U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
EXCHANGE ACT For the transition period from ____________ to
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Commission file number 0-3851
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SUNGROUP, INC.
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(Exact name of small business issuer as specified in its charter)
Tennessee 62-0790469
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2201 Cantu Court, Suite 102A, Sarasota,
Florida 34232-6254
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(Address of principal executive offices)
941-377-6710
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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
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State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Common Stock, No Par Value 6,543,700 Common Shares
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(Title of class) (Shares outstanding June 30, 1998)
Transitional small business disclosure format (check one): Yes No X
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Page 1
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SUNGROUP, INC.
FORM 10-QSB
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet 3
June 30, 1998
Consolidated Statement of Operations 4
Three Months ended June 30, 1998 and 1997
Consolidated Statement of Operations 5
Six Months ended June 30, 1998 and 1997
Consolidated Statement of Cash Flow 6
Six Months ended June 30, 1998 and 1997
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Results of Operations 8
Financial Condition 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SUNGROUP, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
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(IN THOUSANDS)
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(UNAUDITED)
CURRENT ASSETS
Cash $ 372
Accounts Receivable (net) 1,437
Deferred Income Taxes 1,499
Prepaid and Other 157
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TOTAL CURRENT ASSETS 3,465
PROPERTY AND EQUIPMENT (NET) 1,465
OTHER ASSETS
Intangible Assets (net) 5,538
Other Assets 47
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TOTAL OTHER ASSETS 5,585
TOTAL ASSETS $10,515
=======
CURRENT LIABILITIES
Accounts Payable & Accrued
Expenses 683
Accrued Interest 0
Current Maturities of LT Debt 8,934
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TOTAL CURRENT LIABILITIES $ 9,617
LONG TERM DEBT $ 587
DEFERRED INCOME TAXES $ 1,091
STOCKHOLDERS' EQUITY
Common Stock - $1 par value, authorized
10 million 3,770
Additional Paid in Capital 5,970
Accumulated Deficit (10,520)
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TOTAL STOCKHOLDERS' EQUITY (780)
TOTAL LIABILITY & STOCKHOLDERS' EQUITY $10,515
=======
See "Notes to Consolidated Financial Statements"
3
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SUNGROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30
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1998 1997
(UNAUDITED, IN THOUSANDS)*
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INCOME $ 1,372 $ 2,544
Agency Commission -116 (276)
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1,256 2,268
EXPENSES
Technical & Programming 281 556
Selling and Administrative 973 1,351
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1,254 1,907
LOSS FROM OPERATIONS 2 361
OTHER INCOME (EXPENSE)
Interest Expense (66) (74)
Gain (Loss) on Disposal of Assets (65) (4)
Other 32 4
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(99) (74)
LOSS BEFORE EXTRAORDINARY ITEM (97) 287
Extraordinary Gain From Debt Extinguishment 8 0
NET INCOME (LOSS) BEFORE TAXES (105) 287
INCOME TAXES 0 0
NET INCOME (LOSS) (105) 287
LOSS PER COMMON SHARE
Loss Before Extraordinary Item (0.01) 0.02
Extraordinary Item 0.00 0.00
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LOSS PER SHARE (0.01) 0.02
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 13,340 13,340
DIVIDENDS PER SHARE 0 0
See "Notes to Consolidated Financial Statements"
*Except for "Per Common Share" and "Per Share" amounts
4
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SUNGROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30
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1998 1997
(UNAUDITED, IN THOUSANDS)*
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INCOME $ 3,575 $ 4,391
Agency Commissions (320) (487)
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3,255 3,904
EXPENSES
Technical & Programming 776 958
Selling and Administrative 2,540 2,604
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3,316 3,562
LOSS FROM OPERATIONS (61) 342
OTHER INCOME (EXPENSE)
Interest Expense (208) (131)
Gain (Loss) on Sale of Assets (65) (4)
Gain (Loss) on Disposal of Assets 0 0
Other 39 6
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(234) (129)
LOSS BEFORE EXTRAORDINARY ITEM (295) 213
Extraordinary Gain From Debt Extinguishment 14 0
NET INCOME (LOSS) BEFORE TAXES (309) 213
INCOME TAXES 0 0
NET INCOME (LOSS) (309) 213
LOSS PER COMMON SHARE
Loss Before Extraordinary Item (0.02) 0.02
Extraordinary Item 0.00 0.00
------------------------------
LOSS PER SHARE (0.02) 0.02
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 13,340 13,340
DIVIDEND PER SHARE 0 0
See "Notes to Consolidated Financial Statements"
*Except for "Per Common Share" and "Per Share" amounts
5
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SUNGROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
SIX MONTHS ENDED JUNE 30
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1998 1997
(UNAUDITED, IN THOUSANDS)*
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OPERATING ACTIVITIES
Net Income (Loss) $ (172) $ 213
Reconciliation of Net Income (Loss) to Net Cash
provided by Operating Activities Depreciation
and Amortization 341 327
(Gain) Loss on Disposal of Assets (70) 0
Net Income Loss From Barter Transactions (91) (47)
Extraordinary Gain From Debt Extinguishment 0 0
Change In:
Accounts Receivable 459 (334)
Prepaid Expenses and Other Current Assets 118 (105)
Accounts Payable and Accrued Expense (537) 236
Interest Payable (15)
Deferred Item (136) (10)
-----------------------
Net Cash Provided by Operating Activities (103) 280
INVESTMENT ACTIVITIES
Purchase Of Property and Equipment (1) (97)
Proceeds From Sale of Equipment 1 (45)
Sale of Building 137
Other (4) (1)
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Net Cash Provided by Investment Activities 133 (143)
FINANCING ACTIVITIES
Repayment of Long-term Debt (995) (330)
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(995) (330)
INCREASE IN CASH (965) (193)
Cash, Beginning of Quarter 1,337 552
Cash, End of Quarter 372 359
SUPPLEMENTAL CASH FLOW INFORMATION
Interest Paid 214 66
NON-CASH TRANSACTION:
Property and Equipment Acquired by Barter Transaction 0 6
Accrued Interest Added to New Notes in Restructuring 15 6
*See "Notes to Consolidated Financial Statements"
6
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SUNGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. The accompanying
unaudited consolidated financial statements of SunGroup, Inc. and its
subsidiaries (collectively, "Corporation") have been prepared in accordance
with the instructions to Form 10-QSB and do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation of such financial information for the periods indicated have been
included. While management believes that the disclosures presented are
adequate to make the information not misleading, it is suggested that these
financial statements and the related notes be read in conjunction with the
financial statements and the related notes included in the Corporation's
latest report on Form 10-KSB. Operating results for the interim period are not
necessarily indicative of the results to be expected for the entire year.
(2) INCOME TAXES. Income taxes in the consolidated statement of
operations include deferred income tax provisions for all significant
temporary differences in recognizing income and expense for financial
reporting and income tax purposes. The Corporation files consolidated income
tax returns.
At June 30, 1998, the Corporation had approximately $10 million of net
operating loss carry-forwards, which expire in years 2002 through 2010.
At June 30, 1998, the Corporation had a cumulative net deferred tax
asset. This asset has been offset by an evaluation allowance since
management believes it is more likely than not that, except for
reversals of taxable temporary differences, the Corporation will not
generate income to utilize all of the net operating loss carry
forwards. At June 1, 1998, the Corporation had a recorded deferred tax
asset of $1,499,000.00.
(3) NET INCOME PER COMMON SHARE. For 1997 and 1998, 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 first quarter. The Corporation's warrants have been
considered the equivalent of common stock, and as such, increase the number of
common shares. The Corporation's outstanding stock options, however, have not
been added to the number of common shares because of the market price of the
common stock does not exceed the exercise price of the options. The increase
in the number of commons 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 per share of the common stock. The average price has been determined to
be $.375.
7
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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RESULTS OF OPERATIONS: For the period ended June 30, 1998 and 1997, the
Corporation operated the same properties, except for KALK-FM in Mount
Pleasant, Texas and KROW-FM in Abilene, Texas. The Corporation entered into a
Local Marketing Agreement (LMA) with KALK-FM in June 1997 and began operating
KROW-FM on October 29, 1997. On April 1, 1998, the Corporation entered into an
additional Local Marketing Agreement with Sunburst Media, LLP of Dallas, Texas
for its stations in Abilene, Texas, Bryan, Texas, and Longview, Texas.
