
listed on Exhibit "A" attached hereto and made a part hereof (collectively,
the "Note").
WHEREAS, in order to secure the Notes, Borrower and Guarantor granted
various liens, mortgages, security interests, assignments, collateral
assignments, pledges and otherwise in various items corporeal (tangible),
incorporeal (intangible), movable (personal), and immovable (real) property
pursuant to various instruments and otherwise, including without limitation,
the instruments listed on Exhibit "B" attached hereto and made a part hereof
(collectively, the "Security Documents"), affecting, among other property, the
real and personal property described on Exhibit "C" attached hereto and made a
part hereof (the "Property"). The Notes and Security Documents are
collectively hereinafter, the "Loan Documents").
WHEREAS, Federal Deposit Insurance Corporation (the "FDIC") succeeded
to all of the right, title and interest of NCNB Texas National Bank, as
successor to First Republicbank Dallas, N.A. in, to and under the Loan
Documents pursuant to the operation of law and certain orders and powers of
agencies of the United States Government.
WHEREAS, Lender is the current holder of the Note and is the
mortgagee, pledgee, assignee and/or security interest holder under the
Security Documents. The Security Documents were assigned to Lender by an
Assignment and/or Assignments listed on Exhibit "D" attached hereto and made a
part hereof.
27
<PAGE>
WHEREAS, Borrower and Guarantor have requested that Lender enter into
this Agreement, and Lender has agreed to enter into this Agreement pursuant to
the terms and conditions set forth herein.
WHEREAS, Borrower and Guarantor own and operate radio stations in the
States of Louisiana and Texas (the "Business").
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and conditions contained herein and in the Note and the Security Documents,
for other good and valuable consideration and for good cause, the receipt and
sufficiency of which are hereby acknowledged Borrower, Guarantor and Lender
hereby agree as follows:
ARTICLE I
RECITALS INCORPORATED
The Recitals set forth above are hereby incorporated herein and
expressly made a part of this Agreement.
ARTICLE II
DEFINITIONS
Capitalized terms used herein shall have the meanings set forth
below:
2.1 "Agreement" shall mean this Loan Modification Agreement by
and between Lender and Borrower.
2.2 "Envirorumental Laws" shall mean any federal, state or local
law, statute, ordinance, regulation, plan, decree, demand'Ietter, order or
otherwise pertaining to health, industrial hygiene, pollution, waste disposal,
hazardous waste or the envirorunental conditions on, under, from or about the
Property, including without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), 42
U.S.C. Sections 9601 et M., and the Resource Conservation and Recovery Act of
1976 ('RCRA'), 42 U.S.C. Section 6901 _q M., as amended.
2.3 "Financing Statement" shall mean a Uniform Conunercial Code
financing statement or statements, in form and substance satisfactory to
Lender, perfecting a first priority security interest in personal property
collateral in favor of Lender.
2.4 "Hazardous Substance" shall mean any substance that is now or
may become regulated or governed by any Envirorunental Laws, or the presence
of which requires investigation under any Environmental Laws, or any
flammable, explosive, corrosive, reactive, carcinogenic, radioactive material,
hazardous waste, toxic substance or related material and any other substance
28
<PAGE>
or material defined or designated as a hazardous or toxic substance, material
or waste by any Environmental Laws and shall include, without limitation:
2.4.1 Those substances included within the definitions of
"hazardous substances", "hazardous materials", "toxic substances" or
"solid waste" in CERCLA, RCRA and the Hazardous Materials
Transportation Act, 42 U.S.C. Section 1801 et seq., and in the
regulations promulgated pursuant to said laws;
2.4.2 Those substances listed in the United States
Department of Transportation Table (49 CFR 172. 101 and amendments
thereto) or by the Environmental Protection Agency (or any successor
agency) as hazardous substances (40 CFR Part 302 and amendments
thereto); and
2.4.3 Any material, waste or substance which is or
contains (A) petroleum hydrocarbons, (B) asbestos, (C)
polychlorinated biphenyis or (D) designated as a "hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C.
Section 1251 et seq. (33 U.S.C. Section 1321) or listed pursuant to
Section 307 of the Clear Water Act (33 U.S.C. Section 1317).
2.5 "Person" shall mean any individual, partnership, corporation
and/or other entity.
2.6 Terms defined in the recitals hereto shall have the meaning
ascribed to such terms in the recitals.
ARTICLE III
MODIFICATION OF LOAN DOCUMENTS
Effective as of December 15, 1996, the Loan Documents are modified as
provided herein.
3.1 Principal Balance. Borrower, Guarantor and Lender hereby
acknowledge and agree that the outstanding principal balance of the Note as of
December 15, 1996 is TWO MILLION ONE HUNDRED AND EIGHTY FOUR THOUSAND, THREE
HUNDRED TWENTY-ONE AND 57/100 DOLLARS ($2,184,321.57) (the "Principal
Balance"), and Borrower expressly acknowledges an indebtedness to Lender of
the Principal Balance, plus interest and other costs and fees and provided
herein and the Loan Documents.
3.2 Interest Rate. From and after December 15, 1996, until an
event of default or maturity, interest shall accrue on the Principal Balance
at the rate of TWELVE PERCENT (12.0%) per annum, calculated on the basis of
360 days being a year, or, at the election of Lender, the actual number of
days in the applicable calendar year in which accrued.
3.3 Default Interest. From and after the occurrence and during
the pendency of a default under the Loan Documents, and from and after the
maturity of the Notes, whether by acceleration
29
<PAGE>
or otherwise, interest shall accrue on the amount of the Principal Balance
outstanding hereunder at the Maximum Rate (as hereinafter defined).
3.4 Payment Schedule. The Note is hereby modified effective as
of December 15, 1996 by modifying the payment schedule as follows:
3.4.1 Borrower shall pay interest only on the 15th of every
month. Lender will send Borrower each month an invoice for the
current interest due.
3.4.2 Borrower shall pay all outstanding principal and
interest on, and the loan represented by the Notes shall mature on
December 15, 1997 (the "Maturity Date").
3.5 Application of Payments. Payments received by the Lender
pursuant to the terms of the Note, as amended hereby, shall be applied in the
following manner: first, to the payment of all expenses, charges, costs and
fees incurred by or payable to Lender and for which Borrower is obligated
pursuant to the terms of the Loan Documents; second, to the payment of all
interest accrued to the date of such payments; and third, to the payment of
principal. Notwithstanding anything to the contrary contained herein, after
the occurrence and during the continuation of an event of default under any of
the Loan Documents, as amended hereby, all amounts received by Lender from any
party shall be applied in such order as Lender, in its sole discretion, may
elect.
3.6 Fee. In addition to the other payments due hereunder,
Borrower covenants and agrees to pay Bank on the date hereof, a commitment fee
in the amount of $10,921.61.
ARTICLE IV
DEFAULT; WAIVER OF CLAIMS
Borrower hereby acknowledges and agrees that, at the date hereof:
4.1 Borrower is in default under the Loan Documents, provided,
that such default will be waived upon execution of the Agreement;
4.2 Lender has properly perfected its lien, mortgage,
assigrunents, security interest and other interests in and to the Property;
4.3 Borrower hereby waives and releases any and all notices, cure
periods, defenses, setoffs and claims which Borrower may be entitled to or may
raise against Lender or any other party arising out of the Loan Documents, the
administration of the Loan Documents, or any oral or written correspondence or
transactions in connection with the Loan Documents prior to the execution of
this Agreement.
