<PAGE>
As filed with the Securities and Exchange Commission on February 16, 1999
Registration No. 333-60575
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
INTEREP NATIONAL RADIO SALES, INC.
(Exact name of Registrant as specified in its charter)
----------------
New York 7313 13-1865151
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
100 Park Avenue
New York, NY 10017
(212) 916-0700
SEE TABLE OF ADDITIONAL REGISTRANTS ON FOLLOWING PAGE
(Address and telephone number of Registrant's principal executive offices)
Ralph C. Guild
Interep National Radio Sales, Inc.
100 Park Avenue
New York, NY 10017
(212) 916-0700
(Name, address and telephone number of agent for service)
----------------
Copies to:
William J. McEntee, Jr. Laurence S. Markowitz, Esq.
Interep National Radio Sales, Inc. Salans Hertzfeld Heilbronn Christy &
2090 Palm Beach Lakes Blvd. Viener
Suite 300 620 Fifth Avenue
West Palm Beach, FL 33409 New York, New York 10020
(212) 632-5500
----------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(A) of the Securities Act or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(A), may determine.
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
State or Other Primary
Exact Name of Jurisdiction Standard Address and
Co-Registrant As of Industrial Telephone Number of Name, Address and
Specified in Incorporation Classification I.R.S. Employer Registrants' Principal Telephone Number
its Charter or Organization Code Number Identification No. Executive Offices of Agent for Service
---------------- --------------- -------------- ------------------ ---------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
McGavren Guild, Inc. New York 7313 13-3182257 100 Park Avenue Ralph C. Guild
New York, NY 10017 McGavren Guild, Inc.
(212) 916-0700 100 Park Avenue
New York, NY 10017
(212) 916-0700
D&R Radio, Inc. New York 7313 13-3114781 100 Park Avenue Ralph C. Guild
New York, NY 10017 D&R Radio, Inc.
(212) 916-0700 100 Park Avenue
New York, NY 10017
(212) 916-0700
CBS Radio Sales, Inc. New York 7313 13-3847186 100 Park Avenue Ralph C. Guild
New York, NY 10017 CBS Radio Sales, Inc.
(212) 916-0700 100 Park Avenue
New York, NY 10017
(212) 916-0700
Allied Radio Partners, New York 7313 13-2923443 100 Park Avenue Ralph C. Guild
Inc. New York, NY 10017 Allied Radio Partners, Inc.
(212) 916-0700 100 Park Avenue
New York, NY 10017
(212) 916-0700
Clear Channel Radio New York 7313 13-3847185 100 Park Avenue Ralph C. Guild
Sales, LLC New York, NY 10017 Clear Channel Radio
(212) 916-0700 Sales, LLC
100 Park Avenue
New York, NY 10017
(212) 916-0700
Caballero Spanish New York 7313 13-3873754 100 Park Avenue Ralph C. Guild
Media LLC New York, NY 10017 Caballero Spanish
(212) 916-0700 Media LLC
100 Park Avenue
New York, NY 10017
(212) 916-0700
</TABLE>
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+This Prospectus and the information contained herein are subject to change, +
+completion or amendment without notice. A Registration Statement relating to +
+these securities has been filed with the Commission. These securities may not +
+be sold nor may offers to buy be accepted prior to the time the Registration +
+Statement becomes effective. This Prospectus shall not constitute an offer to +
+sell or the solicitation of an offer to buy nor shall there be any sale of +
+these securities in any jurisdiction in which such offer, solicitation or +
+sale would be unlawful prior to registration or qualification under the +
+securities laws of any such jurisdiction. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 16, 1999
PRELIMINARY PROSPECTUS
Interep National Radio Sales, Inc.
Offer to Exchange
up to $100,000,000 of
10% Senior Subordinated Notes Due 2008, Series B
for any and all of the Outstanding
10% Senior Subordinated Notes Due 2008, Series A
of
Interep National Radio Sales, Inc.
The Exchange Offer Will Expire at 5:00 p.m., New York City Time,
on , 1999, Unless Extended.
Interep National Radio Sales, Inc., a New York corporation ("Interep" or the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the
"Letter of Transmittal" and, together with this Prospectus, the "Exchange
Offer"), to exchange an aggregate of up to $100.0 million principal amount of
10% Senior Subordinated Notes due 2008, Series B (the "Exchange Notes"), which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), for an identical face amount of the issued and outstanding
10% Senior Subordinated Notes due 2008 (referred to individually as the "144A
Notes" and "Reg S Notes"; collectively as the "Series A Notes"; and, together
with the Exchange Notes, the "Notes") of the Company from the Holders (as
defined herein) thereof in integral multiples of $1,000 principal amount. The
Series A Notes were issued on July 2, 1998 (the "Offering") by the Company. As
of the date of this Prospectus, there are $100.0 million in aggregate principal
amount of the Series A Notes outstanding. The terms of the Exchange Notes are
identical in all material respects to the Series A Notes, except that the
Exchange Notes will have been registered under the Securities Act, and
therefore will not bear legends restricting their transfer described in the
Registration Rights Agreement (as defined herein), the provisions of which
generally will terminate as to all of the Notes upon the consummation of the
Exchange Offer. The Exchange Notes will be obligations of the Company
evidencing the same indebtedness as the Series A Notes and will be entitled to
the benefits of the same Indenture (as defined herein). See "The Exchange
Offer."
Interest on the Exchange Notes will be payable semi-annually in arrears on
July 1 and January 1 of each year, commencing on January 1, 1999. The Exchange
Notes will mature on July 1, 2008. The Exchange Notes are redeemable at any
time on or after July 1, 2003 at the option of the Company, in whole or in
part, at the redemption prices set forth herein, together with accrued and
unpaid interest and Liquidated Damages (as defined), if any, thereon to the
redemption date. In addition, at any time prior to July 1, 2001, the Company
may redeem up to 30% of the aggregate principal amount of the Notes originally
issued under the Indenture (as defined) at a redemption price equal to 110.000%
of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, with the net cash
proceeds of one or more Equity Offerings (as defined); provided that at least
70% of the aggregate principal amount of the Notes originally issued under the
Indenture remains outstanding immediately after giving effect to such
redemption. Upon the occurrence of a Change of Control (as defined herein),
each holder of the Exchange Notes may require the Company to purchase all or a
portion of such holder's Exchange Notes at a purchase price equal to 101% of
the principal amount thereof, together with accrued and unpaid interest and
Liquidated Damages, if any, thereon to the repurchase date. See "Risk Factors--
Change of Control" and "Description of Exchange Notes."
The Exchange Notes will be general unsecured obligations of the Company and,
as such, will be subordinated in right of payment to all existing and future
Senior Indebtedness (as defined) of the Company and senior to or pari passu
with all other indebtedness of the Company. The Company does not currently have
any debt subordinated to the Notes. The Exchange Notes will be fully and
unconditionally guaranteed (the "Subsidiary Guarantees") by all of the
Company's future and existing Restricted Subsidiaries (as defined) (the
"Guarantors") on a joint and several basis. The Subsidiary Guarantees will be
general unsecured obligations of the Guarantors and will be subordinated in
right of payment to all existing and future Senior Indebtedness and senior to
or pari passu with all other indebtedness of such Guarantor. The Company does
not have any non-Guarantor subsidiaries. See "Description of Exchange Notes--
Subsidiary Guarantees."
See "Risk Factors" beginning on page 11 for a discussion and certain factors
that should be considered by participants in the Exchange Offer.
The date of this Prospectus is February 16, 1999.
<PAGE>
NOTICE TO INVESTORS
The Company will accept for exchange any and all validly tendered Series A
Notes on or prior to the Expiration Date (as defined herein). Tenders of
Series A Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date; otherwise such tenders are irrevocable. The
Exchange Offer is not conditioned upon any minimum principal amount of Series
A Notes being tendered for exchange. The Series A Notes may be tendered only
in integral multiples of $1,000. For certain conditions to the Exchange Offer,
see "The Exchange Offer."
The Series A Notes were offered and sold on July 2, 1998 in a transaction
not registered under the Securities Act in reliance upon an exemption from the
registration requirements thereof. In general, the Series A Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act.
The Exchange Notes are being offered hereby in order to satisfy certain
obligations of the Company contained in the A/B Exchange Registration Rights
Agreement, dated July 2, 1998, by and among the Company, the Guarantors,
BancBoston Securities Inc., Loewenbaum & Company Incorporated and SPP Hambro &
Co., LLC (the "Registration Rights Agreement"), a copy of which has been filed
as an exhibit to the initial filing of this Registration Statement. The
Company has agreed to pay the expenses of the Exchange Offer.
The Company is making the Exchange Offer in reliance on the position of the
Staff of the Division of Corporation Finance of the Securities and Exchange
Commission (the "SEC" or "Commission") as set forth in the Staff's Exxon
Capital Holdings Corp. (available April 13, 1989), Morgan Stanley & Co., Inc.
(available June 5, 1991), Shearman & Sterling (available July 7, 1993) no
action letters and other interpretive letters addressed to third parties in
other transactions. However, the Company has not sought its own interpretive
letter and there can be no assurance that the Staff of the Division of
Corporation Finance of the SEC would make a determination with respect to the
Exchange Offer similar to those it has made in such interpretive letters to
third parties. Based on these interpretations by the Staff, and subject to the
two immediately following sentences, the Company believes that Exchange Notes
issued pursuant to this Exchange Offer in exchange for Series A Notes may be
offered for resale, resold or otherwise transferred by any person in whose
name Series A Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder (a "Holder") thereof (other than any such Holder that is (i) an
"affiliate" of the Company within the meaning of Rule 405 promulgated under
the Securities Act, (ii) a broker-dealer which acquired the Series A Notes
directly from the Company or (iii) a broker-dealer who acquired the Series A
Notes as a result of market making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such Holder's business and such Holder is not participating, does
not intend to participate and has no arrangement or understanding with any
person to participate in the distribution (within the meaning of the
Securities Act) of such Exchange Notes. In some cases, certain broker-dealers
may be required to deliver a prospectus in connection with the resale of such
Exchange Notes.
Any Holder of Series A Notes who is an "affiliate" of the Company or who
intends to participate in the Exchange Offer for the purpose of distributing
Exchange Notes, or any broker-dealer who purchased Series A Notes from the
Company to resell pursuant to Rule 144A under the Securities Act ("Rule 144A")
or any other available exemption under the Securities Act, (a) will not be
able to rely on the interpretations of the Staff set forth in the above-
mentioned interpretive letters, (b) will not be permitted or entitled to
tender such Series A Notes in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Series A Notes unless such
sale is made pursuant to an exemption from such requirements. In addition, as
described below, any broker-dealer who holds Series A Notes acquired for its
own account as a result of market-making activities or other trading
activities (a "Participating Broker-Dealer") and who receives Exchange Notes
for Series A Notes pursuant to the Exchange Offer, may be a statutory
underwriter and must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes.
i
<PAGE>
Any beneficial owner of Series A Notes whose Series A Notes are registered
in the name of a broker, commercial bank, trust company or other nominee and
who wishes to participate in the Exchange Offer should contact such registered
Holder promptly and instruct such Holder to tender the Series A Notes on such
beneficial owner's behalf. See "The Exchange Offer--Procedures for Tendering."
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with any resale of Exchange Notes
received in exchange for such Series A Notes where such Series A Notes were
acquired by such broker-dealer for its own account as a result of market-
making activities or other trading activities (other than Series A Notes
acquired directly from the Company). The Company has agreed that it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale.
The Series A Notes are eligible for trading in the Private Offerings,
Resales and Trading through Automatic Linkages Market (the "PORTAL" market) of
the National Association of Securities Dealers, Inc. Prior to this Exchange
Offer, there has been no public market for the Exchange Notes. If a market for
the Exchange Notes should develop, the Exchange Notes could trade at a
discount from their principal amount. The Company does not intend to list the
Exchange Notes on any securities exchange nor does the Company intend to apply
for quotation of the Exchange Notes on The Nasdaq National Market or other
quotation system. BancBoston Securities Inc. and Loewenbaum & Company
Incorporated (together with SPP Hambro & Co., LLC "the Initial Purchasers")
have indicated to the Company that they intend to make a market in the Notes,
but are not obligated to do so and such market-making activities may be
discontinued at any time without notice. As a result, no assurance can be
given that an active trading market for the Exchange Notes will develop.
The Exchange Notes issued pursuant to this Exchange Offer will be issued in
the form of a Global Exchange Note (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company (the
"Depository" or "DTC") and registered in its name or in the name of Cede &
Co., its nominee. Beneficial interests in the Global Exchange Note
representing the Exchange Notes will be shown on, and transfers thereof will
be effected through, records maintained by DTC and its participants.
Notwithstanding the foregoing, Series A Notes held in certificated form will
be exchanged solely for Certificated Exchange Notes (as defined herein). After
the initial issuance of the Global Exchange Note, Certificated Exchange Notes
will be issued in exchange for the Global Exchange Note only on the terms set
forth in the Indenture. See "Description of the Exchange Notes--Book-Entry,
Delivery and Form."
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACT, INCLUDED IN THIS
PROSPECTUS, INCLUDING WITHOUT LIMITATION THE STATEMENTS UNDER "SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," ARE, OR MAY BE, FORWARD-LOOKING STATEMENTS.
WITHOUT LIMITING THE FOREGOING, THE WORDS "BELIEVES," "ANTICIPATES," "PLANS,"
"INTENDS," "EXPECTS," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. VARIOUS ECONOMIC AND COMPETITIVE FACTORS COULD
CAUSE ACTUAL RESULTS OR EVENTS TO DIFFER MATERIALLY FROM THOSE DISCUSSED IN
SUCH FORWARD-LOOKING STATEMENTS, INCLUDING WITHOUT LIMITATION, THE COMPANY'S
DEGREE OF LEVERAGE, THE COMPANY'S DEPENDENCE ON MAJOR CUSTOMERS AND KEY
PERSONNEL, COMPETITION, AND THE OTHER FACTORS DISCUSSED IN THIS PROSPECTUS
WITH RESPECT TO THE COMPANY'S BUSINESS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS." ACCORDINGLY, SUCH FORWARD-LOOKING STATEMENTS DO NOT PURPORT TO BE
PREDICTIONS OF FUTURE EVENTS OR CIRCUMSTANCES AND MAY NOT BE REALIZED. THE
COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY
ANY UPDATES OR ANY CHANGE IN THE COMPANY'S EXPECTATIONS WITH REGARD THERETO OR
ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY STATEMENT IS
BASED.
ii
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and
the rules and regulations promulgated thereunder, covering the Exchange Notes
being offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission and to which
reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such
reference.
For further information with respect to the Company and the Notes, reference
is made to such Registration Statement. A copy of the Registration Statement
can be inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.
Washington, D.C. 20549, and at the Regional Offices of the Commission at 7
World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Copies of such materials can be obtained from the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
at prescribed rates. The Commission maintains an Internet web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
address of such site is http://www.sec.gov.
While any Series A Notes remain outstanding, the Company will make
available, upon request, to any Holder and any prospective purchaser of Series
A Notes the information required pursuant to Rule 144A(d)(4) under the
Securities Act during any period in which the Company is not subject to
Section 13 or 15(d) of the Exchange Act. Any such request should be directed
to the Company at 100 Park Avenue, New York, New York 10017, Attention: Chief
Financial Officer (telephone number (212) 916-0700).
Upon completion of the Exchange Offer, the Company will become subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith, will file reports
and other information with the Commission.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF
TRANSMITTAL DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
UNTIL , 1999 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
iii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Market and market share data used throughout this
Prospectus have been generated internally by the Company or obtained from
independent market research companies and industry publications. Independent
market research companies and industry publications generally indicate that the
information provided by them or contained therein has been obtained from
sources believed to be reliable, but the Company has not independently verified
such information. Similarly, while the Company believes that the data it has
generated internally is reliable, such data have not been verified by any
independent source. Unless otherwise specified, all market share data contained
in this Prospectus are estimates by the Company. All market share data is
presented on an as adjusted basis for 1997 giving effect to the entry by the
Company into certain representation contracts and the termination of certain
other representation contracts as of January 1, 1997. See "Business--Recent
Developments." Unless the context otherwise requires, references in this
Prospectus to "Interep" or the "Company," are to Interep National Radio Sales,
Inc. and its subsidiaries.
The Company
Interep is the largest independent national spot radio advertising
representation firm ("rep firm") in the United States. The Company is the
exclusive rep firm for over 1,900 radio stations, including, among others, all
of the radio stations owned or operated by the Radio Group of CBS Corporation
("CBS"), Clear Channel Communications, Inc. ("Clear Channel") and the ABC Radio
Division of ABC, Inc. ("ABC"). The Company serves radio stations in all 50
states and in 97 of the top 100 radio markets. The Company's client radio
stations are diversified across all formats, including country, rock, sports,
Hispanic, classical, urban, news and talk. Interep has built strong
relationships with its clients, some of which date back 40 years. The Company
represents its clients pursuant to exclusive representation contracts, with
remaining terms ranging from 2 months to 11 years.
The Company's commission revenues and EBITDA grew at a compound annual growth
rate of 10.0% and 41.8%, respectively, from 1993 to 1997. See "Business."
EBITDA represents income before interest, taxes, depreciation and amortization.
EBITDA does not represent net income or cash flows from operations, as these
terms are defined under generally accepted accounting principles and should not
be considered as an alternative to net income as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity. The Company
has included EBITDA information because it understands that such information is
used by certain investors as one measure of an issuer's historical ability to
service debt. The Company had net cash flows from operating activities for the
years ended December 31, 1997, 1996, 1995, 1994 and 1993 of $23.8 million,
$36.0 million, $14.0 million, $15.9 million and $11.5 million, respectively.
The Company had net cash outflows from investing activities for the years ended
December 31, 1997, 1996, 1995, 1994 and 1993 of $0.8 million, $1.0 million,
$5.2 million, $1.7 million and $3.1 million, respectively. The Company had net
cash outflows from financing activities for the years ended December 31, 1997,
1996, 1995, 1994 and 1993 of $24.3 million, $24.1 million, $12.3 million, $10.8
million and $9.7 million, respectively. For the years ended December 31, 1997,
1996, 1995 and 1994, the Company had net income of $3.0 million, $3.6 million,
$3.5 million and $5.5 million, respectively. For the year ended December 31,
1993, the Company had a net loss of $1.8 million. For the nine months ended
September 30, 1998, the Company had a net income of $3.1 million.
National spot advertising is commercial air time sold by radio stations to
advertisers located outside of their local markets and typically represents
approximately 20% of a radio station's revenue. Radio stations typically retain
rep firms like Interep on an exclusive basis to sell commercial air time to
national and regional advertisers and sell air time to local advertisers
through in-house sales forces.
1
<PAGE>
Interep was founded in 1953 and has been owned primarily by its Chief
Executive Officer, Ralph C. Guild, and its management and employees since 1975.
Since consummation of the Offering, Interep has been owned entirely by Mr.
Guild and the Company's management and employees. Its principal executive
offices are located at 100 Park Avenue, New York, New York 10017. The Company's
telephone number is (212) 916-0700, and its internet address is
www.interep.com.
Recent Developments
On April 29, 1998, the Company entered into a National Radio Sales Master
Representation Agreement with ABC, Inc. (the "ABC Agreement"). Under the ABC
Agreement, as of June 1, 1998, Interep became the exclusive national spot radio
rep firm for 23 ABC radio stations (all of which are in the top 15 radio
markets), as well any radio stations acquired by ABC in the future (subject to
the Company arranging for the buyout of predecessor rep firms, if necessary).
In order to service the ABC stations, the Company has established a dedicated
rep firm named ABC Radio Sales.
The Financing Transactions
The Offering was a part of a series of transactions (the "Financing
Transactions") to refinance existing indebtedness, redeem preferred stock and
associated shares of common stock, increase the availability of funds for
working capital and general corporate purposes (including funds to acquire
representation contracts) and to enhance the Company's operating and financial
flexibility. The Financing Transactions included (i) the Offering and the sale
of the Notes, (ii) the repayment of all outstanding obligations under the
Company's then current $55.0 million revolving credit facility (the "Old Credit
Facility") and the establishment of a new credit facility (the "New Credit
Facility") providing for working capital loans of up to $10.0 million, subject
to the achievement of certain financial ratios and compliance with certain
other covenants, (iii) the repurchase of all of the Company's outstanding
shares of its Series A Preferred Stock (the "Series A Preferred Stock"), at
face value plus accrued dividends, and certain associated shares of the
Company's Common Stock (the "Common Stock") held by Providence Media Partners,
L.P. ("Providence"), for a total purchase price of $14.1 million, and (iv) the
repurchase of all of the Company's outstanding shares of its Series B Preferred
Stock (the "Series B Preferred Stock"), at face value plus accrued dividends,
and certain associated shares of Common Stock, from certain members of
management, for a total purchase price of $2.6 million. Following the Financing
Transactions, the Company became owned entirely by Mr. Guild and the Company's
management and employees, and there is currently no outstanding preferred
stock.
Risk Factors
Prospective purchasers of the Exchange Notes should carefully consider the
following factors set forth under "Risk Factors": Significant Leverage;
Liquidity, Capital Requirements; Subordination; Limitations Imposed by Certain
Indebtedness; History of Net Losses; Shareholders' Deficit; Investing in Non-
Investment Grade Debt; Dependence on Maintenance and Buyouts of Representation
Contracts; Competition; Dependence on Demand for Advertising; Dependence on Key
Personnel; Repurchase Obligations Under Employee Benefit Plans; Reliance on Key
Customers; Changes in Radio Industry Regulations and Ownership of Client
Stations; Fraudulent Conveyance Considerations; Possibility of Default Upon a
Change of Control; Absence of Public Market for the Exchange Notes;
Restrictions on Transfer; and Exchange Offer Procedures. In addition,
prospective purchasers should also carefully consider the other information and
financial statements and data included in this Prospectus, prior to making an
investment in the Exchange Notes.
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<PAGE>
THE SERIES A OFFERING
The Series A Notes.......... The Series A Notes were sold by the Company in
the Offering on June 29, 1998, and were
subsequently resold to (i) Qualified
Institutional Buyers (as defined herein) pursuant
to Rule 144A under the Securities Act, and (ii)
outside the United States in reliance on
Regulation S under the Securities Act in a manner
exempt from registration under the Securities
Act.
Registration Rights In connection with the Offering, the Company
Agreement.................. entered into the Registration Rights Agreement,
which grants Holders of the Series A Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy such
exchange and registration rights, which generally
terminate upon the consummation of the Exchange
Offer.
THE EXCHANGE OFFER
Securities Offered.......... $100.0 million in aggregate principal amount of
10% Senior Subordinated Notes due 2008, Series B.
The Exchange Offer.......... $1,000 principal amount of the Exchange Notes in
exchange for each $1,000 principal amount of
Series A Notes. As of the date hereof, $100.0
million in aggregate principal amount of Series A
Notes are outstanding. The Company will issue the
Exchange Notes to Holders on or promptly after
the Expiration Date. The terms of the Exchange
Notes are substantially identical in all material
respects (including principal amount, interest
rate and maturity) to the terms of the Series A
Notes for which they may be exchanged pursuant to
the Exchange Offer, except that the Exchange
Notes are freely transferable by holders thereof
(other than as provided herein), and are not
subject to any covenant regarding registration
under the Securities Act. See "The Exchange
Offer." Other than compliance with applicable
federal and state securities laws, including the
requirement that the Registration Statement be
declared effective by the Commission, there are
no material federal or state regulatory
requirements to be complied with in connection
with the Exchange Offer.
Interest Payments........... The Exchange Notes will bear interest from June
29, 1998, the date of consummation of the
issuance of the Series A Notes, or the most
recent interest payment date to which interest on
such Series A Notes has been paid, whichever is
later. Accordingly, Holders of Series A Notes
that are accepted for exchange will not receive
interest on such Series A Notes that is accrued
but unpaid at the time of tender, but such
interest will be payable on the first interest
payment date after the Expiration Date.