All of the decreases in Revenue, Technical, Programming, Sales and
Administrative expenses are due to the Local Marketing Agreement with Sunburst
Media, LLP.
Gross revenue for 1998 decreased 18.6% or $816,210 from 1997.
Agency commissions as a percentage of gross sales for the quarter was
approximately 8.95% in 1998 versus 11.09% in 1997. The decrease is due to
decrease in national and political advertising which originate through
agencies.
Technical and programming expense decreased 19% form the same period of
1998 to 1997.
Selling and administrative expense, which include depreciation and
amortization, decreased $64,000 or 24.5%.
Interest expense increased 158.78% or $77,900. This is a result of
refinancing several zero interest bearing notes that became due December 31,
1997 with short term notes paying a 10% annual return.
The Corporation recorded other income of $39,000 in 1998 versus $6,000
in 1997. This consisted of interest income of $12,000 and miscellaneous income
of $27,000.
In May 1998, the Corporation sold its studio building in Longview, Texas
for $136,600.00. Proceeds from the sale were used to pay the mortgage due to
Longview Bank and Trust of Longview, Texas. The Corporation recognized a gain
of $70,200.00 on the sale. The Corporation had no extraordinary items in 1997.
The Corporation, through its subsidiary Radio SunGroup of Texas, Inc.,
signed a Local Management Agreement and Right to Purchase Agreement with Mt.
Pleasant Radio, Inc. for the Corporation to manage and ultimately purchase
radio station KALK-FM, Mt. Pleasant, Texas in June 1997.
Radio SunGroup of Texas, Inc. also acquired a construction permit for
KROW-FM in Abilene, Texas. The Corporation built the station and it became
operational on October 29, 1997.
KEAN-AM which had been simulcast with KEAN-FM, changed to a sports
format in February, 1997. The change was made to give the audience another
choice in the market which
8
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they did not previously have. The Corporation views this change as a good
opportunity to create additional income and net revenue.
FINANCIAL CONDITION
- -------------------
The Corporation's principal source of funds is cash flow provided by the
operation of its subsidiary radio stations. Its primary needs include working
capital, capital expenditures, maintenance of property, plant and equipment,
and repayment of debt and interest. During the first six months of 1998, the
Corporation was able to meet its primary cash need of debt service and
interest expense.
On February 3, 1998, the Corporation entered into an Asset Purchase
Agreement with Sunburst Media of Dallas, Texas to substantially sell all the
assets of the Corporation for $24,000,000.00. The Corporation will retain its
cash and accounts receivable. It is anticipated that the net proceeds, after
payment of the Corporation's outstanding debt obligations and tax liabilities,
will be distributed and the Corporation liquidated after all affairs are wound
up. The sale is contingent upon license renewal, consent by the Federal
Communications Commissions to the renewal grant of the licenses and the
assignment of the various broadcast licenses from SunGroup, Inc. to Sunburst
Media. It is anticipated the closing on the sale of the Corporation will occur
in the third quarter of 1998.
Subsequently, the Corporation entered into a Local Management Agreement
with Sunburst Media for the operation of its stations in Abilene, Longview and
Bryan College Station, Texas effective April 1, 1998. The Corporation believes
this agreement was in the best interest of its stockholders and would expedite
the Asset Purchase Agreement previously entered into.
As a condition of the sale of the Corporation, the Corporation is
obligated to pay its various note holders. The Corporation has negotiated a
settlement with it largest note holder and shareholder, Conseco Risk
Management, for its various loans and warrants in the amount of Ten Million
Three Hundred Thousand Dollars ($10,300,000.00). Payment is due to Conseco on
July 23, 1998. If the settlement does not occur on that date, interest will
accrue at the rate of 18% per annum (see attached exhibit).
The Company has been successful in extending its loan with First Savings
Bank of Arlington, Texas through August 30, 1998. Further, the Company is in
the process of working to extend other notes which are in default at this
time.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- -----------------------------
During the normal course of operations, the Corporation is engaged in
routine litigation incidental to its business. In most cases, such litigation
is not material and is settled before preceding to litigation.
In 1997, KKSS-FM, a subsidiary of the Corporation, was sued by a former
employee for wrongful discharge. The Corporation settled with the defendant
upon conditions that were beneficial to the Corporation.
9
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Also in 1997, KMJJ-FM entered into a suit against Atlantic Records for
breach of contract. Litigation is still pending in this case, but the
Corporation expects to be successful in its pursuit of this claim.
On March 12, 1998, the Federal Communications Commission, upon review of
the Corporation's applications for license renewal for four Texas stations,
determined that the stations had serious deficiencies with respect to their
Equal Employment Opportunity programs. The Corporation has retained legal
counsel to defend these allegations. The Federal Communications Commission as
of July 22nd renewed the license agreements of the Texas stations and as of
now the Corporation has received approval from the Federal Communications
Commission on all of the licenses. The Federal Communications Commission,
because of the United States Court of Appeals for the District of Columbia
Circuit Court's Ruling in the Lutheran EEO case, has renewed the license
agreements with contingencies (see the attached SunGroup, Inc.'s ruling,
Before the Federal Communications Commission in Washington, D.C., FCC 98-171).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits
Exhibit 10.1 Federal Communications Commission's Memorandum
Opinion FCC 98-171, dated: July 23, 1998 (attached)
Exhibit 10.2 SunGroup & Conseco's Warrant Purchase & Repayment
Agreement dated July 10, 1998 (attached)
Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the second quarter of
1998.
10
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
SUNGROUP, INC.
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(Registrant)
August 12, 1998 /s/ John W. Biddinger
- --------------- ------------------------------------------
Date John W. Biddinger, President
Principal Operating Officer
August 12, 1998 /s/ James A. Hoetger
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Date James A. Hoetger, Vice President/Treasurer
Principal Accounting and Financial Officer
11
EXHIBIT 10.1
FEDERAL COMMUNICATIONS COMMISSION FCC 98-171
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BEFORE THE
FEDERAL COMMUNICATIONS COMMISSION
WASHINGTON, D.C. 20554
In re Applications of )
)
Radio SunGroup of Texas, Inc. ) File Nos. BRH-970407WB,
) BR-970317WB,
For Renewal of Licenses of ) and BRH-970317WH
Stations KYKX-FM, Longview, Texas; )
KEAN(AM)/KEAN-FM, Abilene, Texas;(1) )
)
and )
)
Radio SunGroup of Bryan/College Station, Inc. ) File No. BRH-970331YK
)
For Renewal of License of )
Station KKYS(FM), Bryan, Texas; )
)
and )
)
Radio SunGroup of Texas, Inc. )
Assignor )
)
and )
)
Sunburst Media, LP )
Assignee )
)
For Consent to the Assignment of Licenses of )
)
Stations KYKX-FM, Longview, Texas; ) File Nos. BAL-980330GH,
KEAN(AM)/KEAN-FM, Abilene, Texas; ) BAPLH-980330GI,
) and BALH-980330GK
and )
)
Radio SunGroup of Bryan/College Station, Inc. )
Assignor )
)
and )
)
Sunburst Media, LP )
Assignee )
)
For Consent to the Assignment of License of )
)
Station KKYS(FM), Bryan, Texas ) File No. BALH-980330GL
- --------
(1) On May 1, 1998, KEAN(AM) changed its call sign letters to KGMM(AM). For
purposes of this Order, we will continue to refer to the station by its
original call sign.
<PAGE>
FEDERAL COMMUNICATIONS COMMISSION FCC 98-171
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MEMORANDUM OPINION AND ORDER
& NOTICES OF APPARENT LIABILITY
ADOPTED: JULY 23, 1998 RELEASED: JULY 23, 1998
BY THE COMMISSION: Commissioner Furchtgott-Roth concurring in part,
dissenting in part, and issuing a separate statement.