ARTICLE V
CONDITIONS PRECEDENT TO THE MODIFICATION
30
<PAGE>
This Agreement is subject to Boffower's and Guarantor's satisfaction
of the following conditions precedent, or Lender's written waiver thereof:
5.1 At Lender's request, Borrower shall, at borrower's sole cost
and expense, cause the Title Company, which shall be acceptable to Lender, in
its sole discretion, to issue an endorsement to Lender's prior title insurance
policy insuring Lender's first lien on any immovable (real) property
constituting the Property, subject only to such exceptions to title as Lender
may approve ("Permitted Exceptions");
5.2 Borrower shalt, at Borrower's sole cost and expense, cause a
search and update of the relevant Uniform Commercial Code records to be
conducted, which search shall show that the Lender holds a first priority
security interest in the movable (personal) property constituting the
Property, and Borrower shall execute any and all Financing Statements required
by Lender in connection with this Agreement and the modification of the Loan
Documents;
5.3 Upon Lender's request, Borrower and Guarantor shall provide
Lender with financial statements for Borrower, Guarantor and for the Business,
prepared according to past practice internally or by an independent certified
public accountant, for the last three calendar years;
5.4 Upon Lender's request, Borrower shall provide Lender with a
pro forma projection of income and expenses for the Business for the time
period between the date of this Agreement and the Maturity Date set forth
herein;
5.5 Borrower shall pay Lender its, costs and expenses in
connection with this Agreement including, without limitation, reasonable
attorneys' fees;
5.6 Borrower and Guarantor shall execute, acknowledge and deliver
to Lender this Agreement, any letter instructions to the Title company and any
other documents or instruments required by the Lender in connection with the
loan modification contemplated hereby;
5.7 Lender shall have received any opinion of counsel required by
Lender, in its sole discretion;
5.8 Borrower shall, in accordance with all applicable state,
federal and local regulations, properly maintain all asbestos-containing
material at, in or on the Property and shall implement an appropriate
operation and maintenance program for such asbestos-containing material in
order to prevent any portion of such asbestos-containing material from
becoming friable or airborne; and
5.9 Borrower and Guarantor shall provide Lender with such other
information as Lender may reasonably request relating to the Business.
ARTICLE VI
REPRESENTATION, WARRANTIES AND COVENANTS OF BORROWER AND
GUARANTOR
31
<PAGE>
Borrower and Guarantor hereby represent, warrant and covenant to
Lender that:
6.1 Borrower and Guarantor: (i) are duly formed and validly
existing and in good standing under the laws of the State of Louisiana, Texas
and Tennessee, as applicable; and (ii) have all requisite power, authority,
and capacity to enter into this Agreement and to perform their obligations
under this Agreement and the Loan Documents, as modified hereby. As of the
date hereof, this Agreement and any other documents executed in connection
herewith have been duly executed, acknowledged (where necessary) and delivered
to Lender by Borrower and Guarantor. Borrower and Guarantor have delivered to
Lender a Certiftcate of Good Standing in the state where Borrower and
Guarantor are incorporated, and a certified copy of their bylaws, articles of
incorporation and incumbency certificate;
6.2 This Agreement and all of the obligations of Borrower and
Guarantor hereunder are the legal, valid and binding obligations of Borrower
and Guarantor, enforceable in accordance with the terms of this Agreement;
6.3 The execution and delivery of this Agreement and the
performance of its obligations hereunder by Borrower and Guarantor will not
conflict with any provision of any law or regulation to which Borrower or
Guarantor is subject, or conflict with, result in a breach of or constitute a
default under any of the terms, conditions or provisions of any agreement or
instrument to which Borrower or Guarantor is a party or by which they are
bound, or any order or decree applicable to Borrower or Guarantor, or result
in the creation or imposition of any lien on any of Borrower's or Guarantor's
assets or property, which would materially and adversely affect the ability of
Borrower or Guarantor to carry out their obligations under this Agreement and
the Loan Documents, as modified herein;
6.4 There is no action, suit or proceeding pending or threatened
against Borrower, Guarantor or the Property in any court or by or before any
other government agency or instrumentality which would materially and
adversely affect the ability of Borrower or Guarantor to carry out its
obligations under this Agreement and the Loan Documents, as modified herein.
The execution and delivery of this Agreement will not result in a conflict
with or violation of any law, rule, regulation, judgment, or court order
affecting Borrower, Guarantor or the Property;
6.5 Borrower and/or Guarantor hold fee simple title to the
Property free and clear of all encumbrances, liens, claims, leases or
tenancies, except the Permitted Exceptions and the Leases;
6.6 Ile information and documents to be furnished pursuant to
Article V hereof will be true, correct, accurate and complete in all material
respects;
6.7 Borrower and/or Guarantor have not received and do not know
of any notice or demand with respect to any claim, liability or cause of
action arising out of any facts or circumstances connected with the Property,
which is not fully covered under its insurance policies;
32
<PAGE>
6.8 Borrower and/or Guarantor have not received any notice: (i)
of any violation of any zoning, building, health or similar laws, ordinances,
rules or regulations affecting the Business; or (ii) from any insurance
company or governmental agency of any defects or inadequacies in the Business
which would adversely affect the insurability of the Business or materially
increase the cost of insuring the Business beyond that which is customarily
charged for similar businesses in the vicinity of the Business used for a
similar purpose;
6.9 All real estate taxes and all tax reports of Borrower and/or
Guarantor required by law to be filed have been duly filed and all taxes,
assessments, fees and other governmental charges relating to the Property or
any of Borrower's and/or Guarantor's properties, assets, income or franchises
which are due and payable have been paid;
6.10 (i) To the best of Borrower's and Guarantor's knowledge, the
Property does not contain any Hazardous Substance; (ii) to the best of
Borrower's and Guarantor's knowledge, Borrower and/or Guarantor have not
conducted or authorized the generation, transportation, storage, treatment, or
disposal at the Property, of any Hazardous Substance; (iii) Borrower and/or
Guarantor are not aware of any pending or threatened litigation or proceedings
before any administrative agency in which any person or entity alleges the
presence, release, threat of release, or placement on or in the Property of
any Hazardous Substances; (iv) Borrower and/or Guarantor have not received any
notice of and has no actual or constructive knowledge that any governmental
authority or any employee or agent thereof is investigating whether there is,
or has determined that there has been (1) a presence, release, threat of
release, or placement on or in the Property of any Hazardous Substance, or (2)
any generation, transportation, storage, treatment or disposal at the Property
of any Hazardous Substance; and (v) there have been no communications or
agreements between Borrower and/or Guarantor and any governmental authority or
agency (federal, state or local) or any private entity, including but not
limited to, any prior owners of the Property, relating in any way to (1) the
presence, release, threat of release, or placement on or in the Property of
any Hazardous Substance, or (2) any generation, transportation, storage,
treatment, or disposal at the Property of any Hazardous Substance;
6.11 Borrower and Guarantor: (i) have no intention of filing any
voluntary petition or initiating any voluntary proceedings under the Federal
Bankruptcy Code or similar state legislation or otherwise to obtain relief
from creditors in any reorganization, insolvency, receivership or similar
proceedings, and (ii) have no knowledge of any threatened involuntary
bankruptcy proceedings affecting Borrower and/or Guarantor;
6.12 This Agreement and the transactions contemplated thereby do
not constitute a "fraudulent conveyance", "fraudulent consequence" or
"fraudulent transfer" as defined by the laws of the United States, Louisiana,
Texas or Tennessee;
6.13 The security interests, liens and other encumbrances created
by the Loan Documents and the lien of any mortgages or deeds of trust listed
as a Security Document are valid and subsisting and shall remain an
enforceable and valid lien against the Property;
33
<PAGE>
6.14 The condition (financial or otherwise) of the Business or any
part thereof, whether or not insured against, has not been materially
adversely affected in any manner since October 31, 1996, as shown on the
income and expense statement of such date for the Property, which statement
was true and correct as of the date thereof,
6.15 Except for the defaults of Borrower and/or Guarantor which
will be cured by this Agreement, no event has occurred or is continuing and no
condition exists which constitutes or which after notice or lapse of time, or
both, would constitute an event of default by Borrower, Guarantor or Lender
under the Loan Documents, as modified hereby;
6.16 The fee paid to any Guarantor for management of the Business
in any year does not exceed $60,000.00 for the Business of RSGor $75,000.00
for the Business of SGBL;
6.17 Borrower aqd/or Guarantor currently have in force insurance
policies covering the Property which comply with the property insurance
requirements set forth in the Loan Documents;
6.18 Borrower and/or Guarantor do not have the right to
disbursement of additional loan proceeds or future advances with respect to
the loan represented by the Loan Documents;
6.19 As of the date hereof, the Loan Documents, as amended hereby
and any other documents executed in connection herewith constitute all of the
documents and agreements evidencing, securing, governing or otherwise relating
to the loan represented by the Loan Documents prior to the date hereof.