Minimum Condition........... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Series A
Notes being tendered for exchange.
3
<PAGE>
Expiration Date............. 5:00 p.m., New York City time, on , 1999
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
Exchange Date............... The date of acceptance for exchange of the Series
A Notes will be the first business day following
the Expiration Date.
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date by providing the Exchange Agent (as defined)
with a written or facsimile transmission of a
notice of withdrawal. See "The Exchange Offer--
Withdrawal of Tenders." The Company will
determine if a withdrawal is effective. Any
Series A Notes withdrawn will be deemed not to
have been validly tendered for purposes of the
Exchange Offer. Properly withdrawn Series A Notes
may be retendered. See "The Exchange Offer--
Withdrawal of Tenders."
Acceptance Of Series A
Notes and Delivery of
Exchange Offer Notes.......
The Company will accept for exchange any and all
Series A Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer."
Conditions To The Exchange The Exchange Offer is subject to certain
Offer...................... customary conditions, which may be waived by the
Company. See "The Exchange Offer--Conditions."
Procedures For Tendering
Series A Notes.............
To tender pursuant to the Exchange Offer, a
Holder must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof, have the signatures therein
guaranteed if required by instruction 4 of the
Letter of Transmittal and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, or an Agent's message (as defined
below) in the case of a book-entry transfer,
together with the Series A Notes and any other
required documentation to the Exchange Agent (as
defined herein) at the address set forth herein
prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange Offer--
Procedures for Tendering" and "Plan of
Distribution." By executing the Letter of
Transmittal, each Holder will represent to the
Company that, among other things, the Holder or
the person receiving such Exchange Notes, whether
or not such person is the Holder, is acquiring
the Exchange Notes in the ordinary course of
business and that neither the Holder nor any such
other person intends to participate or has any
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes. In lieu of physical delivery of the
certificates representing Series A Notes,
tendering Holders may transfer Series A Notes
pursuant to the procedure for book-entry transfer
as set forth under "The Exchange Offer--
Procedures for Tendering."
4
<PAGE>
Special Procedures For
Beneficial Owners..........
Any beneficial owner whose Series A Notes are
registered in the name of a broker, commercial
bank, trust company or other nominee and who
wishes to tender in the Exchange Offer should
contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial
owner wishes to tender on such beneficial owner's
own behalf, such beneficial owner must, prior to
completing and executing the Letter of
Transmittal and delivering the Series A Notes,
either make appropriate arrangements to register
ownership of the Series A Notes in such
beneficial owner's name or obtain a properly
completed bond power from the registered holder.
The transfer of registered ownership may take
considerable time. See "The Exchange Offer--
Procedures for Tendering."
Guaranteed Delivery Holders of Series A Notes who wish to tender
Procedures................. their Series A Notes and whose Series A Notes are
not immediately available or who cannot deliver
their Series A Notes, the Letter of Transmittal
or any other documents required by the Letter of
Transmittal to the Exchange Agent (or comply with
the requirements for book-entry transfer) prior
to the Expiration Date must tender their Series A
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
Federal Income Tax The issuance of the Exchange Notes to Holders
Consequences............... pursuant to the terms set forth in this
Prospectus will not constitute an exchange for
federal income tax purposes. Consequently, no
gain or loss would be recognized by Holders upon
receipt of the Exchange Notes. See "The Exchange
Offer--Certain Federal Income Tax Consequences of
the Exchange Offer."
Use Of Proceeds............. There will be no proceeds to the Company from the
exchange of Series A Notes pursuant to the
Exchange Offer.
Exchange Agent.............. U.S. Bank Trust National Association as agent for
Summit Bank is serving as exchange agent (the
"Exchange Agent") in connection with the Exchange
Offer. See "The Exchange Offer--Exchange Agent."
5
<PAGE>
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Series A Notes (which they replace) except that (i) the Exchange Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof and (ii) the holders of Exchange Notes
generally will not be entitled to further registration rights under the
Registration Rights Agreement, which rights generally will be satisfied when
the Exchange Offer is consummated. The Exchange Notes will evidence the same
debt as the Series A Notes and will be entitled to the benefits of the
indenture pursuant to which the Series A Notes were issued (the "Indenture").
See "Description of Exchange Notes."
Company..................... Interep National Radio Sales, Inc.
Securities Offered.......... $100.0 million aggregate principal amount of 10%
Senior Subordinated Notes due 2008, Series B.
Maturity.................... July 1, 2008.
Interest Payment Dates...... The Exchange Notes will bear interest at the rate
of 10% per annum, payable semiannually in arrears
on January 1 and July 1 of each year, commencing
on January 1, 1999.
Subsidiary Guarantees....... The Exchange Notes will be fully and
unconditionally guaranteed by all of the
Company's existing and future Restricted
Subsidiaries (the "Guarantors") on a joint and
several basis.
Ranking..................... The Exchange Notes and the Subsidiary Guarantees
will be general unsecured obligations of the
Company and the Guarantors, respectively, and
will be subordinated in right of payment to all
existing and future Senior Indebtedness of the
Company and the Guarantors, respectively, and
senior to or pari passu with all other
Indebtedness of the Company or the Guarantors, as
applicable. See "Risk Factors--Subordination."
Optional Redemption......... Except as set forth below, the Exchange Notes
will not be redeemable at the option of the
Company prior to July 1, 2003. Thereafter, the
Exchange Notes will be subject to redemption at
any time at the option of the Company, in whole
or in part, at the redemption prices set forth
herein, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the
redemption date. In addition, at any time and
from time to time prior to July 1, 2001, the
Company may redeem up to an aggregate of 30% in
principal amount of Exchange Notes originally
issued under the Indenture at a redemption price
equal to 110.000% of the principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the
redemption date, with the net cash proceeds of
one or more Equity Offerings (as defined);
provided that at least 70% of the aggregate
principal amount of Exchange Notes originally
issued under the Indenture remains outstanding
immediately after giving effect to such
redemption.
6
<PAGE>
Change of Control........... In the event of a Change of Control, the Company
will be required to make an offer to each holder
of Exchange Notes to repurchase all or any part
of such holder's Exchange Notes at a repurchase
price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the
repurchase date.
Covenants................... The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its Restricted Subsidiaries to incur
additional Indebtedness, pay dividends,
repurchase Equity Interests (as defined) or make
other Restricted Payments (as defined), create
Liens (as defined), enter into transactions with
Affiliates (as defined), sell assets or enter
into certain mergers and consolidations. See
"Description of Exchange Notes."
Registration Rights......... The Registration Rights Agreement provides that
if (i) the Company is not permitted to consummate
the Exchange Offer because the Exchange Offer is
not permitted by applicable law or Commission
policy or (ii) in certain circumstances, a Holder
notifies the Company within 20 days following
consummation of the Exchange Offer (a) that it is
prohibited by law or Commission policy from
participating in the Exchange Offer or (b) that
it may not resell the Exchange Notes (including
the Exchange Note Guarantees) acquired by it in
the Exchange Offer to the public without
delivering a prospectus and the Prospectus
contained in the Exchange Offer Registration
Statement is not appropriate or available for
such resales or (c) that it is a broker-dealer
and owns Series A Notes acquired directly from
the Company or an affiliate of the Company, the
Company will file with the Commission a shelf
registration statement (the "Shelf Registration
Statement") to cover resales of the Series A
Notes by the Holders thereof who satisfy certain
conditions relating to the provision of
information in connection with the Shelf
Registration Statement. If the Company and the
Guarantors do not comply with their obligations
under the Registration Rights Agreement, they
will be required to pay specified Liquidated
Damages to the holders of the Notes under certain
circumstances. See "Description of Exchange
Notes--Registration Rights; Liquidated Damages."
Lack Of Prior Market For
The Exchange Notes.........
The Exchange Notes will be a new class of
securities for which there is currently no
established trading market. The Company does not
intend to apply for listing of the Exchange Notes
on any national securities exchange or for
quotation of the Exchange Notes on any automated
dealer quotation system. The Company has been
advised by BancBoston Securities Inc. and
Loewenbaum & Company Incorporated that they
presently intend to make a market in the Exchange
Notes, although they are under no obligation to
do so and may discontinue any market-making
activities at any time without notice.
Accordingly, no assurance can be given as to the
liquidity of
7
<PAGE>
the trading market for the Exchange Notes or that
an active public market for the Exchange Notes
will develop. If an active trading market for the
Exchange Notes does not develop, the market price
and liquidity of the Exchange Notes may be
adversely affected. If the Exchange Notes are
traded, they may trade at a discount from their
initial offering price, depending on prevailing
interest rates, the market for similar
securities, the performance of the Company and
certain other factors. See "Risk Factors--Absence
of Public Market for the Exchange Notes;
Restrictions on Transfer."
8
<PAGE>
Summary Financial Data
The following table sets forth summary historical consolidated data and
summary unaudited pro forma consolidated data for the Company. The summary
historical consolidated financial data for the years ended December 31, 1995,
1996 and 1997 was derived from audited consolidated financial statements of the
Company. The summary historical consolidated financial data for the nine month
periods ended September 30, 1997 and 1998 and as of September 30, 1998 was
derived from the unaudited consolidated financial statements of the Company. In
the opinion of management, such interim financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary to
fairly present the information presented for such periods. Due to the seasonal
nature of the Company's business, the results of operations for the nine months
ended September 30, 1998 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1998. See "--The Financing
Transactions." The summary historical financial data should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," all of which are included in this Prospectus.
<TABLE>
<CAPTION>
Nine Months
Ended September
Year Ended December 31, 30,
------------------------- ---------------- At September 30,
1995 1996 1997 1997 1998 1998
------- ------- ------- ------- ------- ----------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Commission revenue...... $70,306 $72,858 $87,096 $61,483 $62,943
Contract termination
revenue................ 12,194 18,876 26,586 22,768 27,794
------- ------- ------- ------- -------
Total revenues.......... 82,500 91,734 113,682 84,251 90,737
Operating expenses:
Selling expenses....... 48,240 53,251 63,135 48,158 46,913
General and
administrative
expenses.............. 14,005 9,626 12,541 8,323 8,286
Depreciation and
amortization(1)....... 13,073 20,988 28,954 21,220 25,577
Operating income........ 7,182 7,869 9,052 6,550 9,961
Interest expense,
net(2)................. 3,385 3,911 3,779 2,705 4,447
Net income.............. 3,477 3,558 3,036 2,275 3,088
Balance Sheet Data:
Cash and cash equivalents....................................... $ 31,260
Total assets.................................................... 177,173
Long-term debt (including current portion)...................... 100,233
Shareholders' deficit........................................... (523)
Other Financial Data:
EBITDA(3)............... $20,255 $28,857 $38,006 $27,770 $35,538
EBITDA margin........... 24.6% 31.5% 33.4% 33.0% 39.2%
Net cash flows from
operating activities... 14,001 35,982 23,821 18,101 15,148
Net cash flows from
investing activities... (5,199) (1,021) (792) (537) (780)
Net cash flows from
financing activities... (12,258) (24,060) (24,263) (16,190) 15,473
Ratio of earnings to
fixed charges(4)....... 1.75x 1.69x 1.96x 1.97x 1.83x
</TABLE>
9
<PAGE>
- --------
(1) Includes amortization of contract acquisition costs.
(2) Interest expense is shown net of interest income of $109, $138, $109, $41
and $448 during the years ended December 31, 1995, 1996, 1997 and nine
months ended September 30, 1997 and 1998, respectively.
(3) EBITDA represents income before interest, taxes, depreciation and
amortization. EBITDA does not represent net income or cash flows from
operations, as these terms are defined under generally accepted accounting
principles, and should not be considered as an alternative to net income as
an indicator of the Company's operating performance or to cash flows as a
measure of liquidity. The Company has included EBITDA information because
it understands that such information is used by certain investors as one
measure of an issuer's historical ability to service debt.
(4) Ratio of earnings to fixed charges represents income from operations before
fixed charges less interest expense and the imputed interest factor of rent
expense.
10
<PAGE>
RISK FACTORS
Prospective purchasers of Exchange Notes should carefully consider the
following factors in addition to the other information contained herein in
evaluating the Company before purchasing the Exchange Notes offered hereby.
Significant Leverage; Liquidity, Capital Requirements
The Company is highly leveraged. As of September 30, 1998, the Company had
approximately $100.2 million of Indebtedness outstanding, $177.2 million of
total assets, $79.3 million of total tangible assets and shareholders' deficit
of $0.5 million. After giving pro forma effect to the Financing Transactions,
the Company's earnings would have been insufficient to cover its fixed charges
by $1.1 million for fiscal 1997.
The degree to which the Company will be leveraged following the Financing
Transactions could have important consequences to holders of the Exchange
Notes, including, but not limited to: (i) making it more difficult for the
Company to satisfy its obligations with respect to the Exchange Notes, (ii)
increasing the Company's vulnerability to general adverse economic and
industry conditions, (iii) limiting the Company's ability to obtain additional
financing to fund future working capital (including funds to acquire
representation contracts), capital expenditures and other general corporate
requirements, (iv) requiring the dedication of a substantial portion of the
Company's cash flow from operations to the payment of principal of, and
interest on, its indebtedness, thereby reducing the availability of such cash
flow to fund working capital, capital expenditures or other general corporate
purposes, (v) limiting the Company's flexibility in planning for, or reacting
to, changes in its business and the industry and (vi) placing the Company at a
competitive disadvantage to less leveraged competitors. In addition, the
Indenture and the New Credit Facility contain financial and other restrictive
covenants that limit the ability of the Company to, among other things, borrow
additional funds. Failure by the Company to comply with such covenants could
result in an event of default which, if not cured or waived, could have a
material adverse effect on the Company. In addition, the degree to which the
Company is leveraged could prevent it from repurchasing all of the Exchange
Notes tendered to it upon the occurrence of a Change of Control. See
"Description of Exchange Notes--Repurchase at the Option of Holders--Change of
Control" and "Description of New Credit Facility."
The Company will incur annual interest expense of $10.0 million in respect
of the Exchange Notes and a $0.4 million annual amortization charge related to
the Financing Transactions. The Company believes that it will generate
sufficient cash flow to fund its operations and required representation
contract buyout payments and make required payments of principal and interest
under the New Credit Facility and interest on the Exchange Notes. The Company
may not, however, generate sufficient cash flow for these purposes or to repay
the Exchange Notes at maturity. The Company's ability to fund its operations
and required contract buyout payments and to make scheduled principal and
interest payments will depend on its future performance, which, to a certain
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond its control. The Company may also
need to refinance all or a portion of the Exchange Notes on or prior to
maturity. There can be no assurance that the Company will be able to effect
any such refinancing on commercially reasonable terms or at all. See
"Capitalization," "Description of New Credit Facility," "Description of
Exchange Notes," "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
Subordination
The Exchange Notes will be subordinated in right of payment to all current
and future Senior Indebtedness of the Company and the Guarantors. However, the
Indenture provides that the Company does not, and will not permit any of the
Guarantors to, incur or otherwise become liable for any indebtedness that is
subordinate or junior in right of payment to any Senior Indebtedness and
senior in any respect in right of payment to the Exchange Notes or any of the
Subsidiary Guarantees. On any distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar
11
<PAGE>
proceeding relating to the Company or its property, the holders of Senior
Indebtedness will be entitled to be paid in full before any payment may be
made with respect to the Exchange Notes. In addition, the subordination
provisions of the Indenture will provide that payments with respect to the
Exchange Notes will be blocked in the event of a payment default on certain
Senior Indebtedness and may be blocked for up to 179 days each year in the
event of certain non-payment defaults on certain Senior Indebtedness. In the
event of a bankruptcy, liquidation or reorganization of the Company, holders
of the Exchange Notes will participate ratably with all holders of
subordinated indebtedness of the Company that is deemed to be of the same
class as the Exchange Notes, and potentially with all other general creditors
of the Company, based on the respective amounts owed to each holder or
creditor, in the remaining assets of the Company. In any of the foregoing
events, there can be no assurance that there would be sufficient assets to pay
amounts due on the Exchange Notes. As a result, holders of Exchange Notes may
receive less, ratably, than the holders of Senior Indebtedness.
As of September 30, 1998, the aggregate amount of Senior Indebtedness of the
Company and the Guarantors was $0.2 million attributable to capital leases,
and $10.0 million available under the New Credit Facility, subject to the
achievement of certain financial ratios and compliance with certain other
covenants. The Indenture permits the incurrence of substantial additional
indebtedness, including Senior Indebtedness, by the Company and the Guarantors
in the future.
Limitations Imposed By Certain Indebtedness
The Indenture and the New Credit Facility contain significant covenants that
limit the Company's and its subsidiaries' ability to engage in various
transactions and, in the case of the New Credit Facility, require satisfaction
of specified financial performance criteria. In addition, under each of the
foregoing documents, the occurrence of certain events (including, without
limitation, failure to comply with the foregoing covenants, material
inaccuracies of representations and warranties, certain defaults under or
acceleration of other indebtedness and events of bankruptcy or insolvency)
would, in certain cases after notice and grace periods, constitute an event of
default permitting acceleration of the indebtedness covered by such documents.
The limitations imposed by the documents governing the outstanding
indebtedness of the Company and its subsidiaries are substantial, and failure
to comply with them could have a material adverse effect on the Company and
its subsidiaries. As of the date of this Prospectus, the Company is in
compliance with all material covenants under such documents. See "Description
of Exchange Notes" and "Description of New Credit Facility."
Investing in Non-Investment Grade Debt
Various investment services such as Standard & Poor's Corporation ("S&P")
and Moody's Investors Service, Inc. ("Moody's") rate securities. Higher yields
are ordinarily available from securities in the lower-rated categories of
these recognized rating services--that is, securities rated BB+ or lower by
S&P or Ba1 or lower by Moody's and from unrated securities of comparable
quality. In this regard, securities rated CCC by S&P or B by Moody's, or
lower, are generally regarded as speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of
the security. The Notes and the Exchange Notes are in this category of non-
investment grade securities.
Bonds such as the Exchange Notes generally offer a higher current yield than
is available from higher grade issuers but typically involve greater risk as
to the payment of principal and interest. High yield bonds may be more
susceptible to real or perceived adverse economic and competitive industry
conditions than investment grade bonds, since, among other things, companies
that issue high yield bonds are often highly leveraged and may not have access
to more traditional methods of financing. A projection of an economic downturn
or higher interest rates, for example, could cause a decline in high yield
bond prices because such events could lessen the ability of highly-leveraged
companies to make payments on their debt securities. At the same time, the
market values of such securities tend to reflect the individual corporate
developments of the issuers to a greater extent than do higher rated bonds.
The risk of loss due to default by the issuer may also be significantly
greater for the holders of high yield securities because such securities are
generally unsecured and are often subordinated to other creditors of the
issuer. The Exchange Notes will be subordinated in right of payment to all
current and future Senior Indebtedness of the Company and the Guarantors.
12
<PAGE>
Frequently, high yield securities such as the Exchange Notes have an
optional redemption or buy-back feature which permits an issuer to call or
repurchase the securities from investors prior to their stated maturities at
specified redemption prices. To the extent that call features are exercised
during periods of declining interest rates, an investor would likely have to
replace the called securities with lower-yielding securities, thus decreasing
the investor's investment income.
Finally, the secondary trading market for lower rated securities generally
tends to be less liquid than the market for higher quality securities and is
often concentrated among a small number of dealers and other institutional
investors. These conditions may make it more difficult for an investor to buy
and sell its investments and to obtain reliable market quotations for the
purpose of valuing its portfolio than might otherwise be the case with higher
rated securities.
Dependence on Maintenance and Buyouts of Representation Contracts; Competition
The Company's success depends on its ability to maintain and enter into new
representation contracts with radio stations. Client representation contracts
may be terminated prior to their stated expirations subject, in most cases, to
the payment of buyout amounts or termination payments as provided in such
contracts. The change of ownership of a client station frequently results in a
change of representation firm. The pace of consolidation in the radio industry
has increased as a result of the Telecommunications Act of 1996, resulting in
larger station groups. In addition, the recent increase in the number of
ownership changes of radio stations has increased the frequency of the
termination or buyout of representation contracts. Further, as station groups
have become larger, they have gained bargaining power with representation
firms over rates and terms. As a result, the Company continually competes for
both the acquisition of new client stations as well as the maintenance of
existing relationships. See "Business--Industry Overview--Representation
Contracts." Due to the intense competition and volatility of the business,
there can be no assurance that the Company will continue to acquire new
contracts or that it will be able to maintain its existing representation
contracts under their existing terms, if at all. The failure of the Company to
acquire and maintain client representation contracts or to maintain the level
of its commission rates would likely have an adverse effect on the Company's
results of operations. In addition, the Company competes not only with other
national representation firms but also with national radio networks,
syndicators and other brokers of radio advertising. There can be no assurance
that the Company's business will not be materially adversely affected by
increased competition in the markets in which it operates. Further, other
media compete with radio for advertising and promotion expenditures. These
competing media include broadcast television and cable television, print media
and outdoor advertising, among others. In addition, technological innovation
and the resulting proliferation of advertising alternatives have created and
will continue to create other types of competition for radio stations and, as
a consequence, for representation firms. See "Business--Competition."
Representation contracts generally provide for termination payments to be
made to a rep firm if the client terminates the contract without cause. The
amount of such payments is typically equal to the estimated commissions that
would have been payable to the rep firm during the remaining portion of the
initial term and the evergreen period, plus two months. It is customary in the
industry for the successor rep firm to make this payment. The Company
generally amortizes the cost of acquiring a new representation contract over
the initial term of such contract, although contracts are expected to provide
significantly longer-term revenue beyond this initial period. The Company
expects that amortization charges relating to past and future acquisitions of
radio station representation contracts will continue to have a significant
adverse effect on the Company's reported net income or loss.
Dependence on Demand for Advertising
The Company's business is dependent on the level of demand for radio
advertising time, which in turn depends on general and regional economic
conditions, which are outside of the Company's control. In particular, the
financial performance of the Company will depend in part on the radio
broadcasting industry maintaining or increasing its current level of national
advertising revenues. Any significant decline in national spot radio
13
<PAGE>
advertising billings could have a material adverse effect on the Company.
While total expenditures for national spot radio advertising have generally
increased over time, the rate of growth of such expenditures tends to decrease
in times of economic downturn, and gross expenditures may actually decline, as
they did in the recessionary years of 1991 and 1992. Accordingly, there can be
no assurance as to the future levels of radio advertising or national spot
radio advertising expenditures.
Dependence on Key Personnel
The Company believes that, to a great extent, the success of the Company has
been attributable to Ralph C. Guild, Chairman of the Board and Chief Executive
Officer of the Company, who has been employed by the Company for 41 years. In
addition, the Company is dependent on the efforts of Marc G. Guild, President,
Marketing Division of the Company, who has been employed by the Company since
1974. The loss of the services of one or both of these individuals could
materially and adversely affect the business of the Company and its future
prospects and may, in the case of Ralph Guild and under certain circumstances,
give some stations the right to terminate their representation contracts. The
Company has a key man insurance policy on the life of Ralph Guild in the
amount of $2.5 million. In addition, a limited number of the Company's
representation contracts, including contracts with ABC and CBS, are
conditioned upon the continued employment of certain key executives.
Repurchase Obligations Under Employee Benefit Plans
Under the terms governing the ESOP and the Stock Growth Plan, the Company is
responsible for funding cash distributions to participating employees whose
employment terminates. Such distributions are normally made in quarterly
installments over a period of time ranging up to five years, depending on the
size of a participant's account. Depending on the number of employees whose
employment terminates during any period, the size of their accounts under
these plans and the liquidity of the assets of such plans, such funding
obligations could from time to time be substantial enough to have a material
adverse effect on the Company's cash flow and liquidity. The Indenture
restricts the Company's ability to meet any such funding obligations. The
ESOP's liquidity needs have in recent years been met by purchases of stock
from the ESOP by the Stock Growth Plan. There can be no assurance that such
payments will be sufficient in the future. The failure by the Company to meet
its funding obligations could adversely affect the tax-qualified status of the
ESOP, which could have a material adverse effect on the Company. See
"Description of Exchange Notes--Certain Covenants--Restricted Payments" and
"Management--Executive Compensation."