I. INTRODUCTION
1. The Commission has before it for consideration: (i) license renewal.
applications for the above-captioned stations; (ii) assignment of license
applications for the stations; and (iii) the above licensees' responses to our
staff letters of inquiry.
2. As discussed below, we find that the behavior of the Radio SunGroup
during this license term was in violation of our Equal Employment Opportunity
("EEO") Rule, Section 73.2080 of the Commission's Rules, 47 C.F.R. ss.
73.2080. If the EEO Rule were in full force, the conduct would warrant
imposition of forfeitures and a short-term renewal for KYKX-FM. We note,
however, that the United States Court of Appeals for the District of Columbia
Circuit recently found the outreach portions of our EEO Rule to be
unconstitutional. Lutheran Church - Missouri Synod v. FCC, 141 F.3d 344 (D.C.
Cir. 1998) ("Lutheran Church"). Although the Commission has filed a petition
for rehearing in the case, we have deferred to the Court and have not issued
any decisions imposing sanctions for violation of the EEO Rule since the Court
announced its decision. Thus, under normal circumstances, we would withhold
action in this case pending final resolution of the rehearing petition. The
licensees have informed us, however, that for financial reasons, they wish to
have the Commission act immediately on their renewal applications, as well as
other applications they have filed to assign the licenses to new owners. To
accommodate this request while preserving our enforcement options, we believe
the best course is to issue this decision consistent with the EEO Rule that
was applicable-during this license term, but, in recognition of the holding in
Lutheran Church. suspend the sanctions. Thus, until further notice, the
licensees will not be required to respond to these Notices of Apparent
Liability. If the panel decision in Lutheran Church becomes final, the Mass
Media Bureau will issue an order canceling the Notices of Apparent Liability
and confirming that the KYKX-FM renewal application was granted for a
full-term ending on August 1, 2005. In the event rehearing is granted and the
panel decision is vacated, the Bureau will provide the licensees 30 days
notice of the end of the suspension period. At that time, the licensees may
take any of the actions set forth in Section 1.80 of the Commission's Rules,
47 C.F.R. ss. 1.80, as summarized in the attachment to this Memorandum Opinion
and Order. Any comments concerning the ability to pay should include those
financial items set forth in the attachment.
II. DISCUSSION
KYKX-FM, LONGVIEW, TEXAS
3. In Eagle Radio. Inc.. 9 FCC Rcd 836 (1994), recon. denied 11 FCC Rcd
496 (1996) ("Eagle Radio"), the Commission determined that grant of the 1990
renewal application of KYKX-FM was in the public interest. However, the
Commission also determined that the station had engaged in EEO rule violations
warranting imposition of significant sanctions. Among other things, the
Commission concluded that the licensee had "failed to recruit so as to attract
an adequate pool of minority applicants" for at least 22 (64.7%) of its 34
full-time vacancies. See Eagle Radio at 856. Accordingly, the
<PAGE>
FEDERAL COMMUNICATIONS COMMISSION FCC 98-171
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Commission renewed the station's license for a short term(2) subject to three
years of reporting conditions and issued a Notice of Apparent Liability for
Forfeiture in the amount of $3 1,250. Following the issuance of the Notice of
Apparent Liability, the licensee paid the forfeiture in full. 11 FCC Rcd at
496 n. 1.
4. We also expressed concern in Eagle Radio. Inc. that, although the
licensee had stated in its 1990 renewal application that it would contact new
recruitment sources including minority organizations, it actually contacted no
minority sources for vacancies that occurred after it made that
representation. 9 FCC Rcd at 856 n. 37.
5. In accordance with the Commission's decision in Eagle Radio, KYKX-FM
submitted EEO progress reports on April 1, 1994, April 1, 1995 and April 9,
1996, to fulfill its reporting conditions. By letter dated September 14, 1995,
Commission staff determined that the station's 1994 and 1995 EEO progress
reports showed that the licensee had failed to recruit for two (33.3%) of its
six full-time vacancies and that minorities were present in four (66.7%) of
the six applicant pools. In its letter to the licensee, the staff acknowledged
that KYKX-FM had made some progress in recruiting minorities, but emphasized
that recruitment should occur for each vacancy. By letter dated April 22,
1996, Commission staff determined that the licensee's final EEO progress
report was satisfactory since KYKX-FM had attracted five minorities for its
two full-time vacancies and minorities were present in each applicant pool. On
September 4, 1996, the station's renewal application was granted.(3)
6. With respect to the licensee's present renewal application, review of
the record reveals that the licensee recruited for only four (50%) of its
eight vacancies.(4) The licensee explains that, in one instance, it hired an
individual from a competing station when an employee unexpectedly resigned
and, in another, it hired a walk-in applicant. It also hired two former
student interns for full-time positions without recruitment upon their
graduation from college. However, the Commission's EEO Rule requires that a
licensee recruit for minority and female applicants "whenever job vacancies
are available in its operation." See Section 73.2080(c)(2) of the Commission's
Rules; Tidewater Communications, Inc., 12 FCC Rcd 11830, 11832 (1997).
7. There are no substantial and material questions of fact warranting
designation for hearing and grant of the applications would be consistent with
Section 309(k) of the Communications Act of 1934, as amended, 47 U.S.C. ss.
309(k). See Astroline Communications Co. v. FCC, 857 F.2d 1556 (D.C. Cir.
1988) ("Astroline"). Further, we find no indication of employment
discrimination. The licensee recruited and interviewed minorities. Therefore,
because the licensee is otherwise qualified, grant of the applications will
serve the public interest. 47 U.S.C. ss. 309(d)(2).
8. However, we find that the licensee violated our EEO Rule because it
failed to recruit for half of its vacancies. Moreover, we find this violation
to be of aggravated seriousness because the licensee violated our EEO Rule in
its previous regular license renewal term. In Eagle Radio, Inc., we imposed
substantial sanctions in an attempt to ensure that the licensee would, in the
future, comply with the EEO Rule. While some progress was evidenced during the
period of time when the licensee was under Commission scrutiny by virtue of
the short-term renewal and reporting conditions imposed in Eagle Radio,
- ---------
(2) Pursuant to Eagle Radio, Inc., the station's license expired on August
1, 1995, rather than August 1, 1997, the regular expiration date for
Texas radio stations.
(3) Upon expiration of the station's short-term renewal, the licensee had
filed another renewal application to cover the period from August 1,
1995, to August 1, 1997.
(4) The current license term ended on August 1, 1997.
<PAGE>
FEDERAL COMMUNICATIONS COMMISSION FCC 98-171
- -----------------------------------------------------------------------------
Inc it was still necessary for the staff to explicitly warn the licensee of
its obligation under the EEO Rule to recruit for minorities for all of the
station's vacancies. Nonetheless, shortly after the licensee was relieved of
direct Commission scrutiny by virtue of the grant of its short-term renewal
application and the end of reporting conditions, its record again evidences
serious non-compliance with the EEO Rule.
9. In determining a forfeiture or other sanctions for EEO violations, we
ordinarily look to case precedent, taking into account the relevant statutory
factors in Section 503(b)(2) of the Communications Act of 1934, as amended,
including the nature, circumstances, extent and gravity of the violations, and
a licensee's record of compliance with our rules. In our evaluation, we
consider the station's size, number of hiring opportunities, MSA size,
recruitment patterns, applicant and interview pools, assessment and
record-keeping. See e.g., Stauffer Communications. Inc.. 10 FCC Rcd 5060, 5061
(1995). However, in the instant case, the most reliable basis for assessing
the sanctions warranted is KYKX-FM's EEO record during the current license
term and its apparent pattern of noncompliance with the EEO Rule, taking into
consideration the other relevant factors set forth in Section 503(b)(2).
10. The record reflects that the licensee was previously found in Eagle
Radio, Inc. to have violated the EEO Rule because of deficient recruitment
efforts and inadequate self-assessment. Notwithstanding the imposition of a
forfeiture in the amount of $31,250, short-term renewal, and reporting
conditions, the licensee has again failed to make adequate recruitment
efforts. Because the sanctions previously imposed were evidently insufficient
to motivate the licensee to comply with our EEO Rule, we will grant the
licensee's renewal application for a short-term and subject to the issuance of
a Notice of Apparent Liability in the amount of $35,000.