Without limitation on the foregoing, there has been no modification,
extension, release, waiver, assumption, or supplement to or of the Loan
Documents, with the exception of the amendments and the provisions being
effected by this Agreement;
6.20 The loan represented by the Loan Documents is not
cross-collateralized or cross-defaulted with any other loan;
6.21 Borrower shall provide to Lender on or before the 20th of
each month during the term of the loan represented by the Loan Documents a
true and correct income and expense statement for the Property for the
calendar month ended immediately prior to such date, in form and substance
satisfactory to Lender and certified to be true and correct by Borrower;
6.22 All representations and warranties contained in this Article
VI or elsewhere in this Agreement shall survive the closing of the
restructuring transactions contemplated herein;
6.23 Guarantor represents and warrants that it has pledged and
granted (and does hereby grant) a continuing security interest to Lender, its
successors and assigns, in all the outstanding shares of stock in RSG and SGBL
to secure the loan represented by the Loan Documents and all other obligations
to Lender, its successors and assigns. All outstanding shares of stock in RSG
& SGBL have been delivered to Lender, and the pledge is noted on the books and
records of RSG & SGBL;
34
<PAGE>
6.24 Guarantor shall this date execute a Guaranty Agreement in
favor of Lender, guaranteeing all obligations of Borrower hereunder and under
the Loan Documents.
ARTICLE VII
RELEASE
7.1 Borrower, and Guarantor and their successors and assigns each
hereby forever release, discharge and acquit the Lender, its parents,
subsidiary and affiliate corporations of each of the foregoing, and each of
the respective officers, directors, shareholders, agents, employees,
representatives, consultants, attorneys, fiduciaries, servants, predecessors,
successors, heirs, and assigns of each of the foregoing (collectively, the
"Released Parties"), of and from any and all claims, demands, obligations,
liabilities, indebtedness, breaches of contract, breaches of duty or any
relationship, acts, omissions, misfeasance, malfeasance, cause or causes of
action, debts, sums of money, accounts, compensations, contracts,
controversies, promises, damages, costs, losses and expenses, of every type,
kind, nature, description or character, and irrespective of how, why, or by
reason of what facts, arising heretofore or now existing, of whatever kind or
nature, whether known or unknown, suspected or unsuspected, liquidated or
unliquidated, each as though fully set forth herein at length, which in any
way arise out of, are connected with or relate to (i) the loan represented by
the Loan Documents; (ii) the Loan Documents; (iii) this Agreement; (iv) the
Financing Statement; or (v) any action or inaction of any Person or entity
released hereunder with respect to the loan represented by the Loan Documents,
the Loan Documents or th is Agreement.
7.2 In connection with foregoing release, Borrower and Guarantor
hereby agree, represent and warrant that they realize and acknowledge that
factual matters now unknown to it may have given or may hereafter give rise to
causes and action, claims, demands, debts, controversies, damages, costs,
losses, and expenses which are presently unknown, unanticipated and
unsuspected, and it further agrees, represents and warrants that this release
has been negotiated and agreed upon in light of that realization and that it
nevertheless hereby intends to release, discharge and acquit the parties set
forth hereinabove from any such unknown causes of action, claims, demands,
debts, controversies, damages, costs, losses and expenses which are in any way
related to: (i) the loan represented by the Loan Documents; (ii) the Loan
Documents; (iii) this Agreement; (iv) the Financing Statement; and (v) any
action or inaction of any Person or entity released hereunder with respect to
the loan represented by the Loan Documents, the Loan Documents or this
Agreement.
ARTICLE VIII
NO TRANSFER OF CLAIMS
Borrower and Guarantor represent and warrant that neither Borrower
nor Guarantor has heretofore assigned or transferred, or purported to assign
or to transfer, to any Person any matter released hereunder or any portion
thereof or interest therein, and Borrower and Guarantor agree to indemnify,
defend and hold the Released Parties harmless from and against any and all
claims based on or arising out of any such assigrument or transfer or
purported assignment or transfer.
ARTICLE IX
35
<PAGE>
CONSENT OF GUARANTOR
Guarantor hereby consents to the modifications contained in this
Agreement and acknowledges that the Guaranty dated December 14, 1989, between
Guarantor and NCNB Texas National Bank, N.A., is not affected by or modified
by this Agreement, and remains in full force and effect, enforceable in favor
of Lender, its successors and assigns, in accordance with its terms.
ARTICLE X
RATIFICATION OF PLEDGE
10.1 Borrower acknowledges, represents and warrants that pledge of
that certain Collateral Mortgage Note dated December 14,1989 by Borrower in
the original principal amount of $2,000,000.00 ("NCNB Collateral Note") on
December 14,1989, pursuant to that certain Act of Pledge of Collateral
Mortgage Note dated December 14,1989, as restated and amended pursuant to that
certain Amended and Restated Act of Pledge of Collateral Mortgage Note dated
in January, 1990 as amended by that certain First Amendment to Amended and
Restated Act of Pledge of Collateral Mortgage Note dated effective as of
September 30,1995 (collectively the "NCNB Pledge Agreement") was a pledge
granted in favor of NCNB Texas National Bank, its successor and assigns,
including Lender and that such pledge was granted to secure not only all
present and future obligations of Borrower, its successors or assigns in favor
or and/or advances to Borrower, its successors or assigns by NCNB Texas
National Bank, but also all present and future obligations of Borrower its
successors or assigns in favor of, and/or advances to Borrower, its successors
or assigns, by the successors and assigns of NCNB Texas National Bank.
10.2 Borrower acknowledges, represents and warrants that the
security interest granted in that certain Collateral Mortgage Note dated
November 4,1993 by Borrower in the original principal amount of $500,000.00
(the "FDIC Collateral Note"), pursuant to that certain Act of Pledge of
Collateral Mortgage Note (Security Agreement) dated in November, 1993, (the
"FDIC Pledge Agreement") was a security interest granted in favor of the
Federal Deposit Insurance Corporation (die "FDIC"), its successors and
assigns, including Lender, and that such security interest was granted to
secure not only all present and future obligations of Borrower, its successors
or assigns in favor of and/or advances to Borrower, its successors or assigns,
by the FDIC, but also all present and future obligations of Borrower, its
successors or assigns in favor of, and/or advances made to Borrower, its
successors or assigns, by the successors or assigns of the FDIC.
10.3 Borrower acknowledges that: (i) Lender and it predecessors in
title have held the NCNB Collateral Note and FDIC Collateral Note
(collectively, the "Collateral Notes"); (ii) the Collateral Notes have been
continuously held and remain in possession of Lender and its predecessors;
(iii) pursuant to applicable Louisiana law, including without limitation,
Louisiana Civil Code Article 3158, the obligations of Borrower, its successor
or assigns under the pledge of the NCNB Collateral Note are entitled to
retroactive ranking back to the date of the original pledge, December 14,1989,
(iv) pursuant to applicable Louisiana law, including without limitation,
Chapter 9 of the Louisiana Commercial laws (La. R.S. 10:9-101 et seq.), the
obligations of Borrower, its successors or assigns, secured by the security
interest granted in the FDIC Collateral Note
36
<PAGE>
are entitled to retroactive ranking back to the date of the granting of the
original security interest, November 4, 1993.
10.4 Borrower hereby ratifies, confirms and acknowledges the
pledge of the NCNB Collateral Note and the security interest granted in the
FDIC Collateral Note, and, in addition to, but not in lieu of the foregoing,
hereby grants a continuing security interest in the Collateral Notes in favor
of Lender, its successors and assigns, in order to secure any and all present
or future obligations of Borrower and/or Guarantor, their successors or
assigns in favor of Lender its successors or assigns.
10.5 Borrower further acknowledges the rights of Lender and the
rights of Lender's successors and assigns to enforce the Collateral Notes and
all accessories or accessory obligations thereto.
ARTICLE XI
MISCELLANEOUS
11.1 Lender's Rgpresentations and Warranties. Lender represents
and warrants that it is the holder and owner of the Note.