Reliance on Key Customers
Consolidation in the radio industry has resulted in representation firms
competing for fewer larger station groups. Certain of the Company's customers
are material to its business and operations. For the year ended December 31,
1997, CBS accounted for 28.3% of the total commission revenues of the Company.
No other station or station group accounted for more than 10% of such
commission revenues. The loss of, or a significant reduction in, revenues from
CBS or other material customers could have a material adverse impact on the
Company's business, financial condition or results of operations. See
"Business--The Company's Clients."
Changes in Radio Industry Regulations and Ownership of Client Stations
The radio industry is subject to regulation by the Federal Communications
Commission (the "FCC") under the Communications Act of 1934 (the
"Communications Act"). The Telecommunications Act of 1996 amended the
Communications Act in several key respects. It required the FCC to revise its
ownership rules for radio stations to remove the national limit on the number
of stations that any one single entity may own, or in which it could have an
attributable interest, and to increase the number of stations that an entity
may own, or in which it may have an attributable interest, in a local market.
The FCC implemented these directives in March 1996 by revising its multiple
ownership rules for radio stations. There is now no limit on the number of
radio stations one entity may own, operate or control nationally. As to local
market restrictions, in most circumstances, the
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revised rules permit an entity to own, or hold an attributable interest in, a
maximum of between five and eight stations (a maximum of between three and
five of which may be in the same service (e.g., AM or FM)) in the same market,
depending on the size of the market (as determined in accordance with FCC
regulations). The revised rules have led to significant growth in the
concentration of ownership of radio stations among fewer owners.
These changes have had the effect of increasing the level and frequency of
buyouts of representation contracts, which has resulted in and may, in the
future, result in the Company losing clients as well as gaining clients. In
addition, as ownership groups become large enough, it is possible that this
consolidation may result in more station groups forming in-house media
representation units and foregoing the services provided by independent media
representation firms such as the Company. Moreover, even if such groups
continue to use the services of the Company, the level of commission rates
that the Company is able to charge may be adversely affected.
In addition, the United States Congress and the FCC regularly have under
consideration, and may adopt in the future, new laws, regulations and policies
regarding a wide variety of matters (including technological changes) that
could affect the operations and ownership of the Company's clients and, as a
result, the Company's business. In particular, in March 1998, the FCC issued a
Notice of Inquiry soliciting comment on the effect of the revised rules on
competition in radio. The Company is unable to predict if or when such laws,
regulations or policies might be adopted and implemented and, if implemented,
the effect they will have on the radio representation industry or the future
results of the Company's operations.
Notwithstanding these considerations, the Company believes that it is also
possible that larger station groups may be more likely than single station
owners to pursue national spot advertising and to do so through rep firms. As
individual stations become acquired by large station groups, additional
commercial inventory would likely become available for a national spot rep
firm to sell. The Company believes that, to date, it has benefitted from this
concentration among broadcasters, in part because of a parallel concentration
within the radio representation industry. There were 16 major national spot
radio representation firms in 1980, and there are currently only two.
Fraudulent Conveyance Considerations
A substantial portion of the proceeds from the sale of the Notes was used to
refinance then outstanding indebtedness and to redeem preferred stock and
associated shares of common stock. Under relevant federal and state fraudulent
conveyance statutes, if a court in a bankruptcy, reorganization or
rehabilitation case or similar proceeding or a lawsuit by or on behalf of
unpaid creditors of the Company were to find that, at the time the Notes were
issued, (i) the Company issued the Notes with the intent of hindering,
delaying or defrauding current or future creditors or (ii) the Company
received less than reasonably equivalent value or fair consideration for
issuing the Notes and the Company (A) was insolvent or was rendered insolvent
by reason of the Financing Transactions or such related transactions, (B) was
engaged, or about to engage, in a business or transaction for which its assets
constituted unreasonably small capital, (C) intended to incur, or believed
that it would incur, debts beyond its ability to pay as such debts matured (as
all of the following terms are defined in or interpreted under such fraudulent
conveyance statutes) or (D) was a defendant in an action for money damages, or
had a judgment for money damages docketed against it (if, in either case,
after final judgment, the judgment is unsatisfied), such court could avoid or
subordinate the Exchange Notes issued in exchange for the Notes to presently
existing and future indebtedness of the Company and take other action
detrimental to the rights of the holders of the Exchange Notes, including,
under the certain circumstances, invalidating the Exchange Notes.
The Company's obligations under the Exchange Notes will be guaranteed by all
of its subsidiaries. In connection with the Financing Transactions, the
Guarantors incurred substantial indebtedness, including the indebtedness under
the Guarantors' guarantees of the Notes and guarantee of the obligations under
the New Credit Facility. If, under relevant federal and state fraudulent
conveyance statutes in a bankruptcy, reorganization or rehabilitation case or
similar proceeding or a lawsuit by or on behalf of unpaid creditors of the
Company or the Guarantors, a court were to find that, at the time such
guarantees were issued, (i) the Guarantors issued such
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guarantees with the intent of hindering, delaying or defrauding current or
future creditors or (ii) the Guarantors received less than reasonably
equivalent value or fair consideration for issuing such guarantees and a
Guarantor (A) was insolvent or was rendered insolvent by reason of the
Financing Transactions and/or such related transactions, (B) was engaged, or
about to engage, in a business or transaction for which its assets constituted
unreasonably small capital, (C) intended to incur, or believed that it would
incur, debts beyond its ability to pay as such debts matured (as all of the
following terms are defined in or interpreted under such fraudulent conveyance
statutes) or (D) was a defendant in an action for money damages, or had a
judgment for money damages docketed against it (if, in either case, after
final judgment, the judgment is unsatisfied), such court could avoid or
subordinate the Subsidiary Guarantees issued in exchange for the original
guarantees to presently existing and future indebtedness of the Guarantors and
take other action detrimental to the rights of the holders of the Exchange
Notes and the Subsidiary Guarantees, including, under certain circumstances,
invalidating the Subsidiary Guarantees. Among other things, a legal challenge
of a Subsidiary Guarantee on fraudulent conveyance grounds may focus on the
benefits, if any, realized by such Guarantor as a result of the issuance by
the Company of the Exchange Notes. To the extent the Subsidiary Guarantee is
voided as a fraudulent conveyance or held unenforceable for any other reason,
the holders of the Exchange Notes would cease to have any claim in respect of
such Guarantor and would be creditors solely of the Company. The Indenture
pursuant to which the Notes will be issued will, however, contain a savings
clause pursuant to which the obligations of any Guarantor will be limited to
the maximum amount as will, after giving effect to such maximum amount and all
other contingent and fixed liabilities of such Guarantor that are relevant
under such laws, and after giving effect to any collections from, rights to
receive contribution from or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other Guarantor, result in the
obligations of such Guarantor not constituting a fraudulent conveyance or
transfer.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the federal or local law that is being applied in any such
proceeding. Generally, however, the Company or the Guarantors would be
considered insolvent if, at the time it incurred the indebtedness constituting
the Notes or the original guarantees, either (i) the fair market value (or
fair saleable value) of its assets was less than the amount required to pay
its total existing debts and liabilities (including the probable liability on
contingent liabilities) as they become absolute and matured or (ii) it was
incurring debts beyond its ability to pay as such debts mature.
The Company's Board of Directors and management believe that at the time of
the issuance of the Notes and the original guarantees, as well as at the time
of issuance of the Exchange Notes and the Subsidiary Guarantees, the Company
and the Guarantors (i)(A) were and will be neither insolvent nor rendered
insolvent thereby, (B) had and will have sufficient capital to operate their
respective businesses effectively and (C) were and will be incurring debts
within their respective abilities to pay as the same mature or become due and
(ii) had and will have sufficient resources to satisfy any probable money
judgment against them in any pending action. There can be no assurance,
however, that such beliefs will prove to be correct or that a court passing on
such questions would reach the same conclusions.
Possibility of Default Upon a Change of Control
The New Credit Facility prohibits the Company from purchasing any of the
Exchange Notes and also provides that certain change of control events with
respect to the Company would constitute a default under the New Credit
Facility. Any future credit agreements or other agreements relating to
indebtedness to which the Company becomes a party may contain similar
restrictions and provisions. In the event a Change of Control (as defined in
the Indenture) occurs at a time when the Company is prohibited from purchasing
the Exchange Notes, the Company could seek the consent of its lenders to the
purchase of the Exchange Notes or could attempt to refinance the borrowings
that contain such prohibition. If the Company does not obtain such a consent
or repay such borrowings, the Company will remain prohibited from purchasing
the Exchange Notes by the relevant Senior Indebtedness agreements. In such
case, the Company's failure to purchase the tendered Exchange Notes would
constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the
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New Credit Facility and/or other Senior Indebtedness. In such circumstances,
the subordination provisions in the Indenture would then restrict interest
payments to the holders of the Exchange Notes. Furthermore, no assurance can
be given that the Company will have sufficient resources to satisfy its
repurchase obligation with respect to the Exchange Notes following a Change of
Control. See "Description of Exchange Notes."
Absence of Public Market for the Exchange Notes
The Exchange Notes are being offered to the holders of the Series A Notes.
The Series A Notes were offered and sold in June 1998 (i) to "Qualified
Institutional Buyers" (as defined in Rule 144A under the Securities Act) and
(ii) outside the United States in reliance on Regulation S under the
Securities Act and are eligible for trading in the PORTAL market.
The Exchange Notes will be a new class of securities for which there
currently is no established trading market. Although the Exchange Notes will
generally be permitted to be resold or otherwise transferred by non-affiliates
of the Company without compliance with the registration requirements under the
Securities Act, the Company does not intend to apply for listing of the
Exchange Notes on any national securities exchange or for quotation of the
Exchange Notes on any automated dealer quotation system. Although BancBoston
Securities Inc. and Loewenbaum & Company Incorporated have informed the
Company that they currently intend to make a market in the Exchange Notes,
they are not obligated to do so, and any such market-making may be
discontinued at any time without notice. The liquidity of any market for the
Exchange Notes will depend upon the number of holders of the Exchange Notes,
the interest of securities dealers in making a market in the Exchange Notes
and other factors. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Exchange Notes. If an active
trading market for the Exchange Notes does not develop, the market price and
liquidity of the Exchange Notes may be adversely affected. If the Exchange
Notes are traded, they may trade at a discount from their initial offering
price, depending upon prevailing interest rates, the market for similar
securities, the performance of the Company and certain other factors. The
liquidity of, and trading markets for, the Exchange Notes may also be
adversely affected by general declines in the market for non-investment grade
debt. Such declines may adversely affect the liquidity of, and trading markets
for, the Exchange Notes independent of the financial performance of, or
prospects for, the Company.
Restrictions on Transfer
The Series A Notes were offered and sold by the Company in a private
offering exempt from registration pursuant to the Securities Act and have been
resold pursuant to Rule 144A and Regulation S and other exemptions under the
Securities Act. As a result, the Series A Notes may not be reoffered or resold
by purchasers except pursuant to an effective registration statement under the
Securities Act or pursuant to an applicable exemption from such registration,
and the Series A Notes are legended to restrict transfer as aforesaid. Each
Holder (other than any Holder who is an affiliate or promoter of the Company)
who duly exchanges Series A Notes for Exchange Notes in the Exchange Offer
will receive Exchange Notes that are freely transferable under the Securities
Act. Holders who participate in the Exchange Offer should be aware, however,
that if they accept the Exchange Offer for the purpose of engaging in a
distribution, the Exchange Notes may not be publicly reoffered or resold
without complying with the registration and prospectus delivery requirements
of the Securities Act. As a result, each Holder accepting the Exchange Offer
will be deemed to have represented, by its acceptance of the Exchange Offer,
that it acquired the Exchange Notes in the ordinary course of business and
that it is not engaged in, and does not intend to engage in, a distribution of
the Exchange Notes. If existing Commission interpretations permitting free
transferability of the Exchange Notes following the Exchange Offer are changed
prior to consummation of the Exchange Offer, the Company will use its best
efforts to register the Series A Notes for resale under the Securities Act.
See "Summary--The Exchange Offer" and "Description of the Exchange Notes--
Registration Rights; Liquidated Damages."
The Series A Notes currently may be sold pursuant to the restrictions set
forth in Rule 144A, Rule 501(a) (1), (2), (3) or (7) or Regulation S under the
Securities Act or pursuant to another available exemption under the Securities
Act without registration under the Securities Act. To the extent that Series A
Notes are tendered and accepted in the Exchange Offer, the trading market for
the untendered and tendered but unaccepted Series A Notes could be adversely
affected.
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Exchange Offer Procedures
Issuance of the Exchange Notes for Series A Notes pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of such
Series A Notes, a properly completed, duly executed Letter of Transmittal and
all other required documents. Therefore, Holders desiring to tender their
Series A Notes in exchange for Exchange Notes should allow for sufficient-time
to ensure timely delivery. The Company is under no duty to give notification
of defects or irregularities with respect to the tenders of Series A Notes for
exchange. Any Series A Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to
be subject to the existing restrictions upon transfer thereof and, upon
consummation of the Exchange Offer, the registration rights under the
Registration Rights Agreement generally will terminate. In addition, any
Holder who tenders pursuant to the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale. Each broker-dealer that receives Exchange Notes
for its own account in exchange for Series A Notes, where such Series A Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes. See "The Exchange
Offer."
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THE EXCHANGE OFFER
The following discussion sets forth or summarizes what the Company believes
are the material terms of the Exchange Offer, including those set forth in the
Letter of Transmittal distributed with this Prospectus. This summary is
qualified in its entirety by reference to the full text of the documents
underlying the Exchange Offer, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and are
incorporated by reference herein.
Purpose and Effect of the Exchange Offer
In connection with the sale of the Series A Notes pursuant to the Purchase
Agreement, dated June 29, 1998 (the "Purchase Agreement"), among the Company,
the Guarantors and the Initial Purchasers, the Initial Purchasers became
entitled to the benefits of the Registration Rights Agreement, dated as of
July 2, 1998, among the Company, the Guarantors and the Initial Purchasers
(the "Registration Rights Agreement").
Under the Registration Rights Agreement, the Company and the Guarantors
agreed to (a) file a registration statement in connection with a registered
exchange offer within 60 days after July 2, 1998, the date the Series A Notes
were issued (the "Issue Date"), (b) use best efforts to cause such
registration statement to become effective under the Securities Act within 120
days of the Issue Date, (c) use best efforts to keep such registration
statement effective until the closing of the Exchange Offer and (d) use best
efforts to cause such registered Exchange Offer to be consummated within 30
days after the effective date of such registration statement. Subject to
limited exceptions, the Exchange Offer being made hereby, if commenced and
consummated within such applicable time periods, will satisfy those
requirements under the Registration Rights Agreement. In such event, the
Series A Notes which are not properly tendered for exchange would remain
outstanding and would continue to accrue interest, but would not retain any
rights under the Registration Rights Agreement. Holders of Series A Notes
seeking liquidity in their investment would have to rely on exemptions to
registration requirements under the securities laws, including the Securities
Act. A copy of the Registration Rights Agreement has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. The term
"Holder" with respect to the Exchange Offer means any person in whose name the
Series A Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder.
Because the Exchange Offer is for any and all Series A Notes, the principal
amount of Series A Notes tendered and exchanged in the Exchange Offer will
reduce the principal amount of Series A Notes outstanding. Following the
consummation of the Exchange Offer, Holders who did not tender their Series A
Notes generally will not have any further registration rights under the
Registration Rights Agreement, and such Series A Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market, if any, for such Series A Notes could be adversely affected. The
Series A Notes are currently eligible for sale pursuant to Rule 144A, Rule
501(a) (1), (2), (3) or (7) or Regulation S through the PORTAL Market. Because
the Company anticipates that most Holders of Series A Notes will elect to
exchange such Series A Notes for Exchange Notes due to the absence of
restrictions on the resale of Exchange Notes under the Securities Act, the
Company anticipates that the liquidity of any market for any Series A Notes
remaining after the consummation of the Exchange Offer may be substantially
limited. See "Description of Exchange Notes--Registration Rights; Liquidated
Damages" and "Risk Factors--Absence of Public Market for the Exchange Notes;
Restrictions or Transfer."
Terms of the Exchange Offer
Upon the terms and conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal, the Company will accept all Series A Notes
properly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of outstanding
Series A Notes accepted in the Exchange Offer. Holders may tender some or all
of their Series A Notes pursuant to the Exchange Offer.
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The form and terms of the Exchange Notes are the same as the form and terms
of the Series A Notes except that (i) the Exchange Notes have been registered
under the Securities Act and thus will not bear legends restricting the
transfer thereof and (ii) the holders of Exchange Notes generally will not be
entitled to certain rights under the Registration Rights Agreement, which
rights generally will terminate upon consummation of the Exchange Offer. The
Exchange Notes will evidence the same debt as the Series A Notes and will be
entitled to the benefits of the Indenture.
Holders of Series A Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer.
The Company shall be deemed to have accepted validly tendered Series A Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
of Series A Notes for the purpose of receiving the Exchange Notes from the
Company and delivering Exchange Notes to such Holders.
If any tendered Series A Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein, the
certificate for any such unaccepted Series A Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders of Series A Notes who tender pursuant to the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the
instructions in the Transmittal Letter, transfer taxes with respect to the
exchange of Series A Notes pursuant to the Exchange Offer. The Company will
pay all charges and expenses, other than certain applicable taxes, in
connection with the Exchange Offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The Exchange Offer shall remain open for acceptance for a period of not less
than 20 business days (the "Exchange Period") . The Expiration Date will be
5:00 p.m., New York City time, on , 1999, unless the Company, in its
sole discretion, extends the Exchange Offer, in which case the Expiration Date
will be the latest business day to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the record
Holders an announcement thereof, each prior to 9:00 a.m., New York City time,
on the next business day after the previously scheduled Expiration Date. Such
announcement may state that the Company is extending the Exchange Offer for a
specified period of time.
The Company reserves the right (i) to delay accepting any Series A Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not accept
Series A Notes not previously accepted if any of the conditions set forth
below under "Conditions" shall have occurred and shall not have been waived by
the Company, by giving oral or written notices of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written
notice thereof. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, the Company will promptly disclose
such amendment in a manner reasonably calculated to inform the Holders of such
amendment, and the Company will extend the Exchange Offer for a period of five
to ten business days, depending upon the significance of the amendment and the
manner of disclosure to Holders, if the Exchange Offer would otherwise expire
during such five-to-ten business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely
release to the Dow Jones News Service or other comparable service.
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Interest on the Exchange Notes
Interest on the Exchange Notes is payable semi-annually in arrears on
January 1 and July 1 of each year at the rate of 10% per annum. The Exchange
Notes will bear interest from July 2, 1998, the date of issuance of the Series
A Notes, or the most recent interest payment date to which interest on such
Series A Notes has been paid, whichever is later. Accordingly, Holders of
Series A Notes that are accepted for exchange will not receive interest that
is accrued but unpaid on the Series A Notes at the time of tender, but such
interest will be payable in respect of the Exchange Notes delivered in
exchange for such Series A Notes on the first interest payment date after the
Expiration Date.
Procedures for Tendering
Only a Holder of Series A Notes may tender Series A Notes pursuant to the
Exchange Offer. To tender pursuant to the Exchange Offer, a Holder must
complete, sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by instruction 4 of the
Letter of Transmittal, and mail or otherwise deliver such Letter of
Transmittal or such facsimile, or an Agent's Message (as defined below) in the
case of a book- entry transfer, together with the Series A Notes and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. Delivery of the Series A Notes may be made by
book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the Exchange
Agent prior to the Expiration Date. The term "Agent's Message" means a
message, transmitted by the Book-Entry Transfer Facility to, and received by,
the Depositary and forming a part of a Book-Entry Confirmation, which states
that such Book-Entry Transfer Facility has received an express acknowledgment
from the participant in such Book-Entry Transfer Facility tendering the Notes
which are the subject of such Book-Entry Confirmation, that such participant
has received and agrees to be bound by the terms of the Letter of Transmittal,
and that the Company may enforce such agreement against such participant.
The tender by a Holder of Series A Notes and the acceptance thereof by the
Company will constitute an agreement between such Holder and the Company in
accordance with the terms and subject to the conditions set forth in the
Letter of Transmittal.
Holders of the Series A Notes that are tendering by book-entry transfer to
the Exchange Agent's account at the Depository Trust Company ("DTC") can
execute the tender through the DTC Automated Tender Offer Program ("ATOP") for
which the transaction will be eligible. DTC participants should transmit their
acceptance to DTC, which will verify the acceptance and execute a book-entry
delivery to the Exchange Agent's account at DTC. DTC will then send an Agent's
Message to the Exchange Agent for its acceptance. DTC participants may also
accept the Exchange Offer by submitting a notice of guaranteed delivery
through ATOP.
THE METHOD OF DELIVERY OF SERIES A NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR SERIES A NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT SUCH TENDER FOR SUCH HOLDERS.
Any beneficial Holder whose Series A Notes are registered in the name of
such Holder's broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender should contact such registered holder promptly and
instruct such registered holder to tender on his behalf. If such beneficial
Holder wishes to tender on such beneficial Holder's behalf, such beneficial
Holder must, prior to completing and executing the Letter of Transmittal and
delivering his Series A Notes, either make appropriate arrangements to
register ownership of the Series A Notes in such Holder's name or obtain a
properly completed bond power from the registered holder. The transfer of
record ownership may take considerable time.
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Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Exchange Act (an "Eligible Institution") unless the
Series A Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantees must be by an Eligible
Institution.
If the Letter of Transmittal is signed by a person other than the registered
Holder of any Series A Notes listed therein, such Series A Notes must be
endorsed or accompanied by appropriate bond powers and a proxy which
authorizes such person to tender the Series A Notes on behalf of the
registered Holder, in each case signed as the name of the registered Holder or
Holders appears on the Series A Notes with the signature thereon guaranteed by
an Eligible Institution.
If the Letter of Transmittal or any Series A Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by the
Company, provide evidence satisfactory to the Company of their authority to so
act must be submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Series A Notes at the DTC for the purpose of facilitating the Exchange Offer,
and subject to the establishment thereof, any financial institution that is a
participant in the DTC may make book-entry delivery of the Series A Notes by
causing the DTC to transfer such Series A Notes into the Exchange Agent's
account with respect to the Series A Notes in accordance with the DTC's
procedures for such transfers. Although delivery of the Series A Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
DTC, a Letter of Transmittal properly completed and duly executed with any
required signature guarantee and all other required documents must in each
case be transmitted to and received or confirmed by the Exchange Agent at its
address set forth below on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to the DTC
does not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Series A Notes and withdrawal of tendered
Series A Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Series A Notes not properly tendered or any Series
A Notes the Company's acceptance of which would, in the opinion of counsel for
the Company, be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to particular Series A Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including, the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Series A Notes must be cured within such time as
the Company determines. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Series A Notes, nor shall any of
them incur any liability for failure to give such notification. Tenders of
Series A Notes will not be deemed to have been made until such irregularities
have been cured or waived. Any Series A Notes received by the Exchange Agent
that are not properly tendered and as to which the defects or irregularities
have not been cured or waived will be returned without cost to such Holder by
the Exchange Agent to the tendering Holders of Series A Notes, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
Guaranteed Delivery Procedures
Holders who wish to tender their Series A Notes and (i) whose Series A Notes
are not immediately available or (ii) who cannot deliver their Series A Notes,
the Letter of Transmittal or any other required documents to the
22
<PAGE>
Exchange Agent (or comply with the procedures for book-entry transfer) prior
to the Expiration Date, may effect a tender if:
(i) the tender is made through an Eligible Institution;
(ii) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of the Series A Notes, the
certificate or registration number or numbers of such Series A Notes and
the principal amount of Series A Notes tendered, stating that the tender is
being made thereby, and guaranteeing that, within three business days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Series A Notes to be
tendered in proper form for transfer (or a confirmation of book-entry
transfer of such Series A Notes into the Exchange Agent's account at the
Depository) and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(iii) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Series A Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Series A Notes into the Exchange Agent's
account at the Depository) and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within three business
days after the Expiration Date.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Series A Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
To withdraw a tender of Series A Notes, a written or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at the address set
forth herein prior to 5:00 p.m., New York City time, on the Expiration Date.