KEAN(AM)/KEAN-FM, ABILENE, TEXAS
11. After reviewing the record before us, we conclude that there are no
substantial and material questions of fact warranting designation for hearing
and grant of the applications would be consistent with Section 309(k) of the
Communications Act of 1934, as amended, 47 U.S.C. ss. 309(k). See Astroline.
Further, we find no indication of employment discrimination. The licensee
recruited and interviewed minorities. Therefore, because the licensee is
otherwise qualified, grant of the applications will serve the public interest.
47 U.S.C. ss. 309(d)(2).
12. The Commission uses an efforts-based approach to assessing EEO
compliance. We do not require that the proportion of minorities or women
employed equal their presence in the labor force or that any certain
percentage of an entity's staff be composed of minorities or women. Instead,
we focus on the station's EEO program, its consistent efforts to contact
sources likely to refer qualified female and minority applicants and
self-analysis of its outreach program. See Streamlining Broadcast EEO Rule and
Policies, 11 FCC Rcd 5154, 5158 (1996). The objective of our efforts-based
approach is to increase the pool of qualified female and minority candidates
from which a licensee can then select the best qualified applicant, without
regard to gender, race, or ethnic origin. Id. at 5158-59. Although the
stations recruited for all of their vacancies during the review period, they
received only four minority applicants in a local labor force which includes
19.2% minorities.(5) The stations did not modify their recruitment sources, even
though the sources being used were unproductive in generating sufficient
minority referrals. Indeed, the licensee failed to maintain records necessary
for meaningful EEO self-assessment in that it could not identify the referral
source of 46 (43.4%) of its 106 applicants. Nor could the licensee identify
the race
- ---------
(5) The current license term ended on August 1, 1997. According to the 1990
Census, the Abilene, Texas Metropolitan Statistical Area, in which the
stations are located, had a 47.8% female and a 19.2% minority labor
force (5.5% Black, 12.3% Hispanic, 1.1% Asian/Pacific Islander, and 0.3%
American Indian.)
<PAGE>
FEDERAL COMMUNICATIONS COMMISSION FCC 98-171
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of 36 (34.0%) of its 106 applicants. We also find that the licensee's use of
one applicant pool which was not minority inclusive for three hires is further
evidence of the licensee's lack of self-assessment.
13. After carefully reviewing the facts of this case, we find that the
record here is similar to that of KJIN(AM)/KCIL(FM) Houma, Louisiana, in
Guaranty Broadcasting Corp., 12 FCC Rcd 1660 (1997).(6) Like KEAN(AM)/KEAN-FM,
KJIN(AM)/KCIL(FM) recruited for all nine of its vacancies and had only seven
applicant/interview pools because multiple hires were made from one applicant
pool. Although both stations are located in areas with significant minority
labor forces (15.9% for KJIN(AM)/KCIL(FM) and 19.2% for KEAN(AM)/KEAN-FM),
they failed to attract minorities to a significant number of their vacancies.
KJIN(AM)/KCIL(FM) attracted only two minorities (1.8%) out of 112 applicants,
while only four (3.8%) of KEAN(AM)/KEAN-FM'S 106 applicants were minorities.
Further, KJIN(AM)/KCIL(FM) had only two minorities (4.7%) out of 43
interviewees, while KEAN(AM)/KEAN-FM had only three minorities (4.3%) out of
69 interviewees. Like KEAN(AM)/KEAN-FM, KJIN(AM)/KCIL(FM) failed to modify its
recruitment sources in order to produce more minority referrals. We renewed
the license of KJIN(AM)/KCIL(FM) subject to reporting conditions and issued a
Notice of Apparent Liability of $10,000.
14. Both KEAN(AM)/KEAN-FM and KJIN(AM)/KCIL(FM) failed to demonstrate
that their recruitment efforts were productive or that they had meaningfully
self-assessed the effectiveness of those efforts. However, KEAN(AM)/KEAN-FM
attracted more minorities to its applicant and interview pools (minorities in
four of seven applicant pools and in three of seven interview pools, including
one of four upper-level pools) than KJIN(AM)/KCIL(FM) (minorities in one of
seven applicant/interview pools and none in the eight upper-level pools).
Nonetheless, unlike KJIN(AM)/KCIL(FM), KEAN(AM)/KEAN-FM failed to maintain
complete referral source and race data for a significant number of its
applicants. Therefore, we conclude that the issuance of a Notice of Apparent
Liability in the amount of $10,000 is appropriate.
KKYS(FM), BRYAN, TEXAS
15. After reviewing the record before us, we conclude that there are no
substantial and material questions of fact warranting designation for hearing
and grant of the applications would be consistent with Section 309(k) of the
Communications Act of 1934, as amended, 47 U.S.C. ss. 309(k). See Astroline.
Further, we find no indication of employment discrimination. The licensee
recruited and interviewed minorities. Therefore, because the licensee is
otherwise qualified, grant of the applications will serve the public interest.
47 U.S.C. ss. 309(d)(2).
16. As noted above, the Commission uses an efforts-based approach to
assessing EEO compliance. See paragraph 13, supra. Twelve (57.1%) of the
station's 21 hires were word-of-mouth referrals, and the licensee used only
word-of-mouth referrals for eight vacancies. A licensee's use of word-of-mouth
recruitment may not be proper if its tends to exclude minorities and females.
See Rust Communications Group. Inc., 73 FCC 2d 39, 48 n.13 (1979); see also
Historic Hudson Valley Radio, Inc., 11 FCC Rcd 7391, 7396-97 (1996).
Additionally, we have held that a licensee failed to self-assess adequately the
effectiveness of its recruitment sources where the licensee's hires for a
majority of its vacancies were referred by informal means such as word-of-mouth.
See Davidson County Broadcasting Company, Inc.. 12 FCC Rcd 3375, 3383 (1997). In
the instant case, the licensee utilized only word-of-
- ----------
(6) The stations are located in the Houma-Thibidaux, Louisiana Metropolitan
Statistical Area, which had a 15.9% minority labor force in 1990 (11.5%
Black, 1.4% Hispanic, 0.4% Asian/Pacific Islander and 2.6% American
Indian.)
<PAGE>
FEDERAL COMMUNICATIONS COMMISSION FCC 98-171
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mouth recruitment for eight vacancies which resulted in only one
applicant/interviewee per position, the actual hire. None of these single
applicants were minorities, indicating that recruitment sources other than
word-of-mouth should have been utilized. Further, over half (57.1%) of the
station's total hires were word-of-mouth referrals, which resulted in only
one minority inclusive applicant pool. It thus appears that the licensee
failed to self-assess its program by not recognizing the ineffectiveness of
its word-of-mouth recruitment methods and by not varying or using other
outside recruitment sources, including minority-specific sources, in order to
attract qualified minority applicants.
17. After carefully reviewing the facts of this case, we find that the
record here is similar to but more egregious than that of WKNR(AM), Cleveland,
Ohio, in CV Radio Associates. L.P., 12 FCC Red 14016 (1997), petition for
recon. pending.(7) WKNR(AM) filled 31 vacancies but had only 30
applicant/interview pools (23 upper-level) because one pool was used to fill
two lower-level vacancies. The station contacted one to four recruitment
sources for 29 vacancies, including four minority sources. Minorities were
present in only eleven (36.7%) of the station's 30 applicant/interview pools,
including six (26.1%) of its 23 upper-level applicant/interview pools. Despite
its failure in attracting qualified minority applicants in an area with a
significant minority labor force (17.3%), the licensee did not use more
minority recruitment sources or otherwise modify its recruitment list.
Further, WKNR(AM) used word-of-mouth recruitment for 18(58.1%) of its 31
vacancies, which resulted in only two minority applicants (one upper-level).
Ten (43.5%) of WKNR(AM)'s 23 upper-level hires were obtained by word-of-mouth,
and the only applicants for four of those ten upper-level vacancies were
word-of-mouth referrals. However, WKNR(AM) used at least one general
recruitment source, in addition to word-of-mouth recruitment, for all of the
29 vacancies for which it recruited. 12 FCC Red at 14020 and n. 1. We renewed
the license of WKNR(AM) subject to reporting conditions and issued a Notice of
Apparent Liability in the amount of $14,000.