11.2 Legal Qpinion. Simultaneously with the execution of this
Agreement, if requested by Lender, Lender shall have received from.legal
counsel retained by Borrower and acceptable to Lender an opinion of counsel
("Legal Opinion") covering the following matters: (a) the due authorization of
this Agreement and any other documents executed in connection herewith in
accordance with their respective terms; (b) the validity and enforceability of
this Agreement; (c) compliance with applicable usury laws; (d) the due
organization and valid legal existence of Borrower and Guarantor; (e) the
existence of, or the nonexistence of, any requirement for any consent of any
governmental authority in connection with the execution, delivery or
performance of this Agreement and any other documents executed in connection
herewith, (f) the execution of this Agreement will not materially impair the
security for the loan represented by the Loan Documents (including, but not
limited to, the continued validity and enforceability of any guaranty given as
security for the loan represented by the Loan Documents) and (g) such other
matters incident to the transaction contemplated herein as Lender may
reasonably request.
11.3 Usury Sayinzs Clause. Notwithstanding anything to the
contrary contained elsewhere in this Agreement, Borrower, Guarantor and Lender
hereby agree that all agreements between them under this Agreement and with
respect to the loan represented by the Loan Documents, whether now existing or
hereafter arising and whether written or oral, are expressly limited so that
in no contingency or event whatsoever shall the amount paid, or agreed to be
paid, to Lender for the use, forbearance, or detention of the money loaned to
Borrower, or for the performance or payment of any covenant or obligation
contained herein or therein, exceed the maximum rate of interest under
applicable law ("Maximum Rate"). If from any circumstance whatsoever,
fulfillment of any provision of this Agreement at the time performance of such
provisions shall be due shall involved transcending the limit of validity
prescribed by law, then, automatically, the obligation to be fulfilled
37
<PAGE>
shall be reduced to the limit of such validity, and if from any such
circumstance Lender should ever receive anything of value deemed interest by
applicable law which would exceed the Maximum Rate, such excessive interest
shall be applied to the reduction of the principal amount owing with respect
to the Loan Documents or on account of the indebtedness secured by the Loan
Documents and not to the payment of interest, or if such excessive interest
exceeds the unpaid principal balance of the loan represented by the Loan
Documents and such other indebtedness, such excess shall be refunded to
Borrower. All sums paid or agreed to be paid to Lender for the use,
forbearance or detention of the loan represented by the Loan Documents and
other indebtedness of Borrower to Lender shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the
full term of such indebtedness until payment in full so that the actual rate
of interest on account of all such indebtedness is uniform throughout the
actual term of the loan represented by the Loan Documents or does not exceed
the Maximum Rate throughout the entire term of the loan represented by the
Loan Documents, as appropriate. By execution of this Agreement, Borrower
acknowledges that it believes the loan represented by the Loan Documents to be
non-usurious and agrees that, if at any time Borrower should have reason to
believe that the loan represented by the Loan Documents is in fact usurious,
Borrower will give Lender notice of such condition, and Borrower agrees that
Lender shall have ninety (90) days after receipt of such notice in which to
make appropriate refund or other adjustment in order to correct such condition
if in fact such condition exists. The terms and provisions of this Section
11.3 shall control every other provision of this Agreement and all other
agreements between Borrower, Guarantor and Lender.
11.4 Further As nces. Borrower and Guarantor further assure the
Lender that Borrower and/or Guarantor will execute such other documents as may
be required by Lender, in its sole discretion, to complete this Agreement or
to accomplish the intended purpose of this Agreement.
11.5 No Waiver. Borrower and Guarantor acknowledge that by
accepting payment of any sums set forth herein to be paid by Borrower, Lender
does not waive in any mamer Lender's right to require prompt payment when due
of all other sums evidenced by the Note and secured by the Loan Documents, as
modified herein, and to declare a default for failure of Borrower to comply
fully with the terms and conditions of the Note and the Loan Documents. A
waiver of any default of Borrower under the Note or the Loan Documents, as
modified, shall not be or be deemed to be a waiver of any other or similar
default by Borrower after such waiver.
11.6 Notices. Any notice, demand, request or other communication
which any party hereto may be required or may desire to give under this
Agreement shall be in writing and shall be deemed to have been property given
(a) if hand delivered (effective upon delivery), (b) if mailed (effective
three days after mailing) by United States registered or certified mail,
postage prepaid, return recqipt requested, (c) if sent by a nationally
recognized overnight delivery service (effective one day after delivery to
such courier), or (d) if sent by facsimile (effective upon confirmation of
transmission); provided that the notice is also sent and received by U.S.
Mail, in each case addresses as follows:
If to Lender: First Savings Bank, FSB
301 S. Center Street
38
<PAGE>
Arlington, Texas 76010
Attention: Richard J. Driscoll
Facsimile: (817) 276-0451
If to Borrower: RadioSunGroup of Bryan/College Station, Inc.
#26 Manor East Mall
701 Villa Maria
Bryan, Texas 77805
Attention: John W. Biddinger
Facsimile: (409) 823-5597
SunGroup Broadcasting of Louisiana, Inc.
725 Austin Place
Shreveport, Louisiana 71101
Attention: John W. Biddinger
Facsimile: (318) 227-8020
If to Guarantor: SunGroup, Inc.
2201 Cantu Court
Suite 102A
Sarasota, Florida 34232
Attention: John W. Biddinger
Facsimile: (941) 378-5449
or such other address which any party entitled to receive notice hereunder
designates by notice to the others.
11.7 Successors and Assigns. This Agreement and all provisions
hereof, including but not limited to all representations and warranties made
herein, shall extend to and be binding upon and inure to the benefit of the
respective heirs, legatees, legal representatives, successors and assigns of
the parties hereto.
11.8 Waiver of Jury.. LENDER, GUARANTOR AND BORROWER HEREBY
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS EACH MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF LENDER, GUARANTOR OR BORROWER WITH RESPECT THERETO. THIS PROVISION
SETS FORTH THE MUTUAL DESIRE OF LENDER, GUARANTOR AND BORROWER TO AVOID DELAYS
IN THE RESOLUTION OF DISPUTES INVOLVING THIS AGREEMENT. BORROWER AND
GUARANTOR ACKNOWLEDGE THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER
TO ENTER INTO THIS AGREEMENT.
39
<PAGE>
11.9 Modification of Other Loan Documents. The Loan Documents are
hereby modified in accordance with this Agreement. All references to a
particular Loan Document in the Loan Documents shall be deemed to refer to
said Loan Document as amended by this Agreement.
11.10 Attorngys' Fees. Borrower and/or Guarantor shall reimburse
Lender for all reasonable attorneys' fees and expenses, arising from and after
the date hereof, incurred by Lender in connection with the enforcement of
Lender's rights under this Agreement and each of the other Loan Documents, as
modified hereby including, without limitation, reasonable attorneys' fees and
disbursements for trial, appellate proceedings, out-of-court workouts and
settlements or for enforcement of rights under any state or federal statute,
including, without limitation, reasonable attorneys' fees incurred in
bankruptcy and insolvency proceedings such as in connection with seeking
relief from stay in a bankruptcy proceeding. Borrower s and Guarantor's
reimbursement obligation shall be part of the indebtedness secured by the Loan
Documents.
11.11 Disclaimer of Novation, Extinguishment and Disch&=. Except
as expressly set forth herein, the parties hereto expressly disclaim any
intent to effect a novation or an extinguishment or discharge of any of the
Borrower's obligations under the Loan Documents. Except as expressly modified
hereby, each Loan Document remains in full force and effect and is hereby
confirmed and ratified in all respects.
11.12 Entire Agreement. This Agreement contains the entire
agreement between the parties relating to the transactions contemplated
hereby, and all prior or contemporaneous agreements, understandings,
representations and statements, oral or written, are merged herein. No
modification or amendment of this Agreement or any waiver of any provision
hereof shall be effective, unless the same is in writing signed by the party
against whom enforcement of such modification, amendment or waiver is sought.