Any such notice of withdrawal must (i) specify the name of the person having
deposited the Series A Notes to be withdrawn (the "Depositor"), (ii) identify
the Series A Notes to be withdrawn (including the certificate or registration
number(s) and principal amount of such Series A Notes, or, in the case of
notes transferred by book-entry transfer, the name and number of the account
at the DTC to be credited), (iii) be signed by the Depositor in the same
manner as the original signature on the Letter of Transmittal by which such
Series A Notes were tendered (including any required signature guarantees) or
be accompanied by documents of transfer sufficient to have the Trustee (as
defined herein) with respect to the Series A Notes register the transfer of
such Series A Notes into the name of the Depositor withdrawing the tender,
(iv) specify the name in which any such Series A Notes are to be registered,
if different from that of the Depositor and (v) include a statement that such
Holder is withdrawing such Holder's election to have such Series A Notes
exchanged. All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Series A
Notes withdrawn will be deemed not to have been validly tendered for purposes
of the Exchange Offer, and no Exchange Notes will be issued with respect
thereto unless the Series A Notes so withdrawn are validly retendered. Any
Series A Notes which have been tendered but which are not accepted for payment
will be returned to the Holder thereof without cost to such Holder as soon as
practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Series A Notes may be retendered by
following one of the procedures described under "Procedures for Tendering" at
any time prior to the Expiration Date.
Conditions
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange Exchange Notes for, any
Series A Notes, and may terminate or amend the Exchange Offer as provided
herein before the acceptance of such Series A Notes, if:
(i) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
23
<PAGE>
(ii) any governmental approval has not been obtained, which approval the
Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Series
A Notes and return all tendered Series A Notes to the tendering Holders, (ii)
extend the Exchange Offer and retain all Series A Notes tendered prior to the
expiration of the Exchange Offer subject, however, to the rights of Holders to
withdraw such Series A Notes (see "--Withdrawal of Tenders") or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Series A Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered Holders, and, depending upon the significance of
the waiver and the manner of disclosure to the registered Holders, the Company
will extend the Exchange Offer for a period of five to ten business days if
the Exchange Offer would otherwise expire during such five to ten business-day
period.
Exchange Agent
U.S. Bank Trust National Association as agent for Summit Bank has been
appointed as Exchange Agent for the Exchange Offer. Questions and requests for
assistance and requests for additional copies of this Prospectus or of the
Letter of Transmittal should be directed to the Exchange Agent addressed as
follows:
By Mail Facsimile Transmission By Hand:
(registered or certified (for eligible
mail recommended): institutions only): U.S. Bank Trust
National Association
U.S. Bank Trust (612) 244-1537 Fourth Floor
National Association Attn: Specialized Finance -- Bond Drop Window
P.O. Box 64485 180 East Fifth Street
St. Paul, Minnesota 55164-9549 St. Paul, Minnesota 55101
To Confirm by Telephone
or for Information Call:
(651) 244-1197 By Overnight Courier:
U.S. Bank Trust
National Association
Attn: Specialized Finance
180 East Fifth Street
St. Paul, Minnesota 55101
Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made,
however, by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however,
will pay the Exchange Agent reasonable and customary fees for their services
and will reimburse the Exchange Agent for their reasonable out-of-pocket
expenses in connection therewith and pay other registration expenses,
including fees and expenses of the Trustee, filing fees, blue sky fees and
printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Series A Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Series A Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of any person other than the person signing
the Letter of Transmittal, or if a transfer tax is imposed for
24
<PAGE>
any reason other than the exchange of Series A Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other person) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering Holder.
Accounting Treatment
The Exchange Notes will be recorded at the same carrying value as the Series
A Notes, which is the aggregate principal amount of the Series A Notes, as
reflected in the Company's accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized in
connection with the Exchange Offer. The cost of the Exchange Offer will be
deferred and amortized over the term of the Exchange Notes.
Resale of the Exchange Notes
Under existing Commission interpretations, the Exchange Notes will, in
general, be freely transferable after the Exchange Offer by any holder (other
than any such holder which is an "affiliate" of the Company within the meaning
of Rule 405 of the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that the
Exchange Notes acquired pursuant to the Exchange Offer are obtained in the
ordinary course of such holder's business, and such holder does not intend to
participate, and has no arrangement or understanding to participate, in the
distribution of such Exchange Notes.
Any holder who tenders pursuant to the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution of the
Exchange Notes may not rely on the position of the Staff of the Commission
enunciated in Exxon Capital Holdings Corporation (available May 13, 1988) or
Morgan Stanley & Co., Incorporated (available June 5, 1991) or similar
interpretive letters, but rather must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. In addition, any such resale transaction should
be covered by an effective registration statement containing the selling
security holders information required by Item 507 of Regulation S-K of the
Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Series A Notes acquired by such broker-dealer as a result of
market-making activities or other trading activities, may be a statutory
underwriter and must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Company has agreed, if
requested, for a period of one year from the date hereof, to make available a
prospectus meeting the requirements of the Securities Act to any such broker-
dealer for use in connection with any resale of any Exchange Notes acquired in
the Exchange Offer. A broker-dealer which delivers such a prospectus to
purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act and will be bound by the
provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations).
By tendering pursuant to the Exchange Offer, each Holder will represent to
the Company, among other things, that (i) the Exchange Notes acquired are
being obtained in the ordinary course of its business, (ii) neither the holder
nor any such other person has an arrangement or understanding with any person
to participate in the distribution of the Exchange Notes, and (iii) the holder
and any such other person acknowledge that if they participate in the Exchange
Offer for the purpose of distributing the Exchange Notes (a) they must, in the
absence of an exemption therefrom, comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale of
the Exchange Notes and cannot rely on the no-action letters referenced above
and (b) failure to comply with such requirements in such instance could result
in such holder incurring liability under the Securities Act for which such
holder is not indemnified by the Company. Further, by tendering in the
Exchange Offer, each holder that may be deemed an "affiliate" (as defined in
Rule 405 of the Securities Act) of the Company will represent to the Company
that such holder understands and acknowledges that the Exchange Notes may not
be offered for resale, resold or otherwise transferred by that Holder without
registration under the Securities Act or an exemption therefrom.
25
<PAGE>
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the Staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
Consequences of Failure to Exchange
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of Series A Notes who do not tender their Series A Notes generally
will not have any further registration rights under the Registration Rights
Agreement or otherwise. Accordingly, any Holder that does not exchange such
Holder's Series A Notes for Exchange Notes will continue to hold the
untendered Series A Notes and will be entitled to all the rights and
limitations applicable thereto under the Indenture, except to the extent that
such rights or limitations, by their terms, terminate or cease to have further
effectiveness as a result of the Exchange Offer.
The Series A Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Series A
Notes may be resold only (i) to the Company (upon redemption thereof or
otherwise), (ii) pursuant to an effective registration statement under the
Securities Act, (iii) so long as the 144A Notes are eligible for resale
pursuant to Rule 144A under the Securities Act, to a Qualified Institutional
Buyer in a transaction meeting the requirements of Rule 144A, (iv) outside the
United States to a foreign person pursuant to the exemption from the
registration requirements of the Securities Act provided by Regulation S
thereunder, (v) pursuant to an exemption from registration under the
Securities Act provided by Rule 144 thereunder (if available) or Rule 501 (a)
(1), (2), (3) or (7) or (vi) to an Accredited Investor in a transaction exempt
from the registration requirements of the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States or other applicable jurisdiction. See "Risk Factors--Restrictions on
Transfer."
Other
Participation in the Exchange Offer is voluntary, and Holders should
carefully consider whether to accept. Holders are urged to consult their
financial and tax advisors in making their own decision on what action to
take.
The Company may in the future seek to acquire untendered Series A Notes, to
the extent permitted by applicable law, in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plans to acquire any Series A Notes that are not tendered in the
Exchange Offer or to file a registration statement to permit resales of any
untendered Series A Notes.
In any state where the Exchange Offer does not fall under a statutory
exemption to the blue sky rules, the Company has filed the appropriate
registrations and notices, and has made the appropriate requests, to permit
the Exchange Offer to be made in such state.
Federal Income Tax Consequences of the Exchange Offer
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
Department regulations (the "Regulations") and existing administrative
interpretations and court decisions. There can be no assurance that the
Internal Revenue Service (the "IRS") will not take a contrary view, and no
ruling from the IRS has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to Holders. Certain Holders of the Series A Notes (including
insurance companies, tax-exempt organizations, financial institutions, broker-
dealers, foreign corporations and persons who are not citizens or residents of
the United States) may be subject to special rules not discussed below. Each
Holder of Series A Notes should consult his, her or its own tax advisor as to
the particular tax consequences of exchanging such Holder's Series A Notes for
Exchange Notes, including the applicability and effect of any state, local or
foreign tax laws.
26
<PAGE>
The issuance of the Exchange Notes to Holders of the Series A Notes pursuant
to the terms set forth in this Prospectus will not constitute an exchange for
United States federal income tax purposes because such exchange does not
represent a significant modification of the debt instruments. Consequently, no
gain or loss would be recognized by Holders of the Series A Notes upon receipt
of the Exchange Notes, and ownership of the Exchange Notes will be considered
a continuation of ownership of the Series A Notes. For purposes of determining
gain or loss upon the subsequent sale or exchange of the Exchange Notes, a
Holder's basis in the Exchange Notes should be the same as such Holder's basis
in the Series A Notes exchanged therefor. A Holder's holding period for the
Exchange Notes should include the Holder's holding period for the Series A
Notes exchanged therefor. The issue price, original issue discount inclusion
and other tax characteristics of the Exchange Notes should be identical to the
issue price, original issue discount inclusion and other tax characteristics
of the Series A Notes exchanged therefor.
See also "United States Federal Tax Considerations for Non-United States
Holders."
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes. In consideration for issuing the Exchange Notes as
contemplated in this Prospectus, the Company will receive in exchange Notes in
like principal amount, which will be canceled and as such will not result in
any increase in indebtedness of the Company.
The net proceeds to the Company from the Offering were approximately $96.0
million after deducting commissions and other expenses payable by the Company.
The Company applied the largest portion of the net proceeds of the Offering to
fund the Financing Transactions, and the balance will be used for working
capital, primarily for the acquisition of additional representation contracts,
and general corporate purposes.
The Financing Transactions included (i) the Offering and the sale of the
Notes, (ii) the repayment of all outstanding obligations under the Old Credit
Facility and the establishment of the New Credit Facility providing for
working capital loans of up to $10.0 million, subject to the fulfillment of
certain financial ratios and compliance with certain other covenants, (iii)
the repurchase of all of the Company's outstanding shares of its Series A
Preferred Stock, at face value plus accrued dividends, and certain associated
shares of its Common Stock held by Providence, for a total purchase price of
$14.1 million, and (iv) the repurchase of all of the Company's outstanding
shares of its Series B Preferred Stock, at face value plus accrued dividends,
and certain associated shares of Common Stock, from certain members of
management, for a total purchase price of $2.6 million. As a result of the
Financing Transactions, the Company is owned by Mr. Guild and the Company's
management and employees, and there is no outstanding preferred stock.
The Old Credit Facility bore interest at various rates (8.8% per annum on a
weighted average basis at December 31, 1997) and was scheduled to mature at
various times through December 31, 2003. The Series A Preferred Stock and the
Series B Preferred Stock accrued dividends at the rate of 10.0% per annum,
which were payable by the Company in cash or in kind in the form of additional
shares of such preferred stock with a face value equal to the cash amount of
the accrued dividend. The Company paid all dividends on the Series A Preferred
Stock and the Series B Preferred Stock in kind. Providence had the right to
require the Company to repurchase all of the Series A Preferred Stock and the
57,117 shares of the Company's Common Stock held by Providence on May 1, 1999.
The Series B Preferred Stock was mandatorily redeemable on the earlier of the
date on which all of the Series A Preferred Stock is redeemed or November 1,
2003. See "Certain Transactions and Relationships."
27
<PAGE>
CAPITALIZATION
The following table sets forth the historical consolidated capitalization of
the Company at September 30, 1998. The table should be read in conjunction
with "Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements, including the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At
September 30, 1998
Unaudited
------------------
Actual
------------------
(dollars in thousands)
<S> <C> <C>
Cash and cash equivalents................................ $31,260
=======
Long-term debt (including current portion):
Credit Facility(1)..................................... --
Senior subordinated notes.............................. 100,000
Capitalized lease obligations.......................... 233
-------
Total long-term debt (including current portion)..... 100,233
-------
Shareholders' deficit
Common stock........................................... 14
Additional paid-in-capital............................. 410
Retained earnings...................................... 1,050
Treasury stock......................................... (1,997)
-------
Total shareholders' deficit.......................... (523)
-------
Total capitalization................................. $99,710
=======
</TABLE>
- --------
(1) The Credit Facility provides for up to $10.0 million in borrowing
availability.
28
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data of the
Company as of and for the years ended December 31, 1993, 1994, 1995, 1996 and
1997 was derived from audited consolidated financial statements of the
Company. The summary historical consolidated financial data as of and for the
nine months ended September 30, 1997 and 1998 was derived from the unaudited
consolidated financial statements of the Company. In the opinion of
management, such interim financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information presented for such periods. Due to the seasonal nature of the
Company's business, the results of operations for the nine months ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. The following data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Commission revenue...... $59,505 $66,559 $70,306 $72,858 $87,096 $ 61,483 $ 62,943
Contract termination
revenue................ 3,558 10,918 12,194 18,876 26,586 22,768 27,794
------- ------- ------- ------- ------- -------- --------
Total revenues.......... 63,063 77,477 82,500 91,734 113,682 84,251 90,737
Operating expenses:
Selling expenses...... 43,330 47,130 48,240 53,251 63,135 48,158 46,913
General and
administrative
expenses............. 10,315 11,186 14,005 9,626 12,541 8,323 8,286
Depreciation and
amortization(1)...... 7,853 9,929 13,073 20,988 28,954 21,220 25,577
------- ------- ------- ------- ------- -------- --------
Total operating
expenses........... 61,498 68,245 75,318 83,865 104,630 77,701 80,776
------- ------- ------- ------- ------- -------- --------
Operating income...... 1,565 9,232 7,182 7,869 9,052 6,550 9,961
Interest expense,
net(2)................. 3,006 3,280 3,385 3,911 3,779 2,705 4,447
------- ------- ------- ------- ------- -------- --------
Income (loss) before
provision for income
taxes.................. (1,441) 5,952 3,797 3,958 5,273 3,845 5,514
Provision for income
taxes.................. 327 422 320 400 2,237 1,570 2,426
------- ------- ------- ------- ------- -------- --------
Net income (loss)....... (1,768) 5,530 3,477 3,558 3,036 2,275 3,088
------- ------- ------- ------- ------- -------- --------
Preferred stock dividend
requirements and
redemption premium(3).. 138 903 1,159 1,364 1,590 1,192 5,031
------- ------- ------- ------- ------- -------- --------
Net income (loss)
applicable to common
shareholders........... $(1,906) $ 4,627 $ 2,318 $ 2,194 $ 1,446 $ 1,083 $ (1,943)
======= ======= ======= ======= ======= ======== ========
Balance Sheet Data (at
end of period):
Cash and cash
equivalents............ $ 1,852 $ 5,208 $ 1,752 $ 2,653 $ 1,419 $ 4,027 $ 31,260
Total assets............ 41,934 56,375 76,881 93,930 141,030 126,412 177,173
Long-term debt
(including current
portion)............... 24,135 24,227 35,221 34,235 44,425 40,206 100,233
Redeemable preferred
stock.................. 1,636 2,639 3,970 5,334 6,924 6,418 --
Redeemable common
stock.................. 3,502 3,678 4,132 4,662 4,522 4,662 --
Shareholders' equity
(deficit).............. (6,095) (2,589) 71 324 1,521 1,070 (523)
Other Financial Data:
EBITDA(4)............... $ 9,418 $19,161 $20,255 $28,857 $38,006 $ 27,770 $ 35,538
EBITDA margin........... 14.9% 24.7% 24.6% 31.5% 33.4% 33.0% 39.2%
Capital expenditures.... 1,745 1,283 1,689 1,021 792 537 780
Net cash flows from
operating activities... 11,496 15,880 14,001 35,982 23,821 18,101 15,148
Net cash flows from
investing activities... (3,055) (1,746) (5,199) (1,021) (792) (537) (780)
Net cash flows from
financing.............. (9,659) (10,778) (12,258) (24,060) (24,263) (16,190) 15,473
Ratio of earnings to
fixed charges(5)....... -- 2.24x 1.75x 1.69x 1.96x 1.97x 1.83x
Deficiency of earnings
to fixed charges(5).... 1,626 -- -- -- -- -- --
</TABLE>
(footnotes on following page)
29
<PAGE>
- --------
(1) Includes amortization of contract acquisition costs.
(2) Interest expense is shown net of interest income of $185, $99, $109, $138,
$109, $41 and $448 during the years ended December 31, 1993, 1994, 1995,
1996 and 1997 and the nine months ended September 30, 1997 and 1998,
respectively.
(3) Includes payment in excess of carrying value of $4,097 in conjunction with
the redemption of the preferred stock in July 1998.
(4) EBITDA represents income before interest, taxes, depreciation and
amortization. EBITDA does not represent net income or cash flows from
operations, as these terms are defined under generally accepted accounting
principles and should not be considered as an alternative to net income as
an indicator of the Company's operating performance or to cash flows as a
measure of liquidity. The Company has included EBITDA herein because it
understands that such information is used by certain investors as one
measure of an issuer's historical ability to service debt.
(5) Ratio/Deficiency of earnings to fixed charges represents income from
operations before fixed charges less interest expense and the imputed
interest factor of rent expense.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion is based upon and should be read in conjunction
with "Selected Consolidated Financial Data" and the Consolidated Financial
Statements, including the notes thereto, included elsewhere in this
Prospectus.
Certain statements contained in this Prospectus, including without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import, constitute "forward-looking
statements." Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, both domestic and
foreign; industry capacity; demographic changes; existing government
regulations and changes in, or the failure to comply with, government
regulations; liability and other claims asserted against the Company;
competition; the loss of any significant customers; changes in operating
strategy or development plans; the ability to attract and retain qualified
personnel; the significant indebtedness of the Company after the Financing
Transactions; and other factors referenced in this Prospectus. Certain of
these factors are discussed in more detail elsewhere in this Prospectus,
including, without limitation, under the captions "Summary," "Risk Factors"
and "Business." Given these uncertainties, prospective investors are cautioned
not to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce
the result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
General
The Company derives substantially all of its revenues from commissions on
sales of national spot radio advertising air time on behalf of radio stations
represented by the Company. Generally, national spot advertising time is
purchased by advertising agencies or media buying services retained by
advertisers to create advertising campaigns and to place advertising with
radio stations and other media. The Company receives commissions from its
client radio stations based on the national spot radio advertising billings of
the station, net of the standard advertising agency and media buying services
commissions (typically 15%). Commission rates are negotiated and set forth in
a client's representation contract. Since commissions are based on the prices
paid to radio stations for spots, the Company's revenue base is constantly
adjusted for inflation.
The Company's operating results generally are dependent on (i) increases and
decreases in the size of the total national spot radio advertising market,
(ii) changes in the Company's share of this market, (iii) acquisitions and
terminations of representation contracts and (iv) the Company's operating
expense levels. The effect of these factors on the Company's financial
condition and results of operations has varied from period to period.
Total United States national spot radio advertising annual revenues have
grown from approximately $1.1 billion to approximately $1.6 billion during the
five years ended December 31, 1997. The performance of the national spot radio
advertising market is influenced by a number of factors, including, but not
limited to, general economic conditions, consumer attitudes and spending
patterns, the share of total advertising spent on radio and the share of total
radio advertising represented by national spot radio.
The Company's share of the national spot advertising market changes as a
result of increases and decreases in the amount of national spot advertising
broadcast on the Company's client stations. Moreover, the Company's market
share increases as the Company acquires representation contracts with new
client stations, and decreases if current client station representation
contracts are terminated. Thus, the Company's ability to attract new clients,
while retaining existing clients, significantly affects its market share. In
this regard, the value of representation contracts which have been acquired or
terminated during the last few years has tended to increase, due to a number
of factors, including the consolidation of ownership in the radio broadcast
industry following the enactment of the Telecommunications Act of 1996.
Accordingly, in recent years, the Company's rep contract acquisition activity
has increased and the Company has devoted a significant amount of its
resources to acquiring
31
<PAGE>
representation contracts. At the same time, there has been an increase in the
amount of revenue received by the Company on the termination of representation
contracts. The decision to acquire a representation contract is based on the
market share opportunity presented and an analysis of the costs and net
benefits to be derived. The Company continuously seeks opportunities to
acquire additional representation contracts on attractive terms, while
maintaining its current clients. The Company's ability to acquire and maintain
representation contracts has had, and will continue to have, a significant
impact on its revenues and cash flows.
Following industry practice, the Company acts as the exclusive national rep
firm for each of its client radio stations pursuant to a written contract. If
a station terminates its contract prior to the scheduled termination date, the
station is obligated to pay the Company, as required by the contract or in
accordance with industry practice, an amount approximately equal to the
commissions the Company would have earned during the unexpired term of the
canceled contract, plus an additional two months of "spill over" commissions
(representing commissions earned on advertising placed or committed to prior
to the contract termination but broadcast thereafter). In practice, these
amounts are usually paid by the successor rep firm which signs a new contract
with the station and assumes the responsibility for payment to the former rep
firm. Such payments are usually made in equal monthly installments over a
period consisting of one-half the number of months remaining under the
terminated contract. For example, if the Company acquires the representation
contract of a station which is terminating its contract with a competing rep
firm with a remaining unexpired term of 12 months, the total obligation would
be 14 months of commissions payable in seven equal monthly installments.
The Company recognizes revenue resulting from the termination of a contract
with a client as of the effective date of the termination. In this regard,
when a contract is terminated, the unamortized portion, if any, of the expense
originally incurred on acquisition of such contract is written-off entirely.
Historically, these amounts have not been material. With respect to its entry
into a representation contract with a new client, the Company amortizes the
contract acquisition cost incurred in equal monthly installments over the life
of the new contract. As a result, the Company's operating income is affected,
negatively or positively, by the acquisition or loss of client stations.
The Company has been unable to identify a method to forecast any trends in
buyout activity, or in the amount of revenue or expense which will likely be
associated with buyouts during a particular period. Generally, the amount of
revenue resulting from the buyout of a representation contract depends on the
length of the remaining term of the contract and the revenue generated under
the contract during the 12 months preceding the date of termination (the
"trailing period"). The amount recognized by the Company as contract
termination revenue in any period is not, however, indicative of such revenue
that may be realized in any future period from contract terminations, because,
historically, the level of buyout activity has varied from period to period
and because the length of the remaining terms, and the commission revenue
generation, of the contracts which are terminated in any period also vary to a
considerable extent. Accordingly, while the consolidation of ownership in the
radio broadcast industry which has followed the enactment of the
Telecommunications Act of 1996 has increased buyout activity and amounts, the
impact of such activity on the Company's revenues and income is expected to be
uncertain, due to the variables of contract length and commission generation.
While the commission revenue generated under a representation contract
during a trailing period is used in the calculation of the payments to be made
by the Company on its acquisition of such contract, such revenue should not be
relied on as an indication of the future commission revenue to be generated by
the Company under that contract. Such revenue will depend on a number of
factors, including the amount of national spot advertising broadcast by the
station involved. This, in turn, will be affected by factors such as general
and local economic conditions, consumer attitudes and spending patterns, the
share of total advertising spent on radio and the share of total radio
advertising represented by national spot radio.