18. The licensees of WKNR(AM) and KKYS(FM) failed to demonstrate that
their recruitment efforts were effective or that they adequately self-assessed
their stations' EEO programs. Both stations failed to attract minorities to a
significant number of their applicant/interview pools and did not attempt to
modify their recruitment lists to rectify this failure. Both stations relied
heavily on informal recruitment methods such as word-of-mouth referrals which
resulted in few minority applicants. However, WKNR(AM) also used at least one
other general source for the 29 of 31 vacancies where it recruited. KKYS(FM),
on the other hand, relied only upon word-of mouth recruitment for eight of its
21 vacancies. Further, although KKYS(FM) is located in an area with a higher
minority labor force than WKNR(AM) (25.5% and 17.3%, respectively), minorities
were present in a lower percentage of its applicant/interview pools (27.8% and
36.7%, respectively).(8) Therefore, we conclude that the issuance of a Notice
of Apparent Liability in the amount of $16,000 is appropriate.
III. ORDERING CLAUSES
19. Accordingly, IT IS ORDERED that the license renewal application
filed for Station KYKX-FM IS GRANTED for a short term expiring August 1, 2001,
subject to a NOTICE OF
- ---------
(7) The stations are located in the Cleveland, Ohio/Cleveland-Lorain-Elyria,
Ohio Metropolitan Statistical Area, which had a 17.3% minority labor
force in 1990 (14.2% Black, 1.8% Hispanic, 1.1% Asian/Pacific Islander
and 0.2% American Indian.)
(8) The current license term ended on August 1, 1997. According to the 1990
Census, the Bryan-College Station, Texas Metropolitan Statistical Area,
in which the station is located, had a 44.8% female and a 25.5% minority
labor force (9.6% Black, 12.1% Hispanic, 3.6% Asian/Pacific Islander,
and 0.2% American Indian).
<PAGE>
FEDERAL COMMUNICATIONS COMMISSION FCC 98-171
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APPARENT LIABILITY FOR FORFEITURE in the amount of $35,000, pursuant to
Section 503 of the Communications Act of 1934, as amended, 47 U.S.C. ss. 503.
20. IT IS FURTHER ORDERED that the license renewal applications filed
for Stations KEAN(AM)/KEAN-FM and KKYS(FM) ARE GRANTED subject to NOTICES OF
APPARENT LIABILITY FOR FORFEITURE in the amounts of $10,000 and $16,000,
respectively, pursuant to Section 503 of the Communications Act of 1934, as
amended, 47 U.S.C. ss. 503.
21. IT IS FURTHER ORDERED that the assignment of license applications
filed for Stations KYKX-FM, KEAN(AM)/KEAN-FM and KKYS(FM) ARE GRANTED subject
to the condition that, based on the applicants' specific representations in a
letter dated July 22, 1998, the assignor and assignee will assume the
consequences associated with the assignee succeeding to the place of the
current licensee in the renewal application.
22. IT IS FURTHER ORDERED that the forfeiture proceedings and the August
1, 2001, expiration of the renewal in this case ARE SUSPENDED until further
notice.
23. IT IS FURTHER ORDERED that one copy of this Memorandum Opinion and
Order be sent to the licensees and assignee by Certified Mail -- Return
Receipt Requested.
FEDERAL COMMUNICATIONS COMMISSION
Magalie Roman Salas
Secretary
<PAGE>
FEDERAL COMMUNICATIONS COMMISSION FCC 98-171
- -----------------------------------------------------------------------------
STATEMENT OF COMMISSIONER HAROLD FURCHTGOTT-ROTH,
CONCURRING IN PART AND DISSENTING IN PART
IN RE APPLICATIONS OF RADIO SUN GROUP OF TEXAS, INC., FOR RENEWAL OF LICENSES
OF STATIONS KYKX-FM, LONGVIEW, TEXAS; KEAN(AM)/KEAN-FM, ABILENE, TEXAS; AND
RADIO SUNGROUP OF BRYAN/COLLEGE STATION, INC., FOR RENEWAL OF LICENSE OF
STATION KKYS(FM), BRYAN, TEXAS
I concur in the grant of these license renewals. I must dissent,
however, from the issuance of these Notices of Apparent Liability ("NAL") --
even if sanctions are temporarily stayed -- for violation of the "outreach"
element of the Commission's EEO rule.
I.
In a decision of great significance for this agency, the United States
Court of Appeals for the District of Columbia Circuit held that the "outreach"
parts of the EEO rule, 47 CFR sections 73.2080(b) & (c), violate the equal
protection component of the Fifth Amendment. Lutheran Church-Missouri Synod v.
FCC, 141 F.3d 344 (D.C. Cir. 1998). In my view, this ruling deserves more than
to be "note[d]" in passing, NAL at para. 2, by this independent administrative
agency. Rather, it deserves the full respect that should be accorded to the
decision of duly appointed and confirmed Article III judges, whose
constitutional duty it is "to say what the law is." Marbury v. Madison, 5 U.S.
(1 Cranch) 137, 177 (1803).
To be sure, the Court of Appeals has not issued a formal mandate in
Lutheran Church. I recognize that the court's invalidation of the outreach
provisions thus has not technically been implemented and that the relevant
sections of the EEO rule still sit on our books. The Court's holding on the
unconstitutionality of these EEO regulations was unmistakably clear, however,
and the panel opinion squarely rejected much of the boilerplate EEO language
that is nevertheless included in the NAL. Compare Lutheran Church, 141 F.3d at
351-353 (rejecting argument that outreach rule regulates only recruiting and
that its enforcement does not depend on numerical goals or statistical parity)
with NAL at paras. 12, 16 (asserting that outreach rule governs only candidate
pool and that Commission uses only "efforts-based" approach in evaluating
compliance without relying on percentages or parity). In addition, the
Commission applies the outreach provisions to the stations' records in
exhaustive detail and in conclusion issues notices of liability for over
$60,000 to the licensee under the sole authority of those subsections.(9) I
believe that deference to the D.C. Circuit's decision counsels greater
restraint in the continued invocation and application of the EEO program
requirements than is evidenced by this NAL.
Furthermore, although the NAL temporarily suspends the forfeiture
proceedings and the short-term renewal expiration date, this is insufficient
to prevent injury to the licensee. In several ways, the licensee suffers harm
as a result of today's action. First, the licensee, as well as the assignee
which has agreed to step into its shoes, bears on its record the black mark
made by this NAL. See Meredith Corp. v. FCC, 809 F.2d 863, 868-869 (D.C. Cir.
1987). Not only does this have a potential adverse effect in future Commission
proceedings, but it can also make access to capital more difficult. Second,
given the
- ---------
(9) Moreover, the Commission errs in assuming that if the en banc court
ruled the outreach provision constitutional, the Bureau could
automatically move to enforce this NAL. See NAL at para. 2. Apart from
the constitutionality of the rule, there is yet another potential legal
problem: the D.C. Circuit questioned whether the EEO rule sits atop a
sound statutory structure, see Lutheran Church, 141 F.3d at 354, and
intended to remand the case to the Commission in order to decide that
issue, see id. at 356. This issue thus may remain open on a possible
remand of the case by the en banc court. We would, of course, have to
resolve that question before we could lift the suspension of sanctions.
<PAGE>
FEDERAL COMMUNICATIONS COMMISSION FCC 98-171
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Commission's apparent assumption that it will resume full-scale enforcement of
the BEG rule if and when Lutheran Church is vacated, the implicit message to
this assignee is that it must continue to maintain BEG programs, which causes
"economic harm by increasing the expense of maintaining a license." Lutheran
Church, 141 F.3d at 349-350.(10) Third, the term of the license now in effect
for KYKX-FM is ambiguous. The stated renewal is for a short term expiring
August 1, 2001, NAL at para. 19, the August 1, 2001, expiration date of the
renewal is then suspended, id. at para. 21, but no effective expiration date
is specified. What kind of license, then, does the station have in the
interim? Because the NAL does not provide that the renewal filed for by
KYKX-FM is granted, as it does for all the other full term renewals, it is not
clear that this renewal is in fact for a full term.(11) If KYKX-FM's current
renewal is for anything less than the standard term, which it would have been
but for the application of the BEG rule, then the Commission has in fact
sanctioned the licensee.