11.13 Severability. If any of the provisions of this Agreement or
the application thereof to any persons or circumstances shall, to any extent,
be deemed invalid or unenforceable, the remainder of this Agreement and the
application of such provisions to persons or circumstances other than those as
to whom or which it is held invalid or unenforceable shall not be affected
thereby, and every provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
11.14 Voluntary Execution. Borrower and Guarantor have thoroughly
read and reviewed the terms and provisions of this Agreement and is familiar
with the same, have executed this Agreement voluntarily, in the absence of
coercion or duress, have been represented by counsel in the negotiation and
delivery of this Agreement, and understands the terms hereof and intends to be
legally bound by the same. Borrower and Lender have negotiated this Agreement
at arms-length and no provision is to be construed more strictly against one
party than the other.
11.15 No Joint Venture. Nothing in this Agreement shall be
construed as creating a partnership, joint venture or any other relationship
between Borrower, Guarantor or the Lender.
40
<PAGE>
11.16 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of THE State of Louisiana, without
reference to any principles of choice of laws or conflicts of laws.
11.17 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which together
shall constitute one original instrument.
THUS DONE AND PASSED, on the 6 day of January 1997, in the State of
Florida, County of Sarasota, City of Sarasota, in presence of the undersigned
Notary and the undersigned competent witnesses, who hereunto sign their names
with RSG and me after reading of the whole.
WITNESSES:
X /s/
-------------------------
X /s/
-------------------------
RADIOSUNGROUP OF BRYAN/COLLEGE STATION,
INC., a Texas corporation
BY: /s/ John W. Biddinger
---------------------------------
[NOTARY SEAL] Name: John W. Biddinger
Title: President
/s/ Marilyn J. Roberts
- -------------------------
Notary Public
41
<PAGE>
THUS DONE AND PASSED, on the 6 day of January 1997, in the State of
Florida, County of Sarasota, City of Sarasota, in presence of the undersigned
Notary and the undersigned competent witnesses, who hereunto sign their names
with SGBL and me after reading of the whole.
WITNESSES:
X /s/
-------------------------
X /s/
-------------------------
SUNGROUP BROADCASTING OF LOUISIANA, INC.
INC., a Louisiana corporation
BY: /s/ John W. Biddinger
---------------------------------
[NOTARY SEAL] Name: John W. Biddinger
Title: President
/s/ Marilyn J. Roberts
- -------------------------
Notary Public
THUS DONE AND PASSED, on the 6 day of January 1997, in the State of
Florida, County of Sarasota, City of Sarasota, in presence of the undersigned
Notary and the undersigned competent witnesses, who hereunto sign their names
with Guarantor and me after reading of the whole.
WITNESSES:
X /s/
-------------------------
X /s/
-------------------------
SUNGROUP, INC.
INC., a Tennessee corporation
BY: /s/ John W. Biddinger
---------------------------------
[NOTARY SEAL] Name: John W. Biddinger
Title: President
/s/ Marilyn J. Roberts
- -------------------------
Notary Public
42
<PAGE>
THUS DONE AND PASSED, on the ___ day of December 1996, in the State of
Texas, County of Tarrant, City of Arlington, in presence of the undersigned
Notary and the undersigned competent witnesses, who hereunto sign their names
with Lender and me after reading of the whole.
WITNESSES:
X
-------------------------
X
-------------------------
FIRST SAVINGS BANK, FSB
BY:
---------------------------------
Name: Richard J. Driscoll
Title: President
- -------------------------
Notary Public
43
Exhibit 21
SUBSIDIARIES OF
SUNGROUP, INC.
NAME STATE OF INCORPORATION
- ---- ----------------------
SunGroup Broadcasting of Louisiana
Louisiana, Inc.
RadioSunGroup of Texas, Inc.
Texas
SunGroup Broadcasting of New
New Mexico
Mexico, Inc.
Radio SunGroup of Bryan/College
Texas
Station, Inc.
Big Bass Classics, Inc.
Texas
SunGroup Management, Inc.
Tennessee
Sun Media, Inc. Florida (in dissolution)
44
Exhibit 99
SUNGROUP, INC. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1996 and 1995
45
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Consolidated statement of operations 2
Consolidated balance sheet 3
Consolidated statement of changes in stockholders' deficit 4
Consolidated statement of cash flows 5
Notes to consolidated financial statements 6
46
<PAGE>
[LETTERHEAD OF GEORGE S. OLIVE & CO.]
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
SunGroup, Inc. and Subsidiaries
Indianapolis, Indiana
We have audited the accompanying consolidated balance sheet of SunGroup, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, changes in stockholders' deficit and cash flows for
the years then ended. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SunGroup, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Corporation will continue as a going concern. The Corporation has deficit
equity and negative working capital at December 31, 1996, and will not have
sufficient cash flow to service its debt obligations as they are currently
scheduled to mature. Management's plans in regard to these matters are
described in the notes to the financial statements. However, the actual outcome
of these plans or the ability to obtain alternative sources of financing cannot
presently be determined. Accordingly, there is substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
/S/ GEO. S. OLIVE & CO., LLC
- ----------------------------
Indianapolis, Indiana
March 11, 1997
47
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C>
Gross Revenues $8,950,038 $8,996,654
Agency commissions (986,139) (954,552)
----------------------------
7,963,899 8,042,102
----------------------------
Expenses
Technical and programming 2,092,683 2,030,830
Selling, general and administrative 5,107,501 5,464,741
----------------------------
7,200,184 7,495,571
----------------------------
Income From Operations 763,715 546,531
----------------------------
Other Income (Expense)
Gain (loss) on disposal of assets 640,355 (15,026)
Income from tower relocation 864,450 -
Interest expense (289,400) (611,384)
Other 190,191 7,907
----------------------------
1,405,596 (618,503)
----------------------------
Income (Loss) Before Income Taxes and
Extraordinary Item 2,169,311 (71,972)
Income Taxes (Benefit) 972,071 (1,222,884)
----------------------------
Income Before Extraordinary Item 1,197,240 1,150,912
Extraordinary Gain From Debt
Extinguishment, net of income taxes of
$729,642 in 1996 8,578,057 180,285
----------------------------
NET INCOME $9,775,297 $1,331,197
============================
Income Per Common Share
Income before extraordinary item $ .09 $ .09
Extraordinary item .64 .01
----------------------------
Net income $ .73 $ .10
============================
Weighted average number of common and
common equivalent shares outstanding 13,340,406 13,173,821
</TABLE>
See notes to consolidated financial statements.
48
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31 1996 1995
- ------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 551,750 $ 334,674
Accounts receivable, less allowances of
$67,500 and $38,888 1,638,889 1,329,392
Income taxes receivable 61,000 -
Prepaid expenses and other current assets 192,813 93,385
Deferred income taxes - 1,288,621
---------------------------
Total current assets 2,444,452 3,046,072
PROPERTY, PLANT AND EQUIPMENT, net 1,645,180 1,733,138
---------------------------
OTHER ASSETS
Intangible assets 6,133,910 7,413,222
Other assets 14,524 16,768
---------------------------
6,148,434 7,429,990
---------------------------
$10,238,066 $12,209,200
===========================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term debt $ 2,898,430 $ 9,466,026
Accounts payable and accrued expenses 921,313 473,468
Accrued interest payable 16,085 3,214,510
---------------------------
Total current liabilities 3,835,828 13,154,004
---------------------------
LONG-TERM DEBT 7,538,217 9,968,317
---------------------------
DEFERRED INCOME TAXES 94,193 92,348
---------------------------
STOCKHOLDERS' DEFICIT
Common stock-no par value
Authorized-30,000,000 shares
Issued and outstanding-6,543,700 and
6,442,099 shares 3,770,639 3,770,639
Additional paid-in capital 5,969,195 5,969,195
Retained deficit (10,970,006) (20,745,303)
---------------------------
(1,230,172) (11,005,469)
---------------------------
$10,238,066 $12,209,200
===========================
</TABLE>
See notes to consolidated financial statements.