The Company's selling and corporate expense levels are dependent on
management decisions regarding operating and staffing levels and on inflation.
Selling expenses represent all costs associated with the Company's marketing,
sales and sales support functions. Corporate expenses include items such as
corporate management, corporate communications, financial services,
advertising and promotion expenses and employee benefit plan contributions.
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The Company's business normally follows the pattern of advertising
expenditures in general and is seasonal to the extent that radio and
television advertising spending increases during the fourth calendar quarter
in connection with the Christmas season and tends to be relatively weaker
during the first calendar quarter. Radio advertising generally increases
during the second and third quarters due to holiday-related advertising,
school vacations and back-to-school sales. In addition, radio also tends to
experience increases in the amount of advertising revenues as a result of
special events such as Presidential election campaigns. Furthermore, the level
of advertising revenues of radio stations, and therefore the level of revenues
of the Company, is susceptible to prevailing general and local economic
conditions and the corresponding increases or decreases in the budgets of
advertisers, as well as market conditions and trends affecting advertising
expenditures in specific industries.
Results of Operations
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
Commission Revenue. During the third quarter of 1998, commission revenue
increased slightly, 0.5%, to $24.9 million, from $24.8 million in the third
quarter of 1997. This increase was attributable primarily to a general
increase in national spot advertising on client stations, as revenue from new
client station representation contracts which became effective after the
second quarter of 1997 was offset in large part by the loss of representation
contracts, primarily with SFX Broadcasting, Inc. ("SFX"), which was acquired
by an affiliate of a competitor of the Company.
Contract Termination Revenue. Contract termination revenue increased by $0.1
million, or approximately 19.6%, in the third quarter of 1998, to $0.7
million, from $0.6 million in the comparable 1997 period.
Selling Expenses. Selling expenses during the third quarter of 1998 declined
approximately 8%, to $19 million, from $20.5 million during the third quarter
of 1997. The improvement was primarily due to the effect of cost reduction
programs initiated by the Company during 1997.
General and Administrative Expenses. General and administrative expenses
increased approximately $0.4 million, or 16%, to $2.9 million during the third
quarter of 1998 over the third quarter of 1997. The major factor in this
increase was the start-up costs related to the creation of a new division to
represent the ABC-owned stations (see "Business--Recent Developments").
Depreciation and Amortization. Depreciation and amortization decreased by
$0.7 million to $9.5 million, or 7.6%, in the third quarter of 1998, from
$10.2 million in the third quarter of 1997. This decrease was attributable to
the amortization of station representation contracts.
Operating Loss. Operating loss decreased by $2.2 million, or 27.6%, to $5.7
million, in the third quarter of 1998 compared with an operating loss of $7.9
million for the third quarter of 1997, for the reasons discussed above.
Interest Expense, Net. Interest expense, net increased $1.1 million to $2.2
million in the third quarter of 1998 from $1.1 million in the third quarter of
1997. This 100% increase primarily resulted from the interest on the $100.0
million of Series A Notes issued on July 2, 1998, offset by the $0.4 million
interest earned on temporary investments.
Benefit for Income Taxes. Benefit for income taxes increased to $3.5 million
in 1999 from $4.0 million in the third quarter 1997 as a result of the losses
for the periods.
Net Loss. The Company's net loss for the third quarter of 1998 declined by
$1.0 million as compared to the third quarter of 1997, for the reasons
discussed above.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
Commission Revenue. Commission revenue increased to $62.9 million, or 2.4%,
for the first nine months of 1998, from $61.5 million in the first nine months
of 1997. The increase was primarily attributable to a general
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increase in national spot advertising on client stations, as revenue from new
client station representation contracts which became effective after the
second quarter of 1997, was offset in large part by the loss of representation
contracts, primarily with SFX , which was acquired by an affiliate of a
competitor of the Company.
Contract Termination Revenue. Contract termination revenue increased $5.0
million, or approximately 22.0%, in the first nine months of 1998, to $27.8
million from $22.8 million in the first nine months of 1997, primarily as a
result of the loss of SFX representation, which group was acquired by an
affiliate of a competitor of the Company during the first quarter of 1998.
Selling Expenses. Selling expenses, for the first nine months of 1998
declined approximately 2.6%, to $46.9 million, from $48.2 million during the
comparable 1997 period. The improvement was primarily due to the effect of
cost reduction programs initiated by the Company during 1997.
General and Administrative Expenses. General and administrative expenses
were virtually unchanged, at $8.3 million, for the comparable nine-month
periods of 1998 and 1997.
Depreciation and Amortization. Depreciation and amortization increased by
$4.4 million for the first nine months of 1998, to $25.6 million, from $21.2
million during the comparable 1997 period. This 20.5% increase was
attributable to the amortization of new station representation contracts.
Operating Income. Operating income increased by $3.4 million, or 52.1%, for
the first nine months of 1998 compared with the comparable 1997 period in 1997
for the reasons discussed above.
Interest Expense, net. Interest expense, net increased $1.7 million, or
64.4%, to $4.4 million for the first nine months of 1998, compared to $2.7
million for the first nine months of 1997. This increase primarily resulted
from the interest on the $100.0 million Series A Notes issued July 2, 1998,
offset by the $0.4 million interest earned on temporary investments.
Provision for Income Taxes. Provision for income taxes for the first nine
months of 1998 increased to $2.4 million, from $1.6 million for the comparable
1997 period. This 54.5% increase was the result of an increase in the
Company's pretax income.
Net Income. The Company's net income for the first nine months of 1998
increased by $0.8 million, or 35.7%, to $3.1 million, from $2.3 million for
the first nine months of 1997 for the reasons discussed above.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Commission Revenues. Commission revenue increased $14.2 million, or 20.0%,
to $87.1 million during 1997 from $72.9 million in 1996. This increase was
caused primarily by the Company's entry into new representation contracts
during 1997 with (i) CBS stations and Jefferson-Pilot Corp. stations
previously represented by a subsidiary of CBS, Inc., (ii) Susquehanna stations
and (iii) radio stations acquired by Clear Channel, including stations
formerly owned by Paxson Communications Corp.
Contract Termination Revenue. Contract termination revenue increased $7.7
million during 1997 to $26.6 million, from $18.9 million in 1996. This 40.9%
increase reflected the fact that the value of representation contracts
acquired or terminated during the last few years has tended to increase, due
to a number of factors, including the consolidation of ownership in the radio
broadcast industry following the enactment of the Telecommunications Act of
1996. During 1997, approximately 160 client stations terminated rep contracts
with the Company which generated in aggregate approximately $7.0 million of
commission revenue during the trailing periods.
Selling Expenses. Selling expenses increased approximately 18.6% in 1997, to
$63.1 million, from $53.3 million during the prior year. This $9.8 million
increase was related to the increase in commission revenue in the same period,
both due to the Company's entry into new representation contracts, as well as
an increase in management incentive compensation of $1.5 million payable on
the achievement of specific goals.
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General and Administrative Expenses. General and administrative expenses for
1997 were $12.5 million, an increase of $2.9 million, or 30.3%, over 1996. The
major factors in this increase were a one-time cost of $1.4 million to
relocate the Company's accounting and finance functions from New York to
Florida as part of the Company's cost reduction programs and the increased
costs attendant on servicing new representation contracts.
Depreciation and Amortization. Depreciation and amortization increased by
$8.0 million in 1997, to $29.0 million, from $21.0 million in 1996. This 38.0%
increase was due to the amortization of new representation contracts. The
Company acquired, in 1997, representation contracts with approximately 360 new
stations, which contracts are believed by the Company to have generated an
aggregate of approximately $14.0 million of commission revenue during the
trailing periods preceding their acquisition.
Operating Income. Operating income increased $1.2 million, or 15.0%, to $9.0
million in 1997, from $7.9 million in 1996, for the reasons discussed above.
Interest Expense, net. Interest expense, net declined approximately $0.1
million to $3.8 million in 1996, from $3.9 million in 1997 due to slightly
lower average borrowings for the year.
Provision for Income Taxes. Provision for income taxes for 1997 increased by
$1.8 million, to $2.2 million, from $0.4 million in 1996, as a result of the
utilization of the valuation allowance reversal in 1996.
Net Income. The Company's net income decreased $0.5 million to $3.0 million
in 1997 as compared to $3.5 million in 1996, for the reasons discussed above.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Commission Revenue. Commission revenue increased 3.6%, or $2.6 million, in
1996, to $72.9, from $70.3 million in 1995. This net increase was attributable
to a general increase in national spot advertising and the addition in 1996 of
representation contracts with Clear Channel stations, which was partially
offset by the termination of the Company's representation contract with
Shamrock Broadcasting Inc. earlier in the year.
Contract Termination Revenue. Contract termination revenue increased $6.7
million in 1996, to $18.9 million, from $12.2 million in 1995. This 54.8%
increase was primarily attributable to the termination of the Shamrock
contract. In 1996, approximately 190 client stations terminated rep contracts
with the Company which generated in aggregate approximately $8.0 million of
commission revenue during the trailing periods.
Selling Expenses. Selling expenses increased approximately 10.4% to $53.3
million, in 1996 as compared to $48.2 million in 1995. This $5.1 million
increase was related to the increase in commission revenue in the same period
due to the Company's entry into new representation contracts. It was also
attributable to a realignment of internal operations, whereby divisional
executives were relieved of corporate-type responsibilities and were refocused
on full time sales, as well as an increase in management incentive
compensation of $0.4 million payable on the achievement of specific goals.
General and Administrative Expenses. General and administrative expenses in
1996 were $9.6 million, a decrease of $4.4 million, or 31.3% from 1995. The
major factors in this decrease were the internal realignment discussed above
and the recognition, in 1995, of $1.1 million in severance costs and stock
option extension compensation charges of $0.4 million.
Depreciation and Amortization. Depreciation and amortization increased by
$7.9 million in 1996, to $21.0 million, from $13.1 million in 1995. This
increase was due to the amortization of new station representation contracts.
The Company acquired, in 1996, representation contracts with 260 new stations,
which contracts are believed by the Company to have generated an aggregate of
approximately $8.0 million of commission revenue during the trailing periods
preceding their acquisition.
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Operating Income. Operating income increased $0.7 million, or 9.6%, to $7.9
million in 1996, as compared to $7.2 million in 1995, for the reason discussed
above.
Interest Expense, net. Interest expense, net increased $0.5 million to $3.9
million in 1996, from $3.4 million in 1995, due to higher borrowings,
partially offset by lower interest rates.
Provision for Income Taxes. Provision for income taxes remained virtually
unchanged as did income before taxes.
Net Income. The Company's net income was virtually unchanged for the reasons
discussed above.
Liquidity and Capital Resources
The Company's cash requirements have been primarily funded by cash provided
from operations and bank debt. Cash provided by operating activities for the
first nine months of 1998 amounted to $15.1 million, as compared to $18.1
million for the first nine months of 1997. Operating activities in 1997
provided cash of $23.8 million, as compared to $36.0 million in 1996. This
$12.2 million decrease in cash was primarily attributable to changes in
receivables pertaining to representation contract buyouts.
Net cash used in investing activities is attributable to capital
expenditures. Capital expenditures of $0.8 million, $0.5 million, $0.8 million
and $1.0 million for the first nine months of 1998 and 1997, and the 1997 and
1996 years, respectively, were primarily for computer equipment and upgrades.
Overall cash provided by financing activities of $15.5 million during the
first nine months of 1998 resulted from the Financing Transactions in 1998
offset by acquisitions of stations representation contracts. Cash used in
financing activities of $16.2 million during the first nine months of 1997 was
primarily attributable to acquisitions of station representation contracts
offset by the increased borrowings. Cash used in financing activities during
1997 and 1996 aggregated $24.3 million and $24.1 million, respectively,
primarily attributable to acquisitions of station representation contracts and
debt repayments offset by increased borrowings.
In general, as the Company acquires new representation contracts, it uses
more cash and, as its contracts are terminated, it receives additional cash.
For the reasons noted in "General" above, the Company is not able to predict
the amount of cash it will require for contract acquisitions, or the cash it
will receive on contract terminations, from period to period. The Company
believes, however, that, based on its historical performance, it will generate
sufficient cash from operations and borrowings to fund its foreseeable
contract acquisition payment requirements. For example, during the years 1995,
1996 and 1997, which was a period of significant expansion for the Company's
business, the amounts paid by the Company for contract acquisitions, net of
its receipts on contract terminations, were $5.7 million, $3.1 million and
$13.4 million, and the Company's cash resources were sufficient to fund these
payments.
During 1997 the Company entered into the Old Credit Facility Agreement which
provided for up to $55.0 million of borrowings, subject to the fulfillment of
certain financial ratios and compliance with certain other covenants and was
scheduled to mature on December 31, 2003. Fleet National Bank was the agent
for the lenders. The Old Credit Facility provided for mandatory reductions in
the lenders loan commitments on a quarterly basis, commencing October 1, 1998.
Interest was payable on borrowings at various rates, as selected by the
Company, based on either a "Base Rate" or a "Eurodollar Rate" (each as defined
in the Old Credit Facility), plus a margin ranging from 5/8% to 2 5/8%,
depending on the selected rate and the Company's "Total Leverage" (as defined
in the Old Credit Facility). At June 30, 1998, $51.0 million in borrowings
were outstanding under the Old Credit Facility. The proceeds of the Offering
were used, in part, to repay the Old Credit Facility.
As part of the Financing Transactions, on July 2, 1998, the Company entered
into a $10.0 million revolving credit facility (the "New Credit Facility")
with BankBoston, N.A. ("BankBoston") and Summit Bank ("Summit"). The term of
the New Credit Facility is six years. The lenders under the New Credit
Facility are BankBoston, Summit and any other lenders reasonably acceptable to
the Company, with BankBoston acting as
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administrative agent. The Company's and the Subsidiary Guarantors' obligations
under the New Credit Facility are secured by a first priority perfected lien
on all property and assets, tangible and intangible, of the Company and the
Guarantors, including a pledge by the Company of all capital stock and
membership interests held by it in the Guarantors. See "Description of New
Credit Facility."
The Company believes that its enhanced liquidity due to the Financing
Transactions, together with anticipated cash from continuing operations,
should be sufficient to fund its operations and anticipated needs for required
representation contract acquisition payments and to make required payments of
principal and interest under the New Credit Facility and 10.0% annual interest
payments on the Notes. The Company may not, however, generate sufficient cash
flow for these purposes or to repay the Notes at maturity. The Company's
ability to fund its operations and required contract buyout payments and to
make scheduled principal and interest payments will depend on its future
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond its control. The Company may also need to refinance all or a portion of
the Notes on or prior to maturity. There can be no assurance that the Company
will be able to effect any such refinancing on commercially reasonable terms
or at all.
Year 2000 Assessment
Many computer systems experience problems handling dates beyond the year
1999. Therefore, some computer hardware and software will need to be modified
prior to the Year 2000 in order to remain functional. During 1998, the Company
completed an assessment of its internal readiness to implement Year 2000
compliant systems on a timely basis. The Company currently utilizes software
systems for its accounting, billing and database management functions, among
others, which were developed by third parties or which the Company developed
using third party software development tools. These third parties have advised
the Company that such systems are Year 2000 compliant or, in some cases, will
be made Year 2000 compliant through the installation of software patches or
upgrades. The Company expects to complete implementation of all necessary
programming changes needed to make its systems Year 2000 compliant during the
first quarter of 1999 and does not believe that the related cost will have a
material adverse effect on the Company. The Company estimates that its
expenditures for Year 2000 compliance implementation during 1998 and 1999
could be $250,000 and $250,000, respectively. There can be no assurance,
however, that there will not be a delay in, or increased costs associated
with, the implementation of such changes, and any inability to implement such
changes could have a material adverse effect on the Company.
The Company has not completed its assessment of the Year 2000 compliance of
its radio station clients, nor of the possible consequences to the Company of
the failure of one or more of its radio station clients to become Year 2000
compliant on a timely basis. It is possible that if a substantial number of
the Company's radio station clients failed to implement Year 2000 compliant
billing or payment systems, for example, their payments to the Company of
commissions on the sale of radio advertising time might be disrupted, which
might adversely effect the Company's cash flow. The Company will discuss these
matters with its key radio station clients during 1998 and 1999 to attempt to
ascertain whether and to what extent such problems are likely to occur. It is
not clear, however, what, if any measures the Company could take to deal with
such eventualities while still maintaining client relationships. The Company
has been advised by its principal suppliers of data base information services
and payroll services that they will be Year 2000 compliant on a timely basis.
The Company does not believe that it has other relationships with vendors or
suppliers which, if disrupted due to the failure of such vendors and suppliers
to deal adequately with their own Year 2000 compliance issues, would have a
material adverse effect on the Company.
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BUSINESS
General
Interep is the largest independent national spot radio advertising rep firm
in the United States. The Company is the exclusive rep firm for over 1,900
radio stations, including, among others, all of the radio stations owned or
operated by CBS, Clear Channel and ABC. The Company serves radio stations in
all 50 states and in 97 of the top 100 radio markets. The Company's client
radio stations are diversified across all formats, including country, rock,
sports, Hispanic, classical, urban, news and talk. Interep has built strong
relationships with its clients, some of which date back 40 years. The Company
represents its clients pursuant to exclusive representation contracts, with
remaining terms ranging from 2 months to 11 years.
The Company's commission revenues and EBITDA grew at a compound annual
growth rate of 10.0% and 41.8%, respectively, from 1993 to 1997. See
"Business--Recent Developments." EBITDA represents income before interest,
taxes, depreciation and amortization. EBITDA does not represent net income or
cash flows from operations, as these terms are defined under generally
accepted accounting principles, and should not be considered as an alternative
to net income as an indicator of the Company's operating performance or to
cash flows as a measure of liquidity. The Company has included EBITDA
information because it understands that such information is used by certain
investors as one measure of an issuer's historical ability to service debt.
The Company had net cash flows from operating activities for the years ended
December 31, 1997, 1996, 1995, 1994 and 1993 of $23.8 million, $36.0 million,
$14.0 million, $15.9 million and $11.5 million, respectively. The Company had
net cash outflows from investing activities for the years ended December 31,
1997, 1996, 1995, 1994 and 1993 of $0.8 million, $1.0 million, $5.2 million,
$1.7 million, and $3.1 million, respectively. The Company had net cash flows
from financing activities for the years ended December 31, 1997, 1996, 1995,
1994 and 1993, of $24.3 million, $24.1 million, $12.3 million, $10.8 million
and $9.7 million, respectively. For the years ended December 31, 1997, 1996,
1995 and 1994, the Company had net income of $3.0 million, $3.6 million, $3.5
million and $5.5 million, respectively. For the year ended December 31, 1993,
the Company had a net loss of $1.8 million. For the nine months ended
September 30, 1998, the Company had net income of $3.1 million.
Interep has become the national spot radio industry leader through strategic
alignments with growing radio groups, acquiring new clients, acquiring other
rep firms and by increasing client advertising revenues. The Company's growth
has occurred during a period of significant consolidation in the radio
broadcast industry fostered by deregulation. The Company has strategically
aligned itself with radio station groups that it believes are well-positioned
to capitalize on this consolidation, such as Clear Channel, which acquired the
radio station assets of Paxson Communications Corp., Sinclair, which acquired
the radio station assets of Heritage and CBS, which recently acquired the
radio station assets of ARS. In addition, the Company has been a leader in the
consolidation of the radio representation business. Consolidation in the
representation business has reflected the competitive pressures on smaller
radio rep firms and the decision by an increasing number of radio station
groups to take advantage of the national presence and comprehensive services
offered by large radio rep firms such as the Company.
Total national spot radio gross billings were approximately $1.6 billion in
1997 and grew at a compound annual growth rate of 9.1% from 1993 to 1997.
National spot advertising is commercial air time sold by radio stations to
advertisers located outside of their local markets and typically represents
approximately 20% of a radio station's revenue. Radio stations typically
retain rep firms like Interep on an exclusive basis to sell commercial air
time to national and regional advertisers, and sell air time to local
advertisers through in-house sales forces.
Interep was founded in 1953 and has been owned primarily by its Chief
Executive Officer, Ralph C. Guild, and its management and employees since
1975. Since consummation of the Offering, Interep has been owned entirely by
Mr. Guild and the Company's management and employees. Its principal executive
offices are located at 100 Park Avenue, New York, New York 10017. The
Company's telephone number is (212) 916-0700 and its internet address is
www.interep.com.
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Competitive Strengths
The Company believes the following factors contribute to its leading
position and provide the foundation for further growth:
Leading Market Share and Significant Clients. Interep is the leading
independent national spot radio advertising rep firm and represents over 1,900
radio stations including key radio station groups such as ABC, CBS, Clear
Channel, Emmis, Entercom, Sinclair, SBS and Susquehanna. The Company believes
that its market size and leadership enhances its value to advertisers and
allows it to package radio stations creatively to meet advertisers' special
needs, thereby increasing its ability to sell air time for clients.
Strong Relationships with Advertisers; National Presence. Strong
relationships with advertisers, advertising agencies and media buying services
enable the Company to promote its client stations. Interep's sales force,
strategically located in 15 cities across the United States, provides
effective coverage of major media buying centers. The Company works closely
with advertisers to help them develop and refine radio advertising strategies
and to support their purchases of advertising time on the Company's client
stations.
Highly Motivated and Skilled Sales Force. The Company has developed a highly
skilled, professional sales force. Through its ESOP and its Stock Growth Plan,
Interep is owned primarily by its management and employees, and after
application of the proceeds of the Offering, will be entirely employee-owned.
This alignment of the interests of the Company and its employees is an
integral part of the Company's strategy. Moreover, through incentive programs
and the in-house training programs of the Interep Radio University, the
Company's sales force is motivated to adopt a team-oriented approach to
marketing and fulfilling client needs.
Experienced Senior Management Team. The Company has an experienced and
entrepreneurial management team, headed by the Interep's Chief Executive
Officer, Ralph C. Guild, who is recognized as a leader and innovator in the
radio representation business. The Company's senior sales managers have an
average of over 21 years of industry experience and significant equity
ownership in the Company. The Company's executive officers include Marc G.
Guild, President, Marketing Division, William J. McEntee, Jr., Chief Financial
Officer, Stewart Yaguda, President of Radio 2000, and Charles Parra, Chief
Information Officer.
Independence and Radio Industry Focus. Interep is owned primarily by its
employees and has focused exclusively on representing radio stations. The
Company's only significant competitor, by comparison, is owned by a radio
station group which competes with other radio stations and also represents
television stations and cable television systems. While the Company may become
involved in representing radio stations which broadcast over the Internet, as
well as Internet web site operators, the Company's primary focus will remain
on the radio industry. The Company believes that its independence and
continuing radio industry focus provide significant competitive advantages.
Sophisticated Sales Support. Over 85% of Interep's employees are in sales-
related positions. The Company supports this sales force with sophisticated
media research, including a proprietary national database. This database
enables the Company to profile for advertisers the salient characteristics of
the audiences of the Company's client stations to assist advertisers in
reaching their target audiences. Interep has also enhanced the level of its
services to clients and advertisers alike through the growing use of
technology, such as networked and mobile computing and computerized databases
with remote client access.
Operating Strategy
The Company's objectives are to continue to enhance its position as the
leading national spot radio advertising rep firm in the United States and to
increase revenue and EBITDA. EBITDA represents income before interest, taxes,
depreciation and amortization. EBITDA does not represent net income or cash
flows from operations, as these terms are defined under generally accepted
accounting principles, and should not be considered as an alternative to net
income as an indication of the Company's operating performance or to cash
flows as a measure of liquidity. The Company has included EBITDA information
because it understands that
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such information is used by certain investors as one measure of an issuer's
historical ability to service debt. The Company's strategy to attain these
goals includes the following:
Superior Client Service. The Company believes it has attained the leading
position in its industry by consistently providing superior services to its
clients with innovative features that differentiate it from its competitors.