Finally, if there is a possibility that application of a governmental
rule could violate even one person's constitutional right to equal protection
under the law -- a proposition more than likely here, given the panel opinion
- -- we as federal officials ought to be extremely reluctant to start down that
path. It would perhaps be a different case if we were statutorily required by
Congress to administer this program, but we are not. The entire BEG scheme is
founded entirely upon this Commission's interpretation of the "public
interest" standard, see Nondiscrimination Employment Practices of Broadcast
Licensee, 13 FCC 2d 766 (1968).(12) The Court of Appeals, however, has
questioned whether this standard provides an adequate statutory basis for the
EEO rule. See supra note I. Even if the "public interest" language could be
interpreted as granting the Commission discretion to adopt EEO regulations, we
ought to exercise that discretion in a way that does not put our policies on a
collision course with the Fifth Amendment. Cf. United States v. Thirty-Seven
Photographs, 402 U.S. 363, 369 (1971) (statutes should be construed to avoid,
not to create, constitutional problems).(13) We should, in our discretion,
decline to apply the EEO program requirements at least until we can be assured
of their constitutionality.
- --------
(10) Indeed, this message is telegraphed to all broadcast licenses, who thus
fail to continue to incur the costs of these programs at their
regulatory peril.
(11) In this regard, it is hard to see how the Bureau could "confirm[ ]" that
the renewal was for a full term, NAL at para. 2, something never
expressed in this Order.
(12) Although Congress has prohibited the Commission from revising our EEO
regulations for television broadcast station licensees or permittees,
see 47 U.S.C. section 334(a)(1)-(2), this limitation does not, in my
view, amount to an affirmative expression of authority for their
promulgation under the public interest standard; it is, at best, a
placeholder. In any event, this provision speaks only of regulations
governing television licensees or permittees and thus can provide no
support whatsoever for EEO rules as applied to radio licensees, the
subject of this item.
(13) Notably, there are alternative, race-neutral means of furthering the
public interest in not licensing broadcasters who violate the national
policy against employment discrimination, the original goal of the EEO
rule. See Nondiscrimination Employment Practices of Broadcast Licensees,
13 FCC 2d 766 (1968). For instance, assuming we possess the necessary
statutory authority, we might promulgate a rule to take account of
whether a renewal applicant has broken either state or federal
anti-discrimination laws. Such a rule has the benefit of ease of
administration: broadcasters could simply certify whether they had been
found liable for employment discrimination during the preceding license
period, and renewal opponents could readily rebut those certifications.
Such a rule would also leave the determination of discrimination up to
the institutions best equipped to make that finding, the courts and the
Equal Employment Opportunity Commission.
<PAGE>
FEDERAL COMMUNICATIONS COMMISSION FCC 98-171
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II.
While I do not mean to suggest that the Commission has refused to comply
with the D.C. Circuit's ruling, I believe it appropriate to say a few words
about the concept of agency nonacquiescence in judicial decisions, a stance
that I hope the Commission does not adopt in the future with respect to this
litigation. Agency nonacquiescence may be a legitimate course of action in
certain circumstances, see Davis & Pierce, Administrative Law Treatise,
section 2.9, at 102-105 (3d ed. 1994), but the justification for such conduct
dissipates when the case at issue presents a constitutional question, as here.
Administrative agencies are thought to have some expertise when
construing statutes that Congress has charged them with administering. See
Chevron v. Natural Resources Defense Council, 467 U.S. 837, 842-43 (1985).
Therefore, they arguably have a right to "disagree" with a court of law about
the proper interpretation thereof. But when it comes to interpreting the
Constitution, agencies are afforded no such deference. That is a job for the
courts. See Syracuse Peace Council v. FCC, 867 F.2d 654, 658-659 (D.C. Cir.
1989). The President and the Congress certainly have an independent duty to
satisfy themselves of the constitutionality of their actions, but neither the
President nor the Congress has delegated that power (assuming such power is
even delegable) to this agency. There could thus be no impermissible
interference by the judicial branch with the decisionmaking of an agency on
issues entrusted to its discretion by Congress. Cf Lopez v. Heckler, 463 U.S.
1328 (1983) (warning, in discussion of agency nonacquiescence, of "risk of
'propel[ing] the court into the domain which Congress has set aside
exclusively for the administrative agency"') (quoting SEC v. Chenery Corp.,
332 U.S. 194, 196 (1947)).
Moreover, in a case such as this one, there is no chance that
nonacquiescence in the D.C. Circuit's decision would allow the Commission to
create a circuit split in order to facilitate Supreme Court review. See Davis
& Pierce at 105-106. Nor would adherence to the decision create a lack of
national uniformity in federal regulation. Id. These two fundamental premises
of nonacquiescence simply do not pertain here because appeals for judicial
review of FCC licensing determinations are within the exclusive jurisdiction
of the D.C. Circuit. See 47 U.S.C. section 402(b). The only circuit court that
ever could pass on the constitutionality of the EEO rule has definitively done
so. See Estreicher & Revesz, "Nonacquiescence by Federal Administrative
Agencies," 98 Yale L.J. 679, 752 (1989) (observing that arguments for
nonacquiescence "are less persuasive . . . for the regional circuits . . .
where they have been given nationally exclusive responsibility over particular
subject matter, such as the D.C. Circuit has over various types of
administrative appeals" because "there will be no intercircuit dialogue and
percolation").
III.
In light of the foregoing, my preferred course of action would be simply
to stay our hand with respect to all EEO matters until the Lutheran Church
decision becomes final. That is generally feasible with respect to simple
license renewals. Where license transactions such as sales are involved,
however, the practical effects of deferring a decision can be extremely
burdensome to the transacting parties, who face real-world deadlines for
closing their deals. In such a situation, I believe that agency action is
required and that, if otherwise warranted, we should simply grant the license
renewal without actually applying the EEO rule or declaring liability
thereunder. Where the licenses to be renewed are being transferred to a new
owner, as here, the specific deterrent effect of the forfeiture will not be
achieved because the current licenseholder against whom the fine is imposed
will no longer operate the station. As for the new owner, there will be time
enough, if Lutheran Church is ultimately reversed, to review that owner's
compliance with EEO regulations.(14)
- ---------
(14) Again, however, our possible lack of statutory authority for the EEO
rule may preclude such review. See supra note 1.
<PAGE>
FEDERAL COMMUNICATIONS COMMISSION FCC 98-171
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Accordingly, I believe that the instant licenses should be renewed for
full terms, but I would not apply the outreach provisions as the basis for any
notice of apparent liability. To my mind, we owe greater deference to the
opinion of the Court of Appeals than to continue to issue notices of apparent
liability pursuant to those regulations. I no way do I insinuate that my
colleagues have ignored the decision of the Court of Appeals, for they have
clearly acknowledged the case, suspending sanctions in its light. But as I
have noted, even with suspension, this licensee suffers real harm. In
deference to the Court of Appeals, in view of the discretionary nature of the
EEO scheme, and given the importance of the constitutional right to equal
protection, I would have gone farther than the Commission and not applied the
EEO rule at all.
* * *
<PAGE>
FEDERAL COMMUNICATIONS COMMISSION FCC 98-171
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In closing, I emphasize that I am profoundly uncomfortable with the
prospect of enforcing rules -- or indirectly maintaining rules through the
suggestion or coercion of voluntary" industry standards -- that stand a chance
of violating any person's right to be treated equally with his or her fellow
citizens under the law. Similarly, I am troubled that any public agency would
expend public funds for any purpose that may directly or indirectly threaten
that fundamental right. "[T]he equal protection of the laws" guaranteed to
"any" person, U.S. Const., Amdt. XIV, regardless of their race, is a principle
that was hard fought and stands as a tribute to the American dream of
opportunity for everyone. We should take no action that would undermine that
great constitutional precept, as interpreted and applied by the judicial
branch.