49
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 6,442,099 $3,770,639 $5,969,195 $(22,076,500) $(12,336,666)
Net loss 1,331,197 1,331,197
-------------------------------------------------------------------------
Balance, December 31, 1995 6,442,099 3,770,639 5,969,195 (20,745,303) (11,005,469)
Warrants exercised for $0.11
in total 101,601
Net income 9,775,297 9,775,297
-------------------------------------------------------------------------
Balance, December 31, 1996 6,543,700 $3,770,639 $5,969,195 $(10,970,006) $ (1,230,172)
=========================================================================
</TABLE>
See notes to consolidated financial statements.
50
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $9,775,297 $1,331,197
Reconciliation of net income to net cash
provided by operating activities
Depreciation and amortization 689,381 747,808
(Gain) loss on disposal of assets (640,355) 34,458
Net expense from barter transactions 92,851 40,478
Extraordinary gain from debt extinguishment (9,307,697) (180,285)
Income from tower relocation (664,450) -
Deferred income taxes 1,290,466 (1,274,489)
Changes in
Accounts receivable 9,749 (93,767)
Income tax receivable (61,000) -
Prepaid expenses and other current assets (122,400) (6,419)
Accounts payable and accrued expenses 250,934 53,027
Interest payable 16,659 262,861
Other assets 2,244 3,356
--------------------------
Net cash provided by operating activities 1,331,679 918,225
--------------------------
INVESTING ACTIVITIES
Purchase of property and equipment (160,558) (135,181)
Purchase of intangible asset (150,000) -
Proceeds from sale of assets 2,101,038 1,250
--------------------------
Net cash provided (used) by investing
activities 1,790,480 (133,931)
--------------------------
FINANCING ACTIVITY-repayments oflong-term debt (2,905,083) (813,009)
--------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 217,076 (28,715)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 334,674 363,389
--------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 551,750 $ 334,674
==========================
SUPPLEMENTAL CASH FLOWS INFORMATION
Interest paid $ 226,102 $ 344,361
Income taxes paid 216,775 11,605
NON-CASH TRANSACTIONS
Property and equipment acquired in barter
transactions - 40,474
Accrued interest added to note 11,474 11,164
Accounts payable funded by buyer 192,214 -
</TABLE>
See notes to consolidated financial statements.
51
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Corporation's business is the operation of commercial radio
stations. At December 31, 1996, the Corporation owned and operated six
radio stations, AM and FM, in Louisiana, Texas, and New Mexico. Each
radio station is licensed with the Federal Communications Commission,
with each license required to be renewed every seven years. The
Corporation grants credit to customers, substantially all of whom are
located in the same area as the radio stations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities 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. Estimates are used when accounting for allowance for
doubtful accounts, depreciation and amortization, taxes and
contingencies.
CONSOLIDATION
The consolidated financial statements include the accounts of SunGroup,
Inc. and its wholly-owned subsidiaries (collectively, the
"Corporation"). All significant intercompany transactions and balances
have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of bank deposits in federally insured
accounts. At December 31, 1996, the Corporation's cash accounts
exceeded federally insured limits by approximately $235,000.
For purposes of the statement of cash flows, the Corporation considers
all highly liquid debt instruments, if any, purchased with an original
maturity of three months or less to be cash equivalents.
INTANGIBLE ASSETS
Intangible assets represent the excess of the cost to acquire radio
station assets over the sum of the fair values of the net tangible
assets acquired. The excess of the cost over the fair values of assets
acquired is allocated to goodwill and the broadcast license and is
amortized over 25 years using the straight-line method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
on a straight-line basis using estimated lives as follows:
- --------------------------------------------------------------------------------
Buildings 20 years
Broadcast equipment 5-10 years
Furniture and fixtures 10 years
Transportation equipment 3 years
Leasehold improvements Life of lease
52
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Expenditures for maintenance and repairs are charged to operations.
Renewals and improvements are capitalized. The cost and the accumulated
depreciation for property and equipment retired or sold are removed from
the accounts and the resulting gain or loss is included in other income.
INCOME TAXES
Income taxes in the consolidated statement of operations include
deferred income tax provisions for all significant temporary differences
in recognizing income and expenses for financial reporting and income
tax purposes. The Corporation files a consolidated federal income tax
return.
REVENUE RECOGNITION
Revenue is recognized as advertising time is aired by the Corporation's
radio stations. Barter transactions are recorded at the estimated fair
value of the product or service received.
NET INCOME OR LOSS PER SHARE
Earnings per common and common equivalent share were computed by
dividing net income by the weighted average number of common stock and
common stock equivalents outstanding during the year. The warrants have
been considered to be the equivalent of common stock, and as such,
increased the number of common shares. The stock options, however, have
not been added to the number of common shares because the market price
of the common stock does not exceed the exercise price of the options.
The increase in the number of common shares was reduced by the number of
common shares that are assumed to have been purchased with the proceeds
from the exercise of the warrants; those purchases were assumed to have
been made at the average price of the common stock. Due to the limited
number of transactions involving the Corporation's stock, the average
price has been determined to be $.375, the same as the year end price.
MANAGEMENT'S PLANS
There is doubt about the Corporation's ability to maintain adequate
liquidity. Although cash flows from operating activities have been
positive for the past five years, the Corporation was unable to generate
sufficient cash flows to service its capital expenditures and debt
obligations. Management has implemented a program to reduce
expenditures and increase operating profit. Management has also
undertaken significant efforts to restructure or reduce debts through
negotiations, asset sales and bankruptcy. Over the past five years, the
Corporation has been able to eliminate substantial amounts of debt and
accrued interest. Additionally, it has been successful in renegotiating
several obligations into terms which it believes can be fulfilled.
Management plans to deal with the Corporation's weak financial condition
going forward by continuing to develop a strong profit base with its
current stations and focusing on the refinancing of certain previously
restructured debt so it can be paid from the net cash flow expected to be
generated.
53
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consist of the following:
DECEMBER 31 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Land $ 235,307 $ 155,307
Buildings 507,177 1,022,277
Leasehold improvements 81,406 80,003
Equipment and furnishings 2,754,641 3,225,402
Vehicles 138,944 181,159
----------------------------
3,717,475 4,664,148
Accumulated depreciation (2,072,295) (2,931,010)
----------------------------
$ 1,645,180 $ 1,733,138
============================
</TABLE>
INTANGIBLE ASSETS
<TABLE>
<CAPTION>
Intangible assets consist of the following:
DECEMBER 31 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 4,243,678 $ 4,243,678
Broadcast license 5,236,716 6,381,505
----------------------------
9,480,394 10,625,183
Accumulated amortization (3,346,484) (3,211,961)
----------------------------
$ 6,133,910 $ 7,413,222
============================
</TABLE>
54
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following:
DECEMBER 31 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Note payable, individual, interest at 12%; semi-annual
principal payments of $37,500 due January, 1990 through
July, 1996. The Corporation wrote off the principal and any
accrued interest on the note. There has been no contact
from the note holder in several years and under state law,
the note is no longer legally enforceable $ 525,000
Notes payable, three individuals, interest at 0%(a); total
principal payments of $50,000 due monthly with balloon of
$1,640,000 due January, 1998 $2,190,000 2,790,000
Note payable, financial institution, interest at prime plus
2%; balance was due April 28, 1990. The Corporation wrote
off the principal and any accrued interest on the note.