For example, Interep pioneered the use of dedicated rep firms, such as ABC
Radio Sales, CBS Radio Sales and Clear Channel Radio Sales, for the
representation of individual radio station groups, which allows a client to
benefit from the comprehensive services offered by the Company while still
projecting its corporate identity to advertisers. The Company also provides
wide-ranging market research, sales planning and selling strategy consulting
services to its clients. The Company has enhanced the level of its services to
clients and advertisers alike through the growing use of technology, such as
networked and mobile computing. The Company has recently opened its internet
website, where clients and advertisers, on a secure basis, can access market
research. Interep provides superior service by motivating its employees
through incentives, including equity ownership and extensive in-house
training. The Company intends to continue to develop innovative services and
strategies in order to generate additional revenues.
Promotion of Radio. Interep believes that radio advertising expenditures are
not commensurate with consumer exposure time to radio and that this provides
an opportunity for future growth. The Company uses its proprietary database of
demographic and socioeconomic profiles of radio audiences in promoting the use
of radio for advertising. In 1991, Interep introduced its Radio 2000 program
to promote the ongoing growth of radio advertising by focusing on advertisers
who do not use radio advertising or who are underutilizing the medium. The
Radio 2000 sales force works with these advertisers to demonstrate how radio
can help them achieve their goals and create marketing opportunities. The
Company believes that Radio 2000 has contributed to the growth of radio
advertising revenues in the aggregate and, by virtue of Interep's leading
market position, its own growth.
Expanding Market Share. Interep will seek to continue to expand its market
share by (i) developing new clients, (ii) packaging and marketing portfolios
of client stations as "unwired networks" of unaffiliated stations grouped
together to meet advertisers' particular needs and (iii) developing innovative
sales programs. The Company seeks to represent station groups that are
acquirers of additional radio stations, such as CBS, Clear Channel, Sinclair
and ABC, in order to accelerate the growth of its client base. The Company
promotes unwired networks of its client stations to radio advertisers and
advertising agencies to enable advertisers to place advertisements efficiently
on as few as two stations or as many as all stations represented by Interep to
target specific groups or markets. The Company believes that its innovations,
such as Radio 2000 and dedicated rep firms, will continue to contribute to its
growth.
Industry Overview
The Radio Representation Business. Radio stations generally retain national
rep firms, such as the Company, on an exclusive basis, to sell national spot
commercial air time to advertisers located outside of the stations' local
markets. Sales of air time to local advertisers are usually handled by a
station's own sales force. National spot radio advertising is so named because
it is placed or "spotted" in one or more broadcast markets, in contrast to
network advertising, which is broadcast simultaneously throughout the United
States on network-affiliated stations. Although it varies by station, national
spot radio advertising is believed to typically account for approximately 20%
of a radio station's revenue. Generally, national spot radio advertising time
is purchased by advertising agencies or media buying services hired by
advertisers to place advertising.
The Company believes that a product or service can be advertised efficiently
through spot purchases of radio air time. Because of its national presence,
large market share, established relationships with advertising agencies and
media buying services and extensive marketing resources, the Company can sell
national spot air time more effectively than its client stations could on
their own. A rep firm seeks to promote the interests of each individual radio
station client that it represents to facilitate the purchase of national spot
air time on that station. This is accomplished, in part, by identifying
advertiser needs and matching those needs with the demographic profile and
other relevant characteristics typical of the particular station's audience.
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<PAGE>
According to an independent industry report, total U.S. radio advertising
revenues were $13.2 billion in 1997 and grew at a compound annual growth rate
of 8.8% from 1993 to 1997. The radio advertising market is divided into two
parts: (i) local advertising, which is sold by each radio station's own sales
force ($10.3 billion in 1997) and (ii) national advertising, which includes
network and national spot advertising ($2.9 billion in 1997).
The Company believes that the growth in national advertising is due in part
to an overall increase in U.S. advertising expenditures and in part to the
Company's efforts to promote radio as a low-cost and effective advertising
medium. The ability to target specific groups is important because an
advertiser's given product may appeal to a specific socioeconomic or
demographic group, and different radio programming formats are usually
designed to appeal to specific audiences. There are approximately two dozen
major radio programming formats in the United States, including country, rock,
sports, Hispanic, classical, urban, news and talk. Within each format there
are sub-formats that tend to attract an audience with similar characteristics
and the differences between the audiences can be significant. Where research
can show a correlation between the target market for an advertiser's product
and the audience attracted to a particular radio programming format, the
Company believes that it can demonstrate to advertisers that radio can be a
highly effective advertising medium.
Representation Contracts. Rep firms generate revenues by earning commissions
on the sale of advertising time on client stations. Revenues are based on
radio station "net billings," that is, gross advertising billings less
customary advertising agency and media buying service commissions (which are
typically 15% in the aggregate). The Company's representation contracts are
exclusive and generally provide for an initial term ranging in duration from 3
years to 8 years followed by an evergreen period. During the evergreen period,
the contract term continues unless and until notice of cancellation is given
in accordance with the provisions of the contract, typically involving at
least 12 months' notice.
Representation contracts generally provide for termination payments to be
made to a rep firm if the client terminates the contract without cause. The
amount of such payments is typically equal to the estimated commissions that
would have been payable to the rep firm during the remaining portion of the
initial term and the evergreen period, plus two months. For example, if a
contract with an initial term of five years and a one-year evergreen period is
canceled after three years, the Company would be compensated in an amount
equal to 38 months of commissions (that is, 24 months for the remaining term,
12 months for the evergreen notice period, plus two months). It is customary
in the industry for the successor rep firm to make this payment. The Company
generally amortizes the cost of acquiring a new representation contract over
the initial term of such contract, although contracts are expected to provide
significantly longer-term revenue beyond this initial period. The Company also
amortizes the income associated with the buyout by another rep firm of an
existing client's contract over the remaining life of such contract. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General."
The Company's Organization
The Company is organized into seven rep firms and five geographic regions.
The rep firms focus on servicing client stations while the regional offices
coordinate selling efforts to advertisers. Some of the rep firms, such as
McGavren Guild, Allied Radio Partners and D&R Radio, have long histories and
are the product of mergers or consolidations of two or more smaller rep firms.
Others, such as CBS Radio Sales, Clear Channel Radio Sales and ABC Radio
Sales, were recently established for the purpose of representing a single
station group as a dedicated unit. The Company's rep firms are:
<TABLE>
<CAPTION>
Number of Year
Stations Acquired
Name Represented or Formed
---- ----------- ---------
<S> <C> <C>
McGavren Guild....................................... 604 1953
D&R Radio............................................ 245 1981
CBS Radio Sales...................................... 92 1997
Allied Radio Partners................................ 684 1977
Clear Channel Radio Sales............................ 191 1996
Caballero Spanish Media.............................. 141 1995
ABC Radio Sales...................................... 23 1998
</TABLE>
41
<PAGE>
The rep firms operate through the Company's 15 strategically-located offices
in Atlanta, Boston, Chicago, Dallas, Detroit, Los Angeles, Miami, Minneapolis,
New York, Philadelphia, Portland, St. Louis, San Antonio, San Francisco and
Seattle.
The Company believes that its clients are best served by having its rep
firms collaborate on the marketing of radio to advertisers and advertising
agencies. Once advertisers or agencies decide to use radio, each firm is
responsible for selling the strengths of their client stations. The presidents
of the rep firms, as well as the senior management of the Company, concentrate
on expanding the Company's market share by developing new clients and
maintaining service relationships with existing clients. The activities of the
rep firms' respective marketing and sales forces are coordinated through the
Company's regional executives, working with the rep firm presidents. The
regional executives are responsible for the overall sales effort to
advertisers and for managing the Company's relationships with advertisers
within their regions. Between the rep firm presidents and the regional
executives, relationships with radio station and advertising agencies are
closely coordinated. Senior management of the Company is responsible for
planning firm-wide strategy, establishing policies and procedures, operating
the Radio 2000 program and providing research and technology resources and
financial and accounting services for all of the rep firms and offices. The
Company employs marketing, research and sales support personnel to facilitate
its overall sales efforts on behalf of its client stations as well as
employees in the information services, corporate communications,
administrative and financial areas.
The Company's Clients
The Company represents many of the largest and most successful radio station
groups in the United States. The 15 largest U.S. radio markets, measured by
gross billings, accounted for 55% of all spot radio advertising in 1997. On an
as adjusted basis, giving effect as of April 1, 1997 to the client
acquisitions described in "Recent Developments" below, the Company's 1997
market share in these markets would have been over 60%. The Company represents
over 1,900 radio stations. For the year ended December 31, 1997, CBS accounted
for 28.3% of the total commission revenues of the Company. No other station or
station group accounted for more than 10% of such commission revenues. The
Company's clients include the following prominent radio broadcast companies:
ABC Cumulus Mondosphere Broadcasting
Alexander Broadcasting Curtis Media Group Mt. Wilson Broadcasting
Co. Emmis MyStar Communications
Barnstable Broadcasting Entercom New Century
Beasley Broadcast Group Excl Communications Paul Communications,
Bloomington Broadcast Goodrich Broadcasting Inc.
Blue Chip Broadcasting Inc. Pilot Communications
Group Co. Great Empire Radio One
Buckley Broadcasting Broadcasting Saga Communications
Caribou Communications Greater Media Sinclair
Carter Broadcasting Hall Communications SBS
Corp. Hearst Broadcasting Susquehanna
CBS Group Wicks Broadcast Group
Citadel Communications Inner City Broadcasting Z-Spanish Radio Network,
Corp. Corp. Inc.
Clear Channel Jefferson-Pilot Corp. Zapis Communications
Connoisseur Lotus Communications
Communications Corp. Corp.
McDonald Broadcasting
Co.
The Company will attempt to expand its market share by increasing its
representation of stations in the top 100 radio markets, where the Company
already has a significant presence, and by selectively expanding into smaller
markets where appropriate.
Recent Developments
On April 29, 1998, the Company entered into the ABC Agreement. Under this
agreement, as of June 1, 1998, Interep became the exclusive national spot
radio rep firm for 23 ABC radio stations (all of which are in the top 15 radio
markets), as well any radio stations acquired by ABC in the future (subject to
the Company
42
<PAGE>
arranging for the buyout of the predecessor rep firm, if necessary). In order
to service the ABC stations, the Company established ABC Radio Sales. The ABC
Agreement has a term of eight years. ABC has the option to renew the term for
an additional eight years. ABC would have the right to terminate the ABC
Agreement if majority control of the Company was obtained by a competitor of
ABC or a competitor of Interep or if changes occurred in the senior management
of ABC Radio Sales which were not acceptable to ABC.
Sales Support
Interep's sales force is strategically located in 15 cities across the
United States to provide effective coverage of the major media buying centers.
In order to sell air time for its clients, the Company has established strong
relationships with advertisers, advertising agencies and media buying
services. The Company has also implemented the Radio 2000 program and
established a sales force of Radio Marketing Specialists dedicated to the
promotion of radio advertising for this purpose. These specialists assist
advertisers, through their advertising agencies or media buying services, in
developing effective radio advertising strategies with the objective of
influencing and facilitating their purchases of radio advertising air time.
The Company supports its sales efforts with sophisticated media research,
using a proprietary database of demographic and socioeconomic profiles of
every major U.S. radio market to help advertisers refine their radio
advertising strategies. This database is compiled from a wide array of
industry information and data services (e.g., The Arbitron Company,
Scarborough, AdSpender, and Simmons Market Research). The Company provides
advertisers with profiles of the audiences of the Company's client stations in
specific geographic areas, and, by showing correlations between buying
patterns for various products and services and specific demographic and
socioeconomic characteristics, helps advertisers reach their target audiences.
The information may also be used to recommend specific promotions, the
appropriate blending of media for an advertising campaign or the most
effective programming vehicles for a particular advertising campaign. In this
way, the Company's sales force helps advertisers plan radio advertising
schedules using selected stations represented by the Company. The Company also
provides sales promotion support through concept development and sales
promotion programs. These programs blend advertising support, merchandising
and sales incentive programs to enable the Company to suggest promotional
campaigns, including partnerships with other advertising media.
The Company believes that the overall demand for national radio advertising
is enhanced by its packaging and selling of advertising time on various
"unwired networks," which are unaffiliated groups of client stations grouped
together to meet advertisers' particular needs. By placing advertising with
these networks, an advertiser can reach a large, targeted audience more
efficiently than if it were to place advertising with many stations one at a
time. Due to the Company's leading market share and diverse client station
base, it is well-positioned to offer unwired networks. An advertising agency
or media buying service derives additional benefits from the Company's unwired
networks as the Company often performs research, scheduling, billing, payment
and pre-analysis and post-analysis functions relating to the advertising time
purchase.
The Company has an extensive computer network with over 600 computer
terminals. Each employee has his or her own desktop or mobile computer
equipped with e-mail and internet capability linked directly to many client
stations and advertising agencies.
Employee Motivation and Training
The Company believes one of its competitive advantages is derived from the
in-house training of its work force through a program called the Interep Radio
University. This program was established to help ensure the continuing
effectiveness of the Company's staff. The Company requires most of its
professional employees to spend approximately two weeks each year in the
Company's in-house training programs, which use its own personnel as well as
instructors from some of the leading marketing and management education
programs in the United States, including Harvard Business School and The
Wharton School.
Since 1975, the Company has been owned primarily by its management and
employees directly and indirectly through the ESOP and the Stock Growth Plan.
After consummation of the Offering, Interep became
43
<PAGE>
owned entirely by Mr. Guild and the Company's management and employees. The
Company believes that employee ownership, together with its commitment to
intensive employee training and continuing employee education, have resulted
in a highly motivated, team-oriented and well-trained workforce.
Competition
The Company's success depends on its ability to acquire and retain
representation contracts with radio stations. The media representation
business is highly competitive, both in terms of competition for clients and
to sell air time to advertisers. The Company competes not only with other
independent and network media representatives but also with direct national
advertising. The Company also competes on behalf of its clients for
advertising dollars with other media such as broadcast and cable television,
newspapers, magazines, outdoor and transit advertising, Internet advertising,
point-of-sale advertising and yellow pages directories. Certain of the
Company's competitors have greater financial and marketing resources than does
the Company, and such resources may provide them with a competitive advantage
in competing for client stations.
The Company's only significant competitor in the national spot radio
representative industry is Katz Media Group, Inc., a subsidiary of a major
radio station group owner. By comparison, Interep is independent and, on
consummation of the Financing Transactions, will be owned 100% by its
employees. Further, Interep is the only national firm which is dedicated
solely to the representation of radio stations. Management believes that the
Company's independence and dedication to radio provide it with a competitive
advantage.
The Company believes that its ability to compete successfully is based on
its ability to acquire and retain representation contracts, the number of
stations and the inventory of air time it represents, its ability to offer
unwired networks, its strong relationships with advertisers, its research and
marketing services to clients and advertisers, its use of technology, the
experience of its management and the training and motivation of its sales
personnel. The Company believes that it competes effectively, in part, through
its employees' knowledge of, and experience in, the Company's business and
industry and their long standing relationships with clients.
Employees
As of September 30, 1998, the Company employed approximately 632 employees,
of which approximately 602 were sales-related personnel. None of the Company's
employees are represented by a union. The Company believes that its relations
with its employees are excellent.
Properties
The Company leases approximately 145,000 square feet of office space in 16
cities throughout the United States. The Company's principal executive offices
are located at 100 Park Avenue, New York, New York, where the Company occupies
66,700 square feet under a lease which expires in March 2005. The Company
believes that its office premises are adequate for its foreseeable needs.
Litigation
The Company from time to time is involved in litigation incidental to the
conduct of its business. The Company is not a party to any lawsuit or
proceeding which, in the opinion of management, is likely to have a material
adverse effect on the Company.
44
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information regarding the directors
and the executive officers (the "Executive Officers") of the Company:
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
Ralph C. Guild.......... 69 Chairman of the Board and Chief Executive Officer; Director
Marc G. Guild........... 47 President, Marketing Division; Director
William J. McEntee,
Jr. ................... 55 Vice President and Chief Financial Officer
Stewart Yaguda.......... 42 President, Radio 2000
Charles Parra........... 34 Chief Information Officer
Leslie D. Goldberg...... 55 Director
Jerome S. Traum......... 62 Director
</TABLE>
All directors are elected, and all Executive Officers are appointed, for
terms of one year.
Ralph C. Guild has been Chairman of the Board and Chief Executive Officer of
the Company since 1986, and has served as a director of the Company since
1967. He has been employed by the Company or its predecessors since 1957 in
various capacities. In November 1991, Mr. Guild became one of the first
inductees into the Broadcasting Hall of Fame. Mr. Guild serves on the Boards
of Trustees of the Museum of Television & Radio, the Center for Communications
and the University of the Pacific. In April 1998, Mr. Guild received the
Golden Mike Award from the Broadcasters Foundation for outstanding
contributions to the radio industry.
Marc G. Guild has been President, Marketing Division, of the Company since
November 1989, and has served as a director of the Company since 1989. He was
Executive Vice President of Network Sales/Operations of the Company from 1986
to 1989. Mr. Guild has been employed by the Company or its predecessors since
1975 in various capacities. As President, Marketing Division of the Company,
Mr. Guild plays a key role in the Company's sales and marketing programs, the
Interep Radio University and the Company's research and technology divisions
and also oversees the Company's regional executives. Mr. Guild serves on the
Board of Directors of the International Radio and Television Foundation. Marc
Guild is the son of Ralph Guild.
William J. McEntee, Jr. has been Vice President and Chief Financial Officer
of the Company since March 1997. Mr. McEntee serves in such positions pursuant
to a Services Agreement between the Company and Media Financial Services, Inc.
See "Certain Transactions and Relationships." Mr. McEntee was Chief Financial
Officer at Sudbrink Broadcasting in West Palm Beach, Florida, from 1971
through 1994. Mr. McEntee owned and managed WCEE-TV in Mt. Vernon, Illinois
from 1994 until selling the station in 1996. Mr. McEntee currently owns WIOJ-
AM in Jacksonville, Florida. He is a certified public accountant and formerly
served as an audit manager for Arthur Andersen & Co.
Stewart Yaguda has been President of the Company's Radio 2000 Program since
April 1992. Mr. Yaguda was a director of marketing for Ciba-Geigy, an
international pharmaceuticals company, from 1985 to 1992, where he was
responsible for a marketing budget of over $30 million for certain over-the-
counter drugs. From 1981 to 1985, he was a product manager at Nabisco Brands.
As President of the Company's Radio 2000 Program, Mr. Yaguda is responsible
for attracting new advertisers to radio and expanding the advertising budgets
of existing radio advertisers. He holds an M.B.A. from New York University.
Charles Parra has been Chief Information Officer of the Company since
September 1997. From July 1995 to August 1997, he was the Company's Director
of Information Technology. Mr. Parra was a project manager for the information
systems group at Russell Reynolds Associates, a New York-based executive
search firm, from 1993 through 1995. From 1990 to 1993, Mr. Parra was a
technical specialist for Sharp Electronics.
45
<PAGE>
Leslie D. Goldberg served as President of the Company from August 1986 to
the end of 1995, and has served as a director of the Company since 1986. He
has been employed by the Company since 1968 in various capacities. Mr.
Goldberg serves on the Board of Directors of the Radio Advertising Bureau.
Jerome S. Traum has served as a director of the Company since 1994. Mr.
Traum has been a partner with the New York law firm of Moses & Singer since
June 1995. Before that, he was of counsel to the New York law firm of
Proskauer Rose Goetz & Mendelsohn, beginning in 1991. Previously, he was a
general partner of The Blackstone Group, an investment banking firm.
Director Compensation
Directors do not receive compensation for their services as directors, but
are reimbursed for any reasonable out-of-pocket expenses incurred in
connection with attending meetings of the Board of Directors.
Executive Compensation
The following table shows compensation for services rendered in all
capacities to the Company for the year ended December 31, 1997 by the
"Executive Officers," that is, the Chief Executive Officer and the Company's
four most highly compensated executive officers other than the Chief Executive
Officer.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
-----------------------------
Annual Compensation Awards Payouts
------------------------------ --------------------- -------
Securities
Restricted Underlying
Name and Other Annual Stock Options/ LTIP All Other
Principal Position Year Salary Bonus Compensation Award(s) SARs (#) Payouts Compensation(1)
------------------ ---- -------- -------- ------------ ---------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ralph C. Guild.......... 1997 $905,738 -- $104,583(2) -- -- -- $19,262
Chairman of the Board
and Chief Executive
Officer
Marc G. Guild........... 1997 300,738 $270,000 -- -- -- -- 19,262
President, Marketing
Division
William J. McEntee,
Jr. ................... 1997 98,383 -- -- -- -- -- 1,617
Vice President and
Chief Financial
Officer(3)
Stewart Yaguda.......... 1997 120,738 100,000 27,500(4) -- -- -- 19,262
President, Radio
2000 Division
Charles Parra........... 1997 110,041 18,000 -- -- -- -- 9,959
Chief Information
Officer
</TABLE>
- --------
(1) Includes amounts contributed by the Company on behalf of Messrs. Ralph
Guild, Marc Guild, William McEntee, Stewart Yaguda and Charles Parra to
the Stock Growth Plan of $14,512, $14,512, $1,617, $14,512 and $8,974,
respectively and to the 401(k) Plan of $4,750, $4,750, $0, $4,750 and
$985, respectively.
(2) Represents payments under a supplemental income agreement. See "--
Employment Contracts."
(3) Mr. McEntee serves in such capacities pursuant to a Services Agreement
between the Company and Media Financial Services, Inc. See "Certain
Transactions and Relationships." Mr. McEntee began his employment with the
Company on March 1, 1997.
(4) Represents contributions to a compensation deferral arrangement.
46
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table sets forth, as to each Executive Officer who holds
options, the status of their options at the end of fiscal 1997. No options
were exercised by any of them during fiscal 1997.
<TABLE>
<CAPTION>
Number of In-the-Money
Unexercised Options/ Options/SARs at
Number of SARs at Fiscal Year End Fiscal Year End ($)(1)
Shares Acquired Value --------------------------- ---------------------------
Name on Exercise Realized($) Exercisable Non-exercisable Exercisable Non-exercisable
---- --------------- ----------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Ralph C. Guild.......... -- -- 30,000 -- 30,000 --
Marc G. Guild........... -- -- 5,000 -- 5,000 --
William J. McEntee,
Jr. ................... -- -- -- -- -- --
Stewart Yaguda.......... -- -- -- -- -- --
Charles Parra........... -- -- -- -- -- --
</TABLE>
- --------
(1) Fair market value of the Common Stock as of September 30, 1997 ($87.86 per
share), as determined by an independent appraisal, minus exercise price
multiplied by the number of shares subject to the option. In determining
the fair market value of the Common Stock, for which no trading market
existed, the Board of Directors relied on an independent appraisal.
Employee Stock Ownership Plan
The Company established the ESOP in 1975 to provide participating employees
with a stock ownership interest in the Company. The ESOP is a stock bonus plan
qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and is also an employee stock ownership plan under
Section 4975(e)(7) of the Code. The assets of the ESOP are held in trust and
are invested primarily in the Common Stock. The trustees of the ESOP are
appointed by the Board of Directors of the Company and are responsible for the
administration of the ESOP and the investment of its assets. The current
trustees are Ralph Guild, Leslie D. Goldberg and Marc Guild.
Each employee of the Company becomes eligible to participate in the ESOP
following completion of one year of service, with a minimum of 1,000 hours of
service to the Company. As of December 31, 1997, the ESOP had 400
participants. ESOP participation is mandatory and non-contributory for all
eligible employees. Individual accounts are maintained under the ESOP for each
participant. A participant becomes fully vested in his or her account in
stages over five years of service to the Company or earlier, without regard to
years of credited service, on the occurrence of total and permanent
disability, death or attainment of the later of age 65 or the fifth
anniversary of his or her participation in the ESOP. In the event of
termination of the employment of a participant who is not fully vested, any
non-vested portion of his or her account will be forfeited and reallocated
among the remaining participants' accounts.