<PAGE>
FEDERAL COMMUNICATIONS COMMISSION FCC 98-171
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ERRATUM
-------
RELEASED: JULY 24, 1998
The Memorandum Opinion and Order & Notices of Apparent Liability in the
above-captioned proceeding, FCC 98-171, released July 23, 1998, is corrected
as follows:
(a) The following is added to the caption:
Radio SunGroup of Texas, Inc. )
Assignor )
)
and )
)
Sunburst Media, LP )
Assignee )
)
For consent to the assignment of license of ) File No. BALH-980330GJ
Station KULL(FM), Abilene, Texas )
(b) The following footnote is added to paragraph 1:
The assignment of license for station KULL(FM), Abilene, TX, is also
part of this transaction. However, as the license application for
KULL(FM) (File No. BLH-971104KF, granted February 10, 1998) was filed
after the renewal expiration date for Texas broadcast stations, no
renewal application was required, nor submitted for Commission review.
Footnotes 2 through 8 are renumbered accordingly.
(c) The following ordering clause is added as paragraph 22:
22. IT IS FURTHER ORDERED that the assignment application filed for
station KULL(FM), IS GRANTED.
Paragraphs 22 and 23 are renumbered accordingly.
FEDERAL COMMUNICATIONS COMMISSION
/s/ Roy J. Stewart
Roy J. Stewart
Chief, Mass Media Bureau
EXHIBIT 10.2
WARRANT PURCHASE AND REPAYMENT AGREEMENT
THIS WARRANT PURCHASE AND REPAYMENT AGREEMENT ("Agreement"), made and
entered into as of this 29th day of June, 1998, by and between SUNGROUP, INC., a
Tennessee corporation (the "Company"), and CONSECO, INC., an Indiana corporation
and CIHC, INCORPORATED a Delaware corporation (collectively "Conseco").
W I T N E S S E T H:
WHEREAS, Conseco is currently the legal and equitable holder of (1)
Warrant A-1 originally issued by the Company on February 15, 1993, to Bankers
National Life Insurance Company ("Bankers National") initially for the purchase
of up to 592,875 shares of the Company's common stock at total exercise price of
$ 0.11 ("Warrant A-1"), and (2) Warrant A-2 originally issued by the Company on
February 15, 1993, to Western National Life Insurance Company ("Western
National") initially for the purchase of up to 2,892,000 shares of the Company's
common stock at a total exercise price of $ 0.11 ("Warrant A-2", together with
Warrant A-1, collectively referred to herein as the "Warrants");
WHEREAS, the Company is indebted to Conseco pursuant to that certain
Promissory Note dated February 15, 1993, originally payable to Bankers National
in the original principal amount of $880,000 (the "Bankers National Note"), and
pursuant to that certain Promissory Note dated February 15, 1993, originally
payable to Western National in the original principal amount of $4,000,000 (the
"Western National Note", and together with the Bankers National Note, the
"Promissory Notes"), which Promissory Notes were subsequently endorsed to the
order of Conseco by Bankers National and Western National (the indebtedness
evidenced by the Promissory Notes, including all principal, interest and fees
with respect thereto is referred to herein as the "Conseco Indebtedness");
WHEREAS, in conjunction with the aforementioned assignment of the
Promissory Notes to Conseco, Bankers National transferred Warrant A-1, and
Western National transferred Warrant A-2 to Conseco;
WHEREAS, pursuant to certain adjustments required by each of the
Warrants, the number of shares of the Company's common stock exercisable under
the Warrants has been adjusted to a total of 7,290,136.20 shares of the
Company's total common stock of 14,498,838.20 shares on a fully diluted basis;
WHEREAS, the Company has entered into an Asset Purchase Agreement dated
as of February 6, 1998, between the Company (and the Company's subsidiaries) and
SunBurst Media, L.P.(the "Asset Purchase Agreement"), whereby the Company has
agreed to sell and SunBurst Media, L.P. has agreed to purchase substantially all
the assets of the Company (the "Sale Transaction") subject to the terms and
conditions set forth therein; and
WHEREAS, upon the consummation of the Sale Transaction, the parties
hereto desire that the Warrants be purchased by the Company and that the Conseco
Indebtedness be paid in accordance with and subject to the terms and conditions
set forth herein;
<PAGE>
NOW, THEREFORE, for and in consideration of the mutual promises set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. RECITALS. The recitals set forth above (including the capitalized
terms defined therein) are hereby incorporated into this Agreement by this
reference and the parties hereto acknowledge and agree to accuracy thereof.
2. GENERAL CONDITION. The parties hereto agree that the purchase of
the Warrants by the Company in accordance with terms set forth in this Agreement
is expressly conditioned upon the consummation and closing of the Sale
Transaction (the "Sale Transaction Closing") on substantially the same terms and
conditions as are set forth in the Asset Purchase Agreement.
3. TERM OF AGREEMENT. In the event (i) the Asset Purchase Agreement is
terminated as provided in the Asset Purchase Agreement or (ii) the Sale
Transaction is not fully consummated by October 30, 1998, either party shall
have the right to terminate this Agreement upon written notice to the other
party, and upon delivery of such notice, this Agreement shall be deemed
terminated and of no further effect and neither the Company nor Conseco shall
have any further obligations or rights under this Agreement, provided, however,
(i) notwithstanding such termination the interest accrued under Section 4(D)
through the termination date (the "Section 4(D) Interest") shall be payable on
the termination date unless paid prior to that time, and (ii) any payments made
in respect of the Settlement Amount (as defined below) shall be applied and
retained by Conseco as provided herein.
4. PURCHASE OF WARRANTS AND REPAYMENT OF NOTES.
A. PURCHASE. Conseco agrees to sell to the Company and the
Company agrees to purchase from Conseco the Warrants subject to the terms and
conditions hereof and in reliance upon the representations, warranties and
covenants of each of the parties contained herein. Upon payment in full of the
Warrant Purchase Price, Conseco will deliver the original Warrants free and
clear of all liens, encumbrances, restrictions and claims, together with any
assignments executed by Conseco necessary to effectuate the transfer of the
Warrants to the Company. At such time, the Warrants will be cancelled and will
be of nor further force or effect. The Warrant Purchase Price is equal to
$10,300,000 less the amount of the Conseco Indebtedness at the time the Warrant
Purchase Price is paid.
B. PURCHASE PRICE AND REPAYMENT AMOUNT. Subject to payment of
interest as set forth in Section 4(D) below, the Warrant Purchase Price and the
payment Conseco will accept for the cancellation of the Promissory Notes shall
equal the total sum of Ten Million Three Hundred Thousand and No/100 Dollars
($10,300,000) (the "Settlement Account"). TO AVOID ANY CONFUSION AND TO REMOVE
ANY DOUBT, UPON DELIVERY TO CONSECO OF GOOD FUNDS IN THE TOTAL AMOUNT OF
$10,300,000 AND PAYMENT OF THE SECTION 4(D) INTEREST CONSECO SHALL (i) DELIVER
THE ORIGINAL WARRANTS TO THE COMPANY AS PROVIDED ABOVE, (ii) DELIVER THE
ORIGINAL PROMISSORY NOTES TO THE COMPANY MARKED "PAID IN FULL" AND (iii) RELEASE
ALL COLLATERAL, LIENS, PLEDGES AND ANY OTHER SECURITY FOR THE PROMISSORY NOTES
(INCLUDING WITHOUT LIMITATION THE RELEASE OF ANY STOCK PLEDGED TO SECURE THE
PROMISSORY NOTES THE FILING OF ANY NECESSARY UCC-3 TERMINATION STATEMENTS OR
SIMILAR INSTRUMENTS).
<PAGE>
C. PAYMENT DATE. The Settlement Amount shall be payable at the
Sale Transaction Closing. Provided, however, in the event the Sale Transaction
is closed as two separate transactions, (i.e. the sale of the Schreveport and
Albuquerque radio stations [the "First Closing"], and then the later sale of the
Texas radio stations [the "Second Closing"]) then at the First Closing, the
Company shall pay to Conseco an amount equal to the gross receipts of the
Company from the First Closing less sale expenses and the amount of debt paid by
the Company which constituted a lien on assets sold at such closing (the "First
Installment"). The First Installment shall be applied first to the Section 4(D)
Interest accrued on the Settlement Amount, then to the Warrant Purchase Price
and then to the Conseco Indebtedness. At the Second Closing the unpaid balance
of the Settlement Amount plus any accrued and unpaid Section 4(D) Interest shall
be paid to Conseco.