There has been no contact from the note holder in several
years and under state law, the note is no longer legally
enforceable 2,162,820
Note payable, FDIC, interest at prime plus 1.5%; balance was
due November, 1994 3,500,000
Note payable, Partnership, interest only of $21,800 paid
monthly; balance due December 15, 1996 2,184,910
Note payable, broadcasting company, interest at 8%; monthly
payments of $965 including interest; balance due February,
1997 12,046
Note payable, an individual, interest at 9%; quarterly
payments of $11,453 including interest; balance was due
August, 1994. The Corporation wrote off the principal and
any accrued interest on the note. There has been no contact
from the note holder in several years and under state law,
the note is no longer legally enforceable 229,883
Note payable, an individual, interest at 0%(a); monthly
principal payments based on cash flow of subsidiary; balance
due August, 2002 303,915 369,865
Bond payable, broadcasting company, interest at 0%(a);
principal and all accrued interest due March, 2000 1,780,600
Note payable, a related party, interest at 2.7%; $500,000
face amount; accrued interest added to note; due January,
2003 424,135 412,661
Note payable, individual, interest at 0%(a); monthly
payments of $126; balance due February, 1998 3,154
Note payable, individual, interest at 9%; monthly payments
of $2,719 including interest; balance due March, 1997 35,985
Notes payable, two individuals, interest at prime plus 1%;
monthly payments of $500 including interest; balance due
June, 1998 13,816
Note payable, bank, interest at prime plus 1%; monthly
payments of $1,520 including interest; balance due
September, 2000 60,610 72,522
</TABLE>
55
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Note payable, institution that is a warrant holder, interest
at 0% (a); annual principal payments commenced March 1, 1995
based on Corporation's cash flow as defined; balance due
February 15, 1998; if not paid in full by that date,
interest accrues after that date at 4% above the 10-year
treasury bond equivalent rate and the number of shares
purchasable under its warrants will increase by an amount
equal to 8% of the then outstanding common stock of the
Corporation assuming that all warrants outstanding are
exercised $3,821,913 $3,873,592
Note payable, institution that is a warrant holder, interest
at 0% (a); annual principal payments commenced March 1, 1995
based on Corporation's cash flow as defined; balance due
February 15, 1998; if not paid in full by that date,
interest accrues after that date at 4% above the 10-year
treasury bond equivalent rate and the number of shares
purchasable under its warrants will increase by an amount
equal to 2% of the then outstanding common stock of the
Corporation assuming that all warrants outstanding are
exercised 799,655 811,023
Note payable, a foundation that is also a stock and warrant
holder, interest at 0% (a); annual principal payments
commenced March 1, 1995 based on the Corporation's cash flow
as defined; balance due February 15, 1998; if not paid in
full by that date, interest accrues after that date at 4%
above the 10-year treasury bond equivalent rate and the
number of shares purchasable under its warrant will increase
by an amount equal to .35% of the then outstanding common
stock of the Corporation assuming that all warrants
outstanding are exercised 167,427 169,714
Notes payable, three individuals, all of whom are stock and
warrant holders (one is an officer and director and one is a
director), interest at 0% (a); balance is due February 15,
1998; if not paid in full by that date, interest accrues
after that date at 4% above the 10-year treasury bond
equivalent rate and the number of shares purchasable under
the warrants increase by an amount equal to .966% of the
then outstanding common stock of the Corporation assuming
that all warrants outstanding are exercised; subordinated to
the notes payable to institution and to the foundation 483,002 483,002
Note payable, financial institution, interest at 17.5%;
monthly payments of $217 including interest; balance due
October, 1997 1,668 3,750
Note payable, financial institution, interest at 12.0%;
monthly payments of interest only; balance due December 15,
1997 2,184,322
------------------------
10,436,647 19,434,343
Current maturities (2,898,430) (9,466,026)
------------------------
$7,538,217 $9,968,317
========================
</TABLE>
(a) The Corporation has restructured the terms of this note. The restructuring
was accounted for under FASB Statement No. 15 and the effective rate of
this note will be the restructured rate throughout its remaining term.
Substantially all assets of the Corporation and its subsidiaries as well as the
stock of the subsidiaries are pledged as collateral for the above obligations.
56
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1995, the Corporation entered in a Loan Modification Agreement to
restructure a certain note. The Modification Agreement calls for monthly
interest payments with the principal and outstanding interest due on December
15, 1996. In conjunction with negotiating the loan modification, the Company
issued a warrant for 250,000 shares to the creditor, exercisable at a total
price of $1.00. This Loan modification Agreement was refinanced on its maturity
date and the warrant expired September 15, 1996.
The Corporation had several notes payable which had been in default for a number
of years and the creditors had not sought collection on these notes. Many of
these notes had principal and interest payments which have been due for over six
years. The Corporation has attempted to contact all of the holders of these
notes in order to restructure the debt. The holders of these notes have either
preferred not to negotiate with the Corporation or they will not acknowledge
that they hold the debt. As the debt holder did not initiate collection
procedures within the prescribed time period of the statute of limitations, the
notes are no longer collectible by the creditors. During 1996, $4,567,400 of
principal and accrued interest was written off as the statute of limitations had
expired. This forgiveness of debt is accounted for as an extraordinary item in
the consolidated statement of operations.
During 1996, the Corporation sold the assets of one of its subsidiaries. The
net proceeds of $2,094,000 were applied against the note payable to the FDIC
which was secured by these assets. There was a remaining balance of $2,959,700
of principal and accrued interest which was forgiven by the note holder and is
also included as an extraordinary item. This subsidiary also had a bond payable
to a broadcasting company in the amount of $1,780,600 which was in a secondary
position. This liability has also been forgiven and is treated as an
extraordinary item.
It is not practicable to estimate the fair value of long-term debt because the
Corporation is unable to estimate the timing and amount of ultimate settlement
of such debt. Additionally, there are no readily available market terms for
debt with similar characteristics and held by a company with operating
uncertainties such as the Corporation.
Future maturities of long-term debt are as follows:
YEARS ENDING DECEMBER 31
- --------------------------------------------------------------------------------
1997 $2,898,430
1998 6,975,862
1999 119,308
2000 18,912
2001
Thereafter 424,135
-----------
$10,436,647
===========
57
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCKHOLDERS' EQUITY
During 1996, a warrant holder (who is also an officer and director) exercised a
warrant for 101,601 shares for a total amount of $0.11.
No dividends can be paid by the Corporation or any of its subsidiaries due to
restrictions of certain debt agreements and by function of state law.
EXTRAORDINARY ITEM
Total debt with a carrying value of $9,307,700 (including $6,104,100 of
principal and $3,203,600 in accrued interest) was written off during 1996
resulting in an extraordinary gain of $9,307,700. For $4,567,400 of this debt,
the debt holder did not initiate collection procedures within the prescribed
time period of the statute of limitations as specified under state law of the
state in which the debt was held. The remaining $4,740,300 of the debt write
off resulted from the settlement of the liabilities of a subsidiary after the
sale of all its assets.
INCOME TAXES
Income tax expense consists of tax on income (loss) before extraordinary item
and tax related to the extraordinary item.
The reconciliation of income tax to the tax at the federal statutory income tax
rate is as follows:
<TABLE>
<CAPTION>
DECEMBER 31 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Income (loss) before income taxes and
extraordinary item $ 2,169,311 $ (71,972)
Extraordinary gain before income taxes 9,307,699 180,285
---------------------------
Income before income taxes $ 11,477,010 $ 108,313
===========================
Tax expense (benefit) at statutory rate of 34% $ 3,902,183 $ 36,826
Tax effect of
State income tax (net of federal effect) 403,803 43,386
Nondeductible expenses 84,683 80,725
Other 2,451 10,752
Increase (decrease) in valuation allowance (2,691,407) (1,394,573)
---------------------------
$ 1,701,713 $(1,222,884)
===========================
</TABLE>
58
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Income tax expense (benefit) consists of the following:
YEAR ENDED DECEMBER 31 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Current payable
Federal $ 94,000 -
State 317,247 $ 51,605
----------------------------
411,247 51,605
----------------------------
Deferred
Federal 1,288,621 (1,288,621)
State 1,845 14,132
----------------------------
1,290,466 (1,274,489)
----------------------------
$1,701,713 $(1,222,884)
============================
Allocation of income tax expense (benefit)
Income tax expense (benefit) resulting from
continuing operations $ 972,071 $(1,222,884)
Income tax expense resulting from
extraordinary gain 729,642 -
----------------------------
$1,701,713 $(1,222,884)
============================
</TABLE>
A net cumulative deferred tax (liability) and asset of $(94,193) and $1,196,273
are included in the balance sheet. The components of the net deferred tax
(liability) asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Difference in depreciation methods of
property and equipment $ (8,197) $ 41,041
Difference in amortization method of
broadcast licenses (1,038,521) (1,246,930)
Allowance for doubtful accounts 22,950 13,222
Write down of land value - 97,353
Imputed interest on zero percent notes 181,360 414,560
State deferred taxes 80,645 277,590
Other - 2,007
Net operating loss carryforwards 694,963 4,410,230
Alternative minimum tax credit 94,000 -
----------------------------
27,200 4,009,073
Valuation allowance (121,393) (2,812,800)
----------------------------
$ (94,193) $ 1,196,273
============================
Assets $1,073,918 $ 5,256,003
Liabilities (1,046,718) (1,246,930)
Valuation allowance (121,393) (2,812,800)
----------------------------
$ (94,193) $ 1,196,273
============================
</TABLE>
59
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The valuation allowance at December 31, 1996 is $121,393 and was decreased by
$2,691,407 during the current year due to the gain and income resulting from
debt forgiveness upon the sale of the Pensacola, Florida radio station in 1996.