The Company may make annual contributions to the ESOP, in the form of cash
or shares of Common Stock, in such amounts as may be determined by its Board
of Directors, subject to certain limitations imposed by the Code. Company
contributions for each plan year are allocated to the participants' accounts
based on the relative total compensation of each participant, subject to
certain limitations under the Code. The Company has made, however, no
contributions to the ESOP since 1994. The Company made loans to the ESOP of
$1.3 million, $1.9 million and $2.9 million in 1995, 1996 and 1997,
respectively, to fund distributions of the Common Stock from the ESOP in
connection with the termination of employment of participants. As of December
31, 1997, $182,000 of such indebtedness remained outstanding. See "Risk
Factors--Repurchase Obligation Under Employee Benefit Plan" and "Description
of Exchange Notes--Certain Covenants--Restricted Payments."
The ESOP provides that the trustees will generally determine the manner in
which shares of Common Stock owned by the ESOP are voted. With respect,
however, to voting in connection with certain significant matters specified in
the Code, such as mergers, recapitalizations, or a liquidation, dissolution or
sale of all or substantially all of the assets of the Company, each
participant has the right to direct the trustees as to the voting of the
shares of Common Stock allocated to his or her account. Allocated shares for
which no directions are received in these
47
<PAGE>
circumstances will be voted by the trustees as they deem to be in the best
interests of the ESOP and its participants.
Following a participant's termination of service, distribution of the vested
amount in his or her account will generally be made in cash. Cash
distributions will be based on the fair market value of the Common Stock,
determined by the ESOP's independent appraiser as of the December 31 preceding
the participant's termination. Distributions will normally be made in equal
quarterly installments over a period of time ranging up to five years,
depending on the size of the participant's account. Pending the final date of
distribution, a participant's account balance will be credited with interest
at rates based on U.S. Treasury Bill rates.
Stock Growth Plan
The Board of Directors established the Stock Growth Plan, effective as of
January 1, 1995, to provide participating employees with a stock ownership
interest in the Company. The Stock Growth Plan is a stock bonus plan qualified
under Section 401(a) of the Code. The assets of the Stock Growth Plan are
invested primarily in Common Stock and are held in trust. The trustees of the
Stock Growth Plan are appointed by the Board of Directors and are responsible
for the administration of the Stock Growth Plan and the investment of its
assets. The current trustees are Ralph Guild, Leslie D. Goldberg and Marc
Guild.
Each employee of the Company who is regularly scheduled to work at least 20
hours per week is eligible to participate in the Stock Growth Plan as of his
or her date of hire. As of June 1, 1998, the Stock Growth Plan had 555
participants. Participation in the Stock Growth Plan is mandatory for all
eligible employees. All Stock Growth Plan participants are at all times fully
vested in their accounts without regard to age or years of service.
The Company makes regular payments to the Stock Growth Plan following each
payroll period, primarily in the form of cash (although payments in the form
of shares of Common Stock are permitted under the provisions of the Stock
Growth Plan) in such amounts as may be determined by the Board of Directors,
subject to certain limitations imposed by the Code. Such cash payments have
been used, and are intended to be used, for the foreseeable future, primarily
to purchase shares of Common Stock from the ESOP. These purchases are designed
to fulfill the Stock Growth Plan's purpose of investing in the Company, while
providing increased liquidity for the ESOP. Individual accounts are maintained
under the Stock Growth Plan for each participant. Payments for each plan year
are allocated to the participants' accounts based on the relative total
compensation of each participant, subject to certain limitations under the
Code and by taking into account benefits available under the Social Security
Act.
The Stock Growth Plan provides that the trustees will generally determine
the manner in which the shares of Common Stock owned by the Stock Growth Plan
are voted. With respect to voting in connection with certain significant
matters specified in the Code, such as mergers, recapitalizations, or a
liquidation, dissolution or sale of all or substantially all of the assets of
the Company, each participant has the right to direct the trustees as to the
voting of the shares of Common Stock allocated to his or her account.
Allocated shares for which no directions are received in these circumstances
will be voted by the trustees as they deem to be in the best interests of the
ESOP and its participants.
Following a participant's termination of service, distribution of his or her
account will be made in four annual installments, with the first installment
to occur as soon as practicable after termination of employment. If a
participant's benefit does not exceed $3,500, the distribution will be made in
a single lump sum as soon as practicable following termination of service.
Distributions will normally be made in cash.
Compensation Deferral Plan
The Company maintains the Compensation Deferral Plan, which was adopted by
the Board of Directors effective as of January 1, 1994, for the purpose of
providing deferred compensation to a select group of executive employees. The
Compensation Deferral Plan is an unfunded "top hat" plan that is subject to
Title I of the
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<PAGE>
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), but is
exempt from Parts 2, 3 and 4 of Title I(B) of ERISA.
Although the Compensation Deferral Plan is an unfunded plan for purposes of
Title I of ERISA, assets have been set aside in an irrevocable trust pursuant
to a trust agreement between the Company and Ralph Guild and Stewart Yaguda,
as trustees. The trust is intended to be a grantor trust, of which the Company
is the grantor, within the meaning of Section 671 of the Code. The trustees of
the Compensation Deferral Plan are responsible for the administration of the
trust and the investment of trust assets. Following the Offering, the trust
assets will consist of the cash proceeds of the redemption of the Series B
Preferred Stock and the associated shares of the Common Stock formerly held by
the Compensation Deferral Plan. See "Certain Transactions and Relationships."
The Compensation Deferral Plan is administered and interpreted by the
Company's Board of Directors and highly compensated employees of the Company.
As of June 1, 1998, the Compensation Deferral Plan had 15 participants, each
of whom is or was a member of senior management or a highly compensated
employee. All participants are at all times fully vested in their Compensation
Deferral Plan accounts without regard to their age or years of service.
During 1994 and 1995, each plan participant deferred the receipt of a
portion of the compensation otherwise payable to them for such periods. The
Company then contributed to the Compensation Deferral Plan trust shares of the
Series B Preferred Stock and the Common Stock. Each participant's account was
credited with an initial balance of the Series B Preferred Stock (valued at
$1,000 per share) equal in value to the amount deferred by the participant,
plus 11.2875 shares of Common Stock for each share of the Series B Preferred
Stock so credited. The Company does not contemplate making any further
contributions to the Compensation Deferral Plan.
In connection with the Financing Transactions, the cash proceeds of the
redemption of the shares of the Series B Preferred Stock and the associated
shares of the Common Stock were allocated among the plan participants strictly
in accordance with the shares allocated to their account as of the date of
redemption. The cash assets of the Compensation Deferral Plan allocable to any
participant will be distributed to such participant on the earlier to occur of
the participant's termination of employment with the Company or the
termination of the Compensation Deferral Plan.
401(k) Plan
The Company maintains the 401(k) Plan, which allows employees to save a
portion of their salaries on a tax-deferred basis pursuant to the provisions
of Section 401(k) of the Code. Each employee of the Company becomes eligible
to participate in the 401(k) Plan on the first day of the month following the
date he or she completes one year of service. As of December 31, 1997, the
401(k) Plan had 560 participants. The assets of the 401(k) Plan are held in
trust. The trustee of the 401(k) Plan is appointed by the Board of Directors
of the Company, and the current trustee is Fidelity Management Trust Company.
Each eligible employee may make a pre-tax contribution from salary in an
amount not greater than 15% of his or her respective total compensation during
each calendar year under the 401(k) Plan. For 1998, the limit under the Code
for pre-tax contributions is $10,000.
Each year, the Company contributes, for each participant who makes a pre-tax
contribution, a matching contribution on the first 6% of such participant's
compensation ("Matching Contribution") in an amount equal to a percentage of
such participant's pre-tax contribution. Such percentages are determined
annually by the Board of Directors, and the percentage for 1997 was 50%. The
Company may also make discretionary contributions to be allocated among all
participants in proportion to their relative total compensation. In order to
share in the allocation of matching contributions and discretionary
contributions, a participant must be employed on the last day of the calendar
year (and, for discretionary contributions, complete at least 1,000 hours of
service), unless such employee terminated employment during the year as a
result of such employee's retirement, death or
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disability. In any year, combined Company and employee contributions (when
aggregated with contributions to the ESOP and the Stock Growth Plan) allocated
to a participant are not permitted to exceed the lesser of $30,000 or 25% of a
participant's total taxable compensation for the year. The portion of a
participant's account balance attributable to pre-tax contributions is at all
times 100% vested and non-forfeitable, while the portion attributable to
contributions made by the Company vests in 20% increments on the completion of
each year of service with the Company. Participants direct the investment of
their accounts. The 401(k) Plan currently offers participants the choice of
four mutual funds provided through Fidelity Investments.
A 401(k) participant's account will be distributed to such participant
following separation from service, attainment of retirement age, death or
disability. In addition, upon attaining age 59 1/2, a participant may elect to
withdraw the balance in such participant's account. Prior to the occurrence of
any of the foregoing events, a participant may apply for a hardship withdrawal
of his or her pre-tax contributions in certain circumstances. Subject to
certain dollar limitations imposed by the 401(k) Plan and federal law, a
participant is also permitted to borrow from the 401(k) Plan.
Employment Contracts
Ralph Guild is employed as Chairman of the Board and Chief Executive Officer
of the Company under an employment agreement with the Company entered in 1995.
The term of this agreement runs through May 31, 2001 and is automatically
extended for an additional year each June 1 unless either the Company or Mr.
Guild notifies the other on or before May 1 of the same year of its or his
election not to extend the agreement. Under the agreement, Mr. Guild receives
a base salary of not less than $925,000 per year, plus any bonuses, incentive
or other types of additional compensation which the Board of Directors
determines to pay. Further, Mr. Guild is entitled, annually, to receive
incentive compensation based on increases in the Company's EBITDA. If EBITDA
for the year in question is greater than the EBITDA for the previous year, Mr.
Guild will be entitled to a bonus equal to a percentage of his base salary
equal to two times the percentage increase of EBITDA for such year over the
higher of EBITDA for the prior year and the highest EBITDA for any prior year
back to 1994. If the Company elects not to extend the term of the agreement,
the Company will retain Mr. Guild as a consultant for two years after the end
of the term of the agreement at a fee equal to his base salary in effect at
such time.
The agreement provides for continued payment of Mr. Guild's base salary
through the balance of its term, plus two years, if (i) Mr. Guild terminates
his employment with the Company by reason of the Company's material breach of
the agreement, (ii) Mr. Guild is not re-appointed as Chairman of the Board and
Chief Executive Officer of the Company or ceases to be elected as a director
of the Company, other than by his own choice or for reasons justifying his
termination of employment by the Company for cause, or (iii) there is a change
in control of the Board of Directors of the Company. Mr. Guild may not compete
with the Company during the term of the employment agreement and for any
period during which he is receiving compensation thereunder. The employment
agreement also provides (i) in the case of Mr. Guild's permanent disability,
for payments to Mr. Guild equal to 75% of his then current salary, less any
income disability benefits to which Mr. Guild may be entitled, for the balance
of his employment term and (ii) in the case of Mr. Guild's death, for a death
benefit equal, on the request of Mr. Guild's estate or his designated
beneficiary, to either the present value at the time of his death of the
entire amount of the salary that would have been payable to him for the
balance of his employment term or the payment of his then current salary over
the balance of his employment term.
Mr. Guild also has a supplemental income agreement pursuant to which the
Company pays him $104,583 per year, payable in monthly installments, through
2008. The Company maintains a whole life insurance policy on Mr. Guild for the
purpose of funding the supplemental income agreement.
Marc Guild is employed as President, Marketing Division of the Company under
an employment agreement entered in 1991. The term of this agreement runs
through January 1, 2001 and is automatically extended for an additional year
each January 1 unless either the Company or Mr. Guild notifies the other on or
before December 1 of the preceding year of its or his election not to extend
the agreement. Under the agreement, Mr. Guild receives a base annual salary of
$320,000 and an incentive amount of $80,000 per year, which is payable
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by the Company only if it achieves certain financial or other goals set by the
Company and Mr. Guild at the beginning of each year. The agreement provides
for continued payments of base salary through the balance of its term if
(i) there is a change in control of the Company, (ii) Mr. Guild is not re-
appointed to his office with the Company or ceases to be a director of the
Company, other than by reason of his own choice or the termination of his
employment for cause by the Company or (iii) Mr. Guild's termination of his
employment by reason of a material breach by the Company of the agreement. The
agreement also provides (i) in the case of Mr. Guild's permanent disability,
for payments to him equal to 75% of his then current salary, less any income
disability benefits that he may receive or to which he may be entitled, for
the duration of the term of the agreement and (ii) in the case of Mr. Guild's
death, for a death benefit equal to the present value at the time of death of
the entire amount of the salary that would have been payable to Mr. Guild for
the balance of his employment term or the payment of his then current salary
over the balance of his employment term.
Indemnification Agreements
The Company is a party to an indemnity agreement with each of its directors
and certain of its executive officers which provides that the indemnitee will
be entitled to receive indemnification, which may include advancement of
expenses, to the full extent permitted by law for all expenses, judgments,
fines, penalties and settlement payments incurred by the indemnitee in actions
brought against him or her in connection with any act taken in the
indemnitee's capacity as a director or executive officer of the Company. Under
these agreements, an indemnitee's entitlement to indemnification in a
particular case will be made by a majority of the disinterested members of the
Board of Directors, if such members constitute a quorum of the full Board and,
if they do not, by independent legal counsel selected by the Board.
Compensation Committee Interlocks and Insider Participation
For the fiscal year ended December 31, 1997, the entire Board of Directors
determined executive officer compensation. Two members of the Board of
Directors, Ralph Guild and Marc Guild, are officers of the Company, and have
participated in certain transactions with the Company during fiscal 1997.
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PRINCIPAL SHAREHOLDERS
The following table sets forth, as of September 30, 1998, as adjusted to
give effect to the Financing Transactions (see "Certain Transactions and
Relationships"), information concerning the beneficial ownership of the Common
Stock by (i) each person known to the Company to own beneficially more than 5%
of the Common Stock, (ii) each director of the Company, (iii) each of the
Executive Officers and (iv) all directors and Executive Officers of the
Company as a group. As of September 30, 1998, as so adjusted, there were
285,421 shares of Common Stock outstanding and 106,245 shares held in
treasury.
<TABLE>
<CAPTION>
Number of Shares
Name Beneficially Owned(1) Percent
- ---- --------------------- -------
<S> <C> <C>
ESOP(1)......................................... 199,018 69.7%
Stock Growth Plan(1)............................ 55,654 19.5
Ralph C. Guild(2),(3), (5)...................... 73,680 25.8
Marc G. Guild(2), (4), (5)...................... 14,042 4.9
William J. McEntee, Jr.(5)...................... 46 *
Stewart Yaguda.................................. 848 *
Charles Parra................................... 226 *
Leslie D. Goldberg.............................. -- --
Jerome S. Traum................................. -- --
All Directors and Executive Officers as a Group
(8 Persons).................................... 88,842 31.1
</TABLE>
- --------
* Less than 1%
(1) The shares shown in this table as being owned beneficially by Messrs.
Ralph Guild, Marc Guild, McEntee, Yaguda and Parra and by all directors
and executive officers as a group include shares owned by the ESOP and the
Stock Growth Plan and allocated to plan accounts maintained for such
persons. At May 31, 1998, the combined number of shares allocated by such
plans to such persons and all directors and executive officers as a group
was as follows: Ralph Guild, 35,525 shares, Marc Guild, 6,012 shares,
William J. McEntee, Jr., 46 shares, Stewart Yaguda, 848 shares, Charles
Parra, 226 shares, and all directors and executive officers as a group,
42,657 shares. ESOP and Stock Growth Plan participants have the right to
direct the votes of the shares allocated to them with respect to certain
significant matters submitted to a vote of the Company's shareholders,
although the trustees of the ESOP and Stock Growth Plan have the authority
to vote all shares held by such plans in their discretion with regard to
all other matters, including the election of directors. Messrs. Ralph
Guild, Goldberg and Marc Guild are the sole trustees of the ESOP and the
Stock Growth Plan. See "Management--Executive Compensation."
(2) Ralph Guild and Marc Guild are father and son and each disclaims
beneficial ownership of the other's holdings.
(3) Includes options granted to Ralph Guild in 1988 to purchase up to 10,000
shares of the Common Stock at an option price of $32.62 per share, in 1991
to purchase 10,000 shares at an option price of $57.91, and in 1995 to
purchase 10,000 shares at an option price of $81.63, such prices in each
case being the value per share on the date of grant as established by an
independent appraiser. All of these options expire on December 29, 2005
and are currently fully exercisable.
(4) Includes options to purchase 5,000 shares of Common Stock at the
appraisal-based option price of $57.91 per share, all of which are fully
exercisable. These options expire on December 31, 2005.
(5) Does not include options to purchase 30,000, 5,000 and 5,000 shares of
Common Stock granted in June 1998 to Ralph Guild, Marc Guild and Mr.
McEntee, respectively, at an exercise price of $79.36 per share, which
options will not be exercisable until December 1998 and which will expire
in June 2008. Also does not include options to purchase 60,000, 10,000,
15,000 and 10,000 shares of Common Stock granted in July 1998 to Ralph
Guild, Marc Guild, Mr. McEntee and Mr. Yaguda, respectively, at an
exercise price of $83.92 per share, which options will not be exercisable
until January 1999 and which will expire in July 2008.
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<PAGE>
The address for the ESOP, the Stock Growth Plan and Messrs. Marc Guild,
Yaguda and Parra is Interep National Radio Sales, Inc., 100 Park Avenue, New
York, New York 10017. Ralph Guild's address is 10 South Lake Trail, Palm Beach,
Florida 33480. Mr. Goldberg's address is 200 Keller Lane, North Salem, New York
10560. Mr. McEntee's address is 2090 Palm Beach Lakes Boulevard, West Palm
Beach, Florida 33409, Mr. Salem's address is 901 Fleet Center, 50 Kennedy
Plaza, Providence, Rhode Island 02903, and Mr. Traum's address is Moses &
Singer, 1301 Avenue of the Americas, New York, New York 10019.
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CERTAIN TRANSACTIONS AND RELATIONSHIPS
In November 1993, Providence purchased 5,000 shares of the Series A
Preferred Stock and 57,117 shares of the Common Stock for an aggregate
purchase price of $5.0 million. In connection with this transaction, the
Company and Providence entered into a Securities Purchase Agreement and
Providence, the Company, and the Company's principal shareholders entered into
a Shareholders' Agreement.
The Securities Purchase Agreement contained, among other things, a number of
restrictions on the Company's ability to pay dividends, make distributions or
redemptions or engage in significant mergers, acquisitions, asset dispositions
or similar transactions. Under the Shareholders' Agreement, Providence had
certain preemptive rights and "tag-along" rights entitling Providence to
participate on a proportional basis in any sales of Common Stock by other
principal shareholders, the right to designate one member of the Company's
Board of Directors and the right to require the Company to repurchase from
Providence the Series A Preferred Stock (at face value) and all shares of
Common Stock (at fair market value) held by Providence in May 1999 or earlier
in the case of certain events. As the Company applied a portion of the net
proceeds of the Offering to the redemption of all of the shares of the Series
A Preferred Stock and the Common Stock held by Providence on consummation of
the Offering, these restrictions and rights ceased to be effective on the
closing of the Offering.
On consummation of the Offering, the Company redeemed all of the shares of
the Series A Preferred Stock owned by Providence (including the 5,000 shares
issued to Providence in 1993 and 2,813 shares issued or issuable to Providence
as stock dividends from time to time thereafter through the date of redemption
in lieu of cash dividends) at their face value of $7.8 million, and all of the
57,117 shares of the Common Stock and options to acquire an additional 3,183
shares of Common Stock owned by Providence for an additional $6.3 million, for
a total redemption price of $14.1 million.
On consummation of the Offering, the Company also redeemed all of the 1,389
shares of the Series B Preferred Stock and the 11,150 shares of the Common
Stock held by the Compensation Deferral Plan for an aggregate redemption price
of $2.6 million, of which $1.4 million was attributable to the face value of
the shares of the Series B Preferred Stock and the balance was attributable to
such shares of the Common Stock. Following such redemption, the Compensation
Deferral Plan was terminated and cash distributions were made to its 15
participants out of the proceeds of the redemption, including $1.1 million to
Ralph Guild, $0.1 million to Marc Guild and $0.1 million to Mr. Yaguda.
Paul J. Salem, who served as Providence's designee to the Board of Directors
since late 1993, resigned his position effective upon the consummation of the
Financing Transactions.
Pursuant to a Services Agreement (the "Services Agreement") between the
Company and Media Financial Services, Inc. ("Media"), the Company retained
Media, for a five-year term commencing June 1, 1997, to provide certain
financial and accounting services for the Company and its subsidiaries,
including the preparation of monthly, quarterly and annual financial
statements, the preparation and filing of all required federal, state and
local tax returns and all billing, accounts receivable, accounts payable and
collections functions. Media currently employs 36 full-time employees. Under
the Services Agreement, Mr. McEntee, who is the President of Media, is in
charge of all services rendered by Media to the Company and, pursuant to the
Services Agreement, serves as Vice President and Chief Financial Officer of
the Company for an annual salary of $120,000. For its services, Media will be
paid an annual fee of $2.5 million in years one and two, $2.6 million in year
three, $2.7 million in year four and $2.9 million in year five of the Services
Agreement.
Since December 1979, the Company has leased from a trust, of which Ralph
Guild is the income beneficiary and Marc Guild is the trustee, a building
which is used from time to time by the Company for training sessions and
management meetings. The lease expires on December 31, 2009 and provides for
base annual rentals increasing from $78,000 per year to $102,000 per year over
the term of the lease, subject to adjustment for actual usage. In each of
1995, 1996 and 1997 total lease expense was $74,000. The Company believes the
terms of the building lease arrangement are at least comparable to, if not
more favorable to the Company than, the terms
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<PAGE>
which would have been obtained in transactions with unrelated parties. The
Company intends to continue these or other arrangements in the future as long
as it believes each transaction is more beneficial to the Company than using
an unrelated provider.
Mr. Guild is indebted to the Company in the amount of $170,000 pursuant to a
promissory note made in 1991 in the original principal amount of $389,000. The
note bears interest at a variable rate equal to the lowest rate permitted for
federal income tax purposes and is payable in annual installments of principal
and interest through December 31, 1999. In June 1997, Mr. Guild loaned the
Company $2.0 million, which was repaid in full, together with interest, in
December 1997.
In December 1995, Leslie D. Goldberg resigned his positions as President and
Chief Operating Officer of the Company. Pursuant to an agreement entered by
the Company and Mr. Goldberg at such time, Mr. Goldberg received severance
payments in 1997 of $565,700 and in January and February 1998 totalling
$94,283 in consideration in part of consulting services rendered by Mr.
Goldberg and his non-competition covenant in favor of the Company. The
Company's obligation to make severance payments to Mr. Goldberg expired after
February 1998.
In June 1998, the Company, at the suggestion of the Initial Purchasers,
disposed of its non-radio rep firm subsidiary, Corporate Family Network, Inc.
("CFN"). The results of operations of CFN had resulted in immaterial losses
since its inception. The Company sold CFN to Ralph C. Guild for a purchase
price of $200,000, which was the Company's estimate of the net fair market
value of CFN, payable $50,000 in cash and $150,000 by execution and delivery
by Mr. Guild of his promissory note payable to the Company in three annual
installments of $50,000 each and bearing interest at a fluctuating rate equal
to the prime rate of BancBoston, N.A., plus one percent.
DESCRIPTION OF NEW CREDIT FACILITY
As part of the Financing Transactions, on July 2, 1998, the Company and the
Guarantors entered into the New Credit Facility with BankBoston and Summit,
pursuant to which BankBoston and Summit have agreed to provide the Company and
the Guarantors with a $10.0 million revolving credit facility. The term of the
New Credit Facility is six years. The lenders under the New Credit Facility
are BankBoston, Summit and any other lenders reasonably acceptable to the
Company, with BankBoston acting as administrative agent.
Interest is payable on borrowings under the New Credit Facility at rates
based on either a "Base Rate" or "LIBOR," as selected by the Company plus a
margin ranging from 5/8% to 2 7/8%, depending on (i) whether the selected rate
is "Base Rate" or "LIBOR," and (ii) the Company's ratio of total debt to
EBITDA on a trailing four quarter basis.
The Company and the Guarantors pay a commitment fee under the New Credit
Facility calculated at a rate ranging from 3/8% to 1/2% per annum (depending
on the Company's ratio of total debt to EBITDA) on the daily average unused
commitment under the New Credit Facility. Such fee will be payable quarterly
in arrears and upon termination of the New Credit Facility (whether at stated
maturity or otherwise).
The Company's and the Guarantors' obligations under the New Credit Facility
are secured by a first priority perfected lien on all property and assets,
tangible and intangible, of the Company and the Guarantors, including a pledge
by the Company of all capital stock and membership interests held by it in the
Guarantors.
The New Credit Facility contains customary covenants and restrictions on the
Company's and the Guarantors' ability to engage in certain activities,
including, but not limited to (i) limitations on the incurrence of liens,
indebtedness and guarantees, (ii) restrictions on investments, acquisitions,
dividends, capital expenditures, transactions with affiliates and the
Company's or the Guarantors' engaging in lines of business other than the
radio representation business and (iii) certain financial covenants including,
but not limited to, those governing maximum permitted leverage, minimum
interest coverage and minimum fixed charge coverage.
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<PAGE>
DESCRIPTION OF EXCHANGE NOTES
General
The Exchange Notes will be issued pursuant to an Indenture (the "Indenture")
among the Company, the Guarantors and Summit Bank, as trustee (the "Trustee").
The terms of the Exchange Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939 (the "Trust Indenture Act"). The Exchange Notes are subject to all such
terms, and Holders of Exchange Notes are referred to the Indenture and the
Trust Indenture Act for a statement thereof. The following summary of the
material provisions of the Indenture does not purport to be complete and is
qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. Copies of the Indenture are
available as set forth below under "--Additional Information." The definitions
of certain terms used in the following summary are set forth below under "--
Certain Definitions." For purposes of this summary, the term "Company" refers
only to Interep National Radio Sales, Inc. and not to any of its Subsidiaries.
The Exchange Notes will be general unsecured obligations of the Company and
will be subordinated in right of payment to all current and future Senior
Indebtedness of the Company, including all Senior Indebtedness under the New
Credit Facility, and will rank pari passu or senior in right of payment with
all existing and future subordinated indebtedness of the Company. As of March
31, 1998, on a pro forma basis after giving effect to the Financing
Transactions, the aggregate principal amount of Senior Indebtedness (excluding
trade payables) of the Company would have been approximately $0.4 million. The
Indenture will permit additional borrowings, including borrowings under the
New Credit Facility, in the future. See "Risk Factors--Subordination."
As of the date of this Prospectus, all of the Company's Subsidiaries will be
Restricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture.
Principal, Maturity and Interest
The Exchange Notes will be limited in aggregate principal amount to $100.0
million and will mature on July 1, 2008. Interest on the Exchange Notes will
accrue at the rate of 10% per annum and will be payable semi-annually in
arrears on January 1 and July 1, commencing on January 1, 1999, to Holders of
record on the immediately preceding December 15 and June 15. Additional
Exchange Notes may be issued from time to time after the Offering, subject to
the provisions of the Indenture described below under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
Interest on the Exchange Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium, if any, and interest
and Liquidated Damages on the Exchange Notes will be payable at the office or
agency of the Company maintained for such purpose within the City and State of
New York or, at the option of the Company, payment of interest and Liquidated
Damages may be made by check mailed to the Holders of the Exchange Notes at
their respective addresses set forth in the register of Holders of Exchange
Notes; provided that all payments of principal, premium, interest and
Liquidated Damages with respect to Exchange Notes the Holders of which have
given wire transfer instructions to the Company will be required to be made by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's
office or agency in New York will be the office of the Trustee maintained for
such purpose. The Exchange Notes will be issued in denominations of $1,000 and
integral multiples thereof.
Subordination
The payment of principal of, premium, if any, Liquidated Damages, if any,
and interest on the Exchange Notes will be subordinated in right of payment,
as set forth in the Indenture, to the prior payment in full of all Senior
Indebtedness, whether outstanding on the date of the Indenture or thereafter
incurred.
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Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Indebtedness will be entitled to
receive payment in full of all Obligations due in respect of such Senior
Indebtedness (including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Indebtedness) before the
Holders of Exchange Notes will be entitled to receive any payment with respect
to the Exchange Notes, and until all Obligations with respect to Senior
Indebtedness are paid in full, any distribution to which the Holders of
Exchange Notes would be entitled shall be made to the holders of Senior
Indebtedness (except that Holders of Exchange Notes may receive and retain
Permitted Junior Securities and payments made from the trust described under
"--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Exchange
Notes (except in Permitted Junior Securities or from the trust described under
"--Legal Defeasance and Covenant Defeasance") if (i) a default in the payment
of the principal of, premium, if any, or interest on Designated Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior Indebtedness
as to which such default relates to accelerate its maturity and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from the
Company or the holders of any Designated Senior Indebtedness. Payments on the
Exchange Notes may and shall be resumed (a) in the case of a payment default,
upon the date on which such default is cured or waived and (b) in case of a
nonpayment default, the earlier of the date on which such nonpayment default
is cured or waived or 179 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of any Designated Senior
Indebtedness has been accelerated. No new period of payment blockage may be
commenced unless and until (i) 360 days have elapsed since the effectiveness
of the immediately prior Payment Blockage Notice and (ii) all scheduled
payments of principal, premium, if any, and interest on the Exchange Notes
that have come due have been paid in full in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice unless such default shall have been waived for a period of not
less than 90 days.
The Indenture further requires that the Company promptly notify holders of
Senior Indebtedness if payment of the Exchange Notes is accelerated because of
an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Exchange Notes may recover less
ratably than creditors of the Company who are holders of Senior Indebtedness.
On a pro forma basis, after giving effect to the Financing Transactions, the
principal amount of Senior Indebtedness outstanding at March 31, 1998 would
have been approximately $0.4 million. The Indenture will limit, subject to
certain financial tests, the amount of additional Indebtedness, including
Senior Indebtedness, that the Company and its subsidiaries can incur. See "--
Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock."
Subsidiary Guarantees
The Company's payment obligations under the Exchange Notes will be fully and
unconditionally, jointly and severally guaranteed (the "Subsidiary
Guarantees") by the Guarantors. The Subsidiary Guarantees will be subordinated
in right of payment to all existing and future Senior Indebtedness of the
Guarantors, including all of the obligations of the Guarantors under the New
Credit Facility, and will rank pari passu or senior in right or payment with
any subordinated Indebtedness of the Guarantors. The obligations of each
Guarantor under its Subsidiary Guarantee will be limited so as not to
constitute a fraudulent conveyance under applicable law. See, however, "Risk
Factors--Fraudulent Conveyance Considerations."
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any
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such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the Exchange Notes,
the Indenture and (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition,
by way of such a merger, consolidation or otherwise, of all of the capital
stock of such Guarantor) or the corporation acquiring the property (in the
event of a sale or other disposition of all of the assets of such Guarantor)
will be released and relieved of any obligations under its Subsidiary
Guarantee; provided that the Net Proceeds of such sale or other disposition
are applied in accordance with the applicable provisions of the Indenture. See
"--Repurchase at Option of Holders--Asset Sales."
Optional Redemption
The Exchange Notes will not be redeemable at the Company's option prior to
July 1, 2003. Thereafter, the Exchange Notes will be subject to redemption at
any time at the option of the Company, in whole or in part, upon not less than
30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on July 1 of the years
indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003............................................................ 105.000%
2004............................................................ 103.333%
2005............................................................ 101.667%
2006 and thereafter............................................. 100.000%
</TABLE>
Notwithstanding the foregoing, during the first 36 months after the date of
this Prospectus, the Company may on any one or more occasions redeem up to 30%
of the aggregate principal amount of Exchange Notes originally issued under
the Indenture at a redemption price of 110.000% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the redemption date, with the net cash proceeds of an offering of
common stock of the Company; provided that at least 70% of the aggregate
principal amount of Notes originally issued under the Indenture remain
outstanding immediately after the occurrence of such redemption (excluding
Notes held by the Company and its Subsidiaries); and provided, further, that
such redemption shall occur within 45 days of the date of the closing of such
offering.
Selection and Notice
If less than all of the Exchange Notes are to be redeemed at any time,
selection of Exchange Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities
exchange, if any, on which the Exchange Notes are listed, or, if the Exchange
Notes are not so listed, on a pro rata basis, by lot or by such method as the
Trustee shall deem fair and appropriate; provided that no Exchange Notes of
$1,000 or less shall be redeemed in part. Notices of redemption shall be
mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each Holder of Exchange Notes to be redeemed at its
registered address. Notices of redemption may not be conditional. If any
Exchange Note is to be redeemed in part only, the notice of redemption that
relates to such Exchange Note shall state the portion of the principal amount
thereof to be redeemed. A new Exchange Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Exchange Note. Exchange Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Exchange Notes or portions of
them called for redemption.
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Mandatory Redemption
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Exchange Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each Holder of Exchange Notes
will have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Exchange
Notes pursuant to the offer described below (the "Change of Control Offer") at
an offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest and Liquidated Damages thereon, if any, to
the date of purchase (the "Change of Control Payment"). Within ten days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Exchange Notes on the date specified in
such notice, which date shall be no earlier than 30 days and no later than 60
days from the date such notice is mailed (the "Change of Control Payment
Date"), pursuant to the procedures required by the Indenture and described in
such notice. The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of the Exchange Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Exchange Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all
Exchange Notes or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Exchange Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Exchange Notes
or portions thereof being purchased by the Company. The Paying Agent will
promptly mail to each Holder of Exchange Notes so tendered the Change of
Control Payment for such Exchange Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book-entry) to each
Holder a new Exchange Note equal in principal amount to any unpurchased
portion of the Exchange Notes surrendered, if any; provided that each such new
Exchange Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Exchange Notes to require
that the Company repurchase or redeem the Exchange Notes in the event of a
takeover, recapitalization or similar transaction.
The New Credit Facility, contains prohibitions of certain events that would
constitute a Change of Control. In addition, the exercise by the Holders of
Exchange Notes of their right to require the Company to repurchase the
Exchange Notes could cause a default under the New Credit Facility, even if
the Change of Control itself does not, due to the financial effect of such
repurchases on the Company. Finally, the Company's ability to pay cash to the
Holders of Exchange Notes upon a repurchase may be limited by the Company's
then existing financial resources. See "Risk Factors--Change of Control."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Exchange Notes validly tendered and not withdrawn
under such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
transfer, conveyance or other disposition of "all or substantially all" of the
assets of the Company and its Restricted Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no
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precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of Exchange Notes to require the Company
to repurchase such Exchange Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset Sales
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee in the event of an Asset Sale
(whether pursuant to a single transaction or a series of related transactions)
that has fair market value or involves Net Proceeds in excess of $5.0 million)
of the assets or Equity Interests issued or sold or otherwise disposed of and
(ii) at least 80% of the consideration therefor received by the Company or
such Restricted Subsidiary is in the form of cash; provided that the amount of
(x) any liabilities (as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet) of the Company or any Restricted Subsidiary (other
than contingent liabilities and liabilities that are by their terms
subordinated to the Exchange Notes or any guarantee thereof) that are assumed
by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Restricted Subsidiary from further
liability and (y) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by the
Company or such Subsidiary into cash (to the extent of the cash received),
shall be deemed to be cash for purposes of this provision.
Within 180 days after the receipt of any Net Proceeds from an Asset Sale
(360 days in the case of Net Proceeds that are comprised solely of Buy Out
Proceeds), the Company may apply such Net Proceeds (a) to repay Indebtedness
under the New Credit Facility, (b) to acquire all or substantially all of the
assets of, or a majority of the Voting Stock of, another Permitted Business,
(c) to make capital expenditures, (d) to acquire other long-term assets that
are used or useful in a Permitted Business, including Media Representation
Contracts, or (e) to pay Buy Out Proceeds Amounts in connection with Contract
Buy Outs. Pending the final application of any such Net Proceeds, the Company
may temporarily reduce revolving credit borrowings or otherwise invest such
Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million,
the Company will be required to make an offer to all Holders of Exchange Notes
and all holders of other Indebtedness that is pari passu with the Exchange
Notes containing provisions similar to those set forth in the Indenture with
respect to offers to purchase or redeem with the proceeds of sales of assets
(an "Asset Sale Offer") to purchase the maximum principal amount of Exchange
Notes and such other pari passu Indebtedness that may be purchased out of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the date of purchase, in accordance with the
procedures set forth in the Indenture and such other pari passu Indebtedness.
To the extent that any Excess Proceeds remain after consummation of an Asset
Sale Offer, the Company may use such Excess Proceeds for any purpose not
otherwise prohibited by the Indenture. If the aggregate principal amount of
Exchange Notes and such other pari passu Indebtedness tendered into such Asset
Sale Offer surrendered by Holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Exchange Notes and such other pari
passu Indebtedness to be purchased on a pro rata basis. Upon completion of
such offer to purchase, the amount of Excess Proceeds shall be reset at zero.
Certain Covenants
Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of
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the Company's or any of its Restricted Subsidiaries' Equity Interests
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company or any of its Restricted Subsidiaries) or
to the direct or indirect holders of the Company's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such (other than dividends
or distributions payable in Equity Interests (other than Disqualified Stock)
of the Company or to the Company or a Restricted Subsidiary of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation involving
the Company) any Equity Interests of the Company or any direct or indirect
parent of the Company or other Affiliate of the Company (other than any such
Equity Interests owned by the Company or any Restricted Subsidiary of the
Company); (iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Exchange Notes, except a payment of interest or principal
at Stated Maturity; or (iv) make any Restricted Investment (all such payments
and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii) and (iv) of the next succeeding
paragraph), is less than the sum, without duplication, of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company since
the date of the Indenture as a contribution to its common equity capital or
from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or from the issue or sale of Disqualified Stock or debt
securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company), plus
(iii) to the extent that any Restricted Investment that was made after the
date of the Indenture is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the
Company in exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Restricted Subsidiary of the Company) of,
other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for
any such redemption, repurchase, retirement, defeasance or other acquisition
shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness; (iv) the payment of any dividend by a Restricted
Subsidiary of the Company to the holders of its Equity Interests on a pro rata
basis; (v) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any Restricted Subsidiary of
the Company held by (A) any employee, director or consultant of the Company
(or any of its Restricted Subsidiaries) pursuant to any employee, director or
consultant equity subscription agreement or stock option agreement or (B) any
Employee Stock Ownership
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Plan (or related trust) of the Company; provided that the aggregate price paid
for all such repurchased, redeemed, acquired or retired Equity Interests shall
not exceed $750,000 in any twelve-month period and (vi) the repurchase,
redemption or other acquisition or retirement for value of any Equity Interest
of the Company or any Restricted Subsidiary of the Company held by any
Employee Stock Ownership Plan (or related trust) of the Company necessary in
order for any such Employee Stock Ownership Plan (or related trust) of the
Company to constitute a qualified plan or trust under Sections 401(a) and
501(a), respectively of the Code; provided that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests
(excluding any Equity Interests repurchased, redeemed, acquired or retired
pursuant to clause (v) hereof) since the date of the Indenture shall not
exceed $2.5 million. See "Risk Factors--Repurchase Obligations Under Employee
Benefit Plans" and "Management--Executive Compensation."
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. In the
event of any such designation, all outstanding Investments owned by the
Company and its Restricted Subsidiaries in the Subsidiary so designated will
be deemed to be an Investment made as of the time of such designation and will
reduce the amount available for Restricted Payments under the first paragraph
of this covenant or Permitted Investments, as applicable. All such outstanding
Investments will be deemed to constitute Restricted Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by
this covenant shall be determined by the Board of Directors whose resolution
with respect thereto shall be delivered to the Trustee, such determination to
be based upon an opinion or appraisal issued by an accounting, appraisal or
investment banking firm of national standing if such fair market value exceeds
$5.0 million. Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which
the calculations required by the covenant "Restricted Payments" were computed,
together with a copy of any fairness opinion or appraisal required by the
Indenture. Contributions by employees to the Stock Growth Plan, as in effect
on the Issue Date, and, if such plan is not a Restricted Subsidiary, payments
by such Plan to purchase Equity Interests of the Company, in each case, in the
ordinary course of business on a basis consistent with past practices, shall
not constitute "Restricted Payments."
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company and the Guarantors may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock
if the Fixed Charge Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is
incurred or such Disqualified Stock is issued would have been at least 2.0 to
1, determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been incurred,
or the Disqualified Stock had been issued, as the case may be, at the
beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company of Indebtedness under the New Credit
Facility; provided that the aggregate principal amount of all Indebtedness
outstanding under the New Credit Facility after giving effect
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to such incurrence does not exceed an amount equal to $10.0 million less
the aggregate amount of all Net Proceeds of Asset Sales that have been
applied since the date of the Indenture to repay Indebtedness pursuant to
the covenant described above under the caption "--Repurchase at the Option
of Holders--Asset Sales;"
(ii) the incurrence by the Company of Indebtedness represented by Capital
Lease Obligations, mortgage financings or purchase money obligations, in
each case incurred for the purpose of financing all or any part of the
purchase price or cost of construction or improvement of property, plant or
equipment used in the business of the Company, in an aggregate principal
amount not to exceed $2.5 million at any time outstanding;
(iii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iv) the incurrence by the Company up to $100.0 million of Indebtedness
represented by the Notes and the Exchange Notes;
(v) the guarantee by the Company or any of the Guarantors of Indebtedness
that was permitted to be incurred by another provision of this covenant;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Wholly Owned Restricted Subsidiaries; provided, however, that (i) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Exchange Notes and (ii)(A) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Restricted Subsidiary thereof
and (B) any sale or other transfer of any such Indebtedness to a Person
that is not either the Company or a Wholly Owned Restricted Subsidiary
thereof shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Restricted Subsidiary, as the case may
be, that was not permitted by this clause (vi);
(vii) the incurrence by the Company of Hedging Obligations that are
incurred for the purpose of fixing or hedging interest rate risk with
respect to any floating rate Indebtedness that is permitted by the terms of
this Indenture to be outstanding; provided, that the agreement, indenture
or other documents governing such Indebtedness require such fixing or
hedging of interest rate risk;
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted by the Indenture
to be incurred under the first paragraph hereof or clauses (iii), (iv),
(viii) and (x) of this paragraph;
(ix) the incurrence by the Company of Indebtedness with respect to
performance, surety and appeal bonds in the ordinary course of business;
(x) the incurrence by the Company's Unrestricted Subsidiaries of Non-
Recourse Debt, provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (x); and
(xi) the incurrence by the Company of additional Indebtedness in an
aggregate principal amount (or accreted value, as applicable) at any time
outstanding, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any Indebtedness incurred pursuant to this
clause (xi), not to exceed $5.0 million.
The Indenture also provides that the Company will not incur any Indebtedness
(including Permitted Debt) that is contractually subordinated in right of
payment to any other Indebtedness of the Company unless such Indebtedness is
also contractually subordinated in right of payment to the Exchange Notes on
substantially identical terms; provided, however, that no Indebtedness of the
Company shall be deemed to be contractually subordinated in right of payment
to any other Indebtedness of the Company solely by virtue of being unsecured.
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For purposes of determining compliance with this covenant, in the event that
an item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xi) above as of
the date of incurrence thereof, or is entitled to be incurred pursuant to the
first paragraph of this covenant as of the date of incurrence thereof, the
Company shall, in its sole discretion, classify such item of Indebtedness on
the date of its incurrence in any manner that complies with this covenant.
Accrual of interest, accretion or amortization of original issue discount, the
payment of interest on any Indebtedness in the form of additional Indebtedness
with the same terms and the payment of dividends on Disqualified Stock in the
form of additional shares of the same class of Disqualified Stock will not be
deemed to be an incurrence of Indebtedness or an issuance of Disqualified
Stock for purposes of this covenant; provided, in each such case, that the
amount thereof is included in Fixed Charges of the Company as accrued.
Liens
The Indenture provides that the Company will not and will not permit any of
its Restricted Subsidiaries to, create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien of any kind (other than Permitted
Liens) upon any of their property or assets, now owned or hereafter acquired,
unless all payments due under the Indenture and the Exchange Notes are secured
on an equal and ratable basis with the obligations so secured until such time
as such obligations are no longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1)
on its Capital Stock or (2) with respect to any other interest or
participation in, or measured by, its profits, or (b) pay any indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii)
transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries. However, the foregoing restrictions will not apply to
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the New Credit
Facility as in effect as of the date of the Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those contained
in the New Credit Facility as in effect on the date of the Indenture, (c) the
Indenture, the Exchange Notes and the Subsidiary Guarantees, (d) applicable
law, (e) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property or assets of
the Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred, (f)
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (g) purchase money
obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (h) any agreement for the sale or other disposition of a
Restricted Subsidiary that restricts distributions by that Restricted
Subsidiary pending its sale or other disposition, (i) Liens securing
Indebtedness otherwise permitted to be incurred pursuant to the provisions of
the covenant described above under the caption "--Liens" that limit the right
of the Company or any of its Restricted Subsidiaries to dispose of the assets
subject to such Lien, (j) provisions with respect to the disposition or
distribution of assets or property in joint venture agreements and other
similar agreements entered into in the ordinary course of business and (k)
restrictions on cash or other deposits or net worth imposed by customers under
contracts entered into in the ordinary course of business.
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Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not, directly or indirectly,
consolidate or merge with or into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, convey or otherwise dispose of all or
substantially all of its properties or assets, in one or more related
transactions, to another Person unless (i) the Company is the surviving
corporation or the Person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment,
transfer, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States, any
state thereof or the District of Columbia; (ii) the Person formed by or
surviving any such consolidation or merger (if other than the Company) or the
Person to which such sale, assignment, transfer, conveyance or other
disposition shall have been made assumes all the obligations of the Company
under the Registration Rights Agreement, the Exchange Notes and the Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately after such transaction no Default or Event of
Default exists; and (iv) except in the case of a merger of the Company with or
into a Wholly Owned Restricted Subsidiary of the Company, the Company or the
Person formed by or surviving any such consolidation or merger (if other than
the Company), or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made (A) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated
Net Worth of the Company immediately preceding the transaction and (B) will,
immediately after such transaction after giving pro forma effect thereto and
any related financing transactions as if the same had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described above
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock." The Indenture also provides that the Company may not, directly or
indirectly, lease all or substantially all of its properties or assets, in one
or more related transactions, to any other Person. The provisions of this
covenant is not be applicable to a sale, assignment, transfer, conveyance or
other disposition of assets between or among the Company and any of the
Guarantors.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or
such Restricted Subsidiary with an unrelated Person and (ii) the Company
delivers to the Trustee (a) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $1.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5.0 million, an
opinion as to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment
banking firm of national standing. Notwithstanding the foregoing, the
following items shall not be deemed to be Affiliate Transactions: (i) any
employment agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Restricted Subsidiary, (ii) transactions
between or among the Company and/or its Restricted Subsidiaries, (iii) payment
of reasonable directors fees to Persons who are not otherwise Affiliates of
the Company, (iv) any sale or other issuance of Equity Interests (other than
Disqualified Stock) of the Company, (v) Restricted Payments that are permitted
by the provisions of the Indenture described above under the caption "--
Restricted Payments," (vi) the application of the proceeds from the sale of
the Notes as described in the final offering memorandum, dated June 29, 1998
pertaining thereto, (vii) the performance of the Services Agreement between
the Company and Media Financial Services, Inc. as in effect on the date of the
Indenture, (viii) the performance of the lease of the real property located in
Tuxedo Park, New York, between the Company and The Tuxedo Park Executive
Conference Center Proprietorship as in
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effect on the date of the Indenture and (ix) payments in respect of the
promissory note from Mr. Ralph C. Guild payable to the Company in the original
aggregate principal amount