D. INTEREST. In the event the Settlement Amount is not paid to
Conseco on or before July 23, 1998, then from such date until the date of the
payment in full of the Settlement Amount to Conseco, the unpaid balance of the
Settlement Amount shall accrue interest at the fixed rate of eighteen percent
(18%) per annum, which interest shall be payable at the time of payment in full
of the Settlement Amount or termination of this Agreement to the extent not paid
at the First Closing as provided in paragraph C above.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF CONSECO. Conseco
hereby acknowledges, represents, warrants and covenants to the Company as of the
date hereof through the dates of the Sale Transaction Closing and the payment of
the Settlement Amount:
A. WARRANTS. Conseco is the registered holder of, and has good
right, title and interest in and to, the Warrants to be transferred to the
Company pursuant to this Agreement. Since the date of original issuance, none of
the Warrants have been exercised or transferred (in whole or in part) except for
the transfer of Warrant A-1 from Bankers National to Conseco and the transfer of
Warrant A-2 from Western National to Conseco. There is no lien, claim,
encumbrance or restriction against or affecting the Warrants or against or
affecting Conseco which might adversely affect the Warrants or transactions
contemplated by this Agreement. As of the date hereof the Warrants are
collectively exercisable for 7,290,136.20 shares of the Company's common stock
for a collective exercise price of $ 0.22.
B. INTEREST IN THE COMPANY. Except for the Warrants, Conseco
has no other equity or potential equity interest in the Company, including
without limitation, any capital stock options, warrants, convertible securities,
rights of refusal or any other rights with respect to the equity capital of the
Company.
C. STANDSTILL. During the term of this Agreement, so long as
the Company is not in breach hereof, Conseco agrees and covenants not to (i)
exercise the Warrants in whole or in part, or (ii) sell or transfer the
Warrants, the Promissory Notes, or any part thereof, whether by way of sale,
pledge, gift, assignment, hypothecation, operation of law or otherwise.
D. RELEASE. Upon the payment in full of the Settlement Amount
and the Section 4(D) Interest thereon, Conseco shall release the Company, its
directors, officers, shareholders, agents and representatives, from any and all
claims, demands, distributions, obligations or indebtedness, known or unknown,
to which Conseco (including its directors, officers, shareholders, agents and
representatives) may be entitled as it may relate to the Conseco Indebtedness,
the Warrants or relationship between Conseco and the Company on or
<PAGE>
prior to the date of payment of the Settlement Amount provided no claim of
preference or improper payment is made by the Company or any other party.
E. CONFIDENTIALITY. Conseco shall not at any time, directly or
indirectly, without the prior written consent of the Company, divulge, or permit
any of its affiliates to divulge, to any person any nonpublic or proprietary
information concerning the business or financial or other affairs of the
Company, or the transactions contemplated by this Agreement, that could be used
to the detriment of Company, except to the extent required by law or in order to
preserve or enforce Conseco's rights under this Agreement.
F. EXECUTION, DELIVERY, BINDING EFFECT. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by the board of directors of Conseco, and no
other corporate proceedings on the part of Conseco are necessary to authorize,
execute and deliver this Agreement or to carry out the transactions contemplated
hereby. This Agreement is a valid and binding obligation of Conseco enforceable
against it in accordance with its terms.
G. PROMISSORY NOTES. Conseco is the lawful owner and holder
of, and has good right, title and interest in and to, the Promissory Notes. The
Promissory Notes are past due, but Conseco agrees that during the term of this
Agreement, Conseco will forebear from bringing any action to collect the
Promissory Notes so long as the Company is not in breach of this Agreement, or
is not the subject of any insolvency proceedings.
This agreement to forebear shall not constitute a waiver or
impair any rights or remedies Conseco may have with respect to collection of the
Promissory Notes after termination of this Agreement.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
Company hereby acknowledges, represents, warrants and covenants to Conseco as
follows:
A. EXECUTION, DELIVERY, BINDING EFFECT. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by the board of directors of the Company, and
no other corporate proceedings on the part of the Company are necessary to
authorize, execute and deliver this Agreement or to carry out the transactions
contemplated hereby. This Agreement is a valid and binding obligation of the
Company enforceable against it in accordance with its terms.
B. CONFIDENTIALITY. The Company shall not at any time,
directly or indirectly, without the prior written consent of Conseco, divulge,
or permit any of its affiliates to divulge, to any person any nonpublic or
proprietary information concerning the transactions contemplated by this
Agreement, that could be used to the detriment of Conseco, except to the extent
required by law or in order to preserve or enforce the Company's rights under
this Agreement.
7. SETTLEMENT AGREEMENT COVENANTS. Until the Settlement Amount and
Section 4(D) Interest is paid in full as provided herein, the covenants set
forth in paragraph 9 of the Settlement Agreement dated as of February 15, 1993
by and among Bankers National Life Insurance Company, Western National Life
Insurance Company, Conseco, Inc., SunGroup, Inc. John W. Biddinger, James M.
Elliott, Frank A. Woods and Robert N. Davies (the "Settlement Agreement") shall
continue in effect and shall continue to apply.
<PAGE>
8. NOTICES. Any notice or communication given pursuant hereto shall be
in writing and deemed given when delivered personally or when received in mail
by certified mail, postage prepaid, as follows:
If to the Company, as follows:
SunGroup, Inc.
2201 Cantu Court, Suite 102A
Sarasota, Florida 34232-6254
Attention: John W. Biddinger
Facsimile # 850/482-3049
If to Conseco, as follows:
Conseco, Inc.
11825 North Pennsylvania Street
Carmel, Indiana 46032
Attention: John J. Sabl
Facsimile # 317/817-6327
CIHC, Inc.
11825 North Pennsylvania Street
Carmel, Indiana 46032
Attention: John J. Sabl
Facsimile # 317/817-6327
or to such other address or addresses as hereinafter shall be furnished by any
of the parties hereto to any of the other parties hereto.
9. FURTHER ASSURANCES. At any time and from time to time after the
date hereof, the parties hereto shall execute and deliver, or cause to be
executed and delivered, to the other such other instruments, certificates or
documents, and take such other action as each party may reasonably request to
carry out the intent and purpose of this Agreement and transactions contemplated
hereby.
10. SURVIVAL. The representations and warranties of each party
contained hereby shall survive the termination of this Agreement and the
purchase of the Warrants.
11. ASSIGNMENT. Neither party shall assign its rights or delegate its
duties under this Agreement without the prior written consent of the other party
hereto. This Agreement shall be binding upon and shall inure to the benefit of
each party and their respective successors and permitted assigns.
12. ADDITIONAL TERMS AND CONDITIONS. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof,
supersedes all prior agreements or understandings of the parties relating
thereto and shall not be modified or amended in any fashion except by instrument
in writing signed by the party charged with such modification or amendment.
Nothing expressed or referred to in this Agreement is intended or shall be
construed to give any person other than the parties to this Agreement or their
respective successors or permitted assigns any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision contained
herein, it being the intention of the
<PAGE>
parties to this Agreement that this Agreement shall be for the sole and
exclusive benefit of such parties or such successors and assigns and not for the
benefit of any other person. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute a single instrument. This Agreement shall be construed
in accordance with the laws of the State of Tennessee applicable to contracts
made and to be performed entirely within such state. Conseco shall be entitled
to recover attorney fees and other costs incurred in enforcing its rights
hereunder.
IN WITNESS HEREOF, the parties hereto have executed this Agreement as
of the day and date first above written.
COMPANY:
SUNGROUP, INC.
By: /s/ JOHN S. BIDDINGER
Title: President
CONSECO, INC.
By: /s/ NGAIRE CUNEO
Title: Executive Vice President
CIHC, INCORPORATED
By: /s/ NGAIRE CUNEO
Title: Executive Vice President
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<PERIOD-START> JAN-01-1998
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