At December 31, 1996, the Corporation has approximately $2,044,000 of federal
net operating loss carryforwards, which expire in the years 2006 through 2010.
INCENTIVE COMPENSATION PLANS
The Corporation accounts for its incentive stock option plans in accordance with
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees. Although the Corporation has elected to follow APB No. 25, SFAS No.
123 requires pro forma disclosures of net income and earnings per share as if
the Corporation had accounted for its employee stock options under that
statement. The Corporation has not made the pro forma disclosures required by
SFAS No. 123 as they are not significant.
In 1986, the Corporation initiated the Key Employee Incentive Bonus Stock Option
Plan for the purpose of granting options to key employees. Options granted each
year are exercisable after two years and expire after ten years or upon
dissolution or liquidation of the Corporation, or merger if the Corporation is
not the surviving entity and there is not an express assumption by the surviving
entity. Each option enables the holder to purchase one share of common stock.
There were 3,200 and 3,700 options exercisable under the above Plan at December
31, 1996 and 1995, but no options had been exercised as of those dates. A
summary of changes in the stock options follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------
DECEMBER 31 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Qualified
Outstanding at beginning of year 5,700 5,700
Expired (2,500)
Outstanding at end of year 3,200 5,700
Option price range at December 31 $3.00 $3.00
to to
$4.00 $4.00
</TABLE>
In addition, in 1987, a non-qualified Plan was established to grant options to
certain other key organizational personnel. Each option enables the holder to
purchase one share of common stock. All shares are exercisable over a ten-year
period. There were 4,000 options exercisable at a price of $3 per share under
this Plan at December 31, 1996 and 1995, but no options had been exercised as of
those dates. These options expire in 1999.
In 1989, another member of the executive committee was granted a stock option
for 10,000 shares under the same terms as the non-qualified plan at a price of
$3.00 per share. The option is exercisable over a ten-year period, but had not
been exercised as of December 31, 1996 and 1995.
60
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK WARRANTS
The Corporation has outstanding 4,956,050 warrants exercisable for a total price
of $.89. In addition, there are an additional 1,663,812 warrants which are
exercisable at a total price of $.44. All of the warrants include an
anti-dilutive provision. These warrants are generally exercisable immediately
upon issuance.
One lender, which is owed $4,684,615, holds 5,972,060 of these warrants, which
represent approximately 45% of the Corporation's outstanding stock on a
converted basis.
In 1995, 250,000 additional warrants were issued which are exercisable at a
total price $1.00 based on the Loan Modification Agreement. These warrants
expired during 1996.
OTHER INCOME
The Corporation had an agreement with another broadcasting company to move the
transmitter site of its Longview, Texas radio station in exchange for $200,000
cash and real and personal property of approximately $664,450. The Corporation
recognized a gain of $864,450.
COMMITMENTS AND CONTINGENCIES
The Corporation has an employment agreement with its president through May 31,
2000 which includes a provision for an annual base salary of $125,000 and annual
bonuses of up to 50% of his annual salary. As part of restructuring the
Corporation's debt, the president has agreed to a maximum compensation of
$132,200 per year. Upon termination of the president "without cause" or if the
president terminates his employment for "good reason," his salary will be
continued for 24 months. The agreement provides for a death benefit to the
president's estate of two and one half times the current annual base salary and
a lump sum payment equal to two times the current annual base salary if he
should become permanently disabled. The Corporation is not insured against
either of these events. The president is also granted the option to put his
stock back to the Corporation at a mutually agreed-upon fair market value.
The Corporation has employment agreements with each of the radio station general
managers through December 31, 1998. These agreements provide compensation
ranging from $75,000 to $120,000 plus bonus incentives based on station cash
flows. The employees are eligible for insurance and benefit plans provided by
the Corporation. The employees or their beneficiaries/estates are entitled to
the designated payments in the event of disability, death, or a change in
control of the subsidiary. The agreement terminates if employee terminates
employment or if the Corporation terminates the employee. The Corporation is not
insured against either the death or disability of the employees.
The Corporation and certain of its subsidiaries rent equipment and facilities
under operating leases. Generally, the lease agreements require the Corporation
to pay utilities, insurance and maintenance. Total rental expense for all
operating leases, including short-term leases of less than one year, amounted to
$174,403 in 1996 and $201,176 in 1995.
The Corporation and certain of its subsidiaries have marketing service
agreements which expire between 1998 and 2000.
61
<PAGE>
SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Minimum commitments under non-cancelable leases and marketing services contracts
are as follows:
YEARS ENDING DECEMBER 31
- --------------------------------------------------------------------------------
1997 $210,160
1998 165,385
1999 147,082
2000 92,250
2001 50,809
Thereafter 171,960
--------
$837,646
========
The Corporation, in the normal course of business, is a defendant in a small
number of lawsuits. Management believes that the results of such litigation
will not have a materially adverse effect upon the Corporation's conduct of its
business or its financial position.
DISPOSITION
On April 17, 1995, the Federal Deposit Insurance Corporation, as Receiver for
the National Bank of Washington ("FDIC"), the senior creditor for the
Corporation's Pensacola, Florida property ("Pensacola Property"), filed an
application seeking a receiver for the Pensacola Property and a temporary
restraining order against the Corporation, the Corporation's subsidiary,
SunMedia, Inc., and Colonial Broadcasting Company, Inc. in the United States
District Court for the Northern District of Florida, Pensacola Division.
Subsequent to the FDIC filing the receiver application, the Corporation reached
an agreement with the FDIC to sell the Pensacola Property and use the proceeds
to retire the Corporation's debt to the FDIC.
On July 2, 1996, the Corporation sold substantially all of the assets of the
Pensacola Property. The sales price of the Pensacola Property assets was $2.3
million in cash, plus closing costs of approximately $150,000.
In conjunction with the sale of the assets of the Pensacola Property, the
Corporation entered into an agreement with the FDIC, the first lien holder of
the assets, on the disposition of the sale proceeds and release of its lien
thereof. The FDIC received $2,094,214 from the Pensacola Property sale
proceeds. The Corporation is discharged from indebtedness to the FDIC.
62
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR SUNGROUP, INC. SET FORTH IN EXHIBIT 99 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> OCT-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 DEC-31-1996
<CASH> 0 552
<SECURITIES> 0 0
<RECEIVABLES> 0 1,706
<ALLOWANCES> 0 (68)
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 254
<PP&E> 0 3,717
<DEPRECIATION> 0 (2,072)
<TOTAL-ASSETS> 0 10,238
<CURRENT-LIABILITIES> 0 3,836
<BONDS> 0 7,538
0 0
0 0
<COMMON> 0 3,771
<OTHER-SE> 0 (5,001)
<TOTAL-LIABILITY-AND-EQUITY> 0 10,238
<SALES> 2,244 8,950
<TOTAL-REVENUES> 2,719 9,659
<CGS> 0 0
<TOTAL-COSTS> 1,802 7,497
<OTHER-EXPENSES> 194 710
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 75 289
<INCOME-PRETAX> 1,216 2,169
<INCOME-TAX> (679) 972
<INCOME-CONTINUING> 1,895 1,197
<DISCONTINUED> 0 0
<EXTRAORDINARY> 67 8,578
<CHANGES> 0 0
<NET-INCOME> 1,962 9,775
<EPS-PRIMARY> .15 .73
<EPS-DILUTED> 0<F1> 0<F1>
<FN>
<F1> EPS-DILUTED IS NOT CALCULABLE BASED UPON OUTSTANDING WARRANTS OF THE COMPANY.
</FN>
</TABLE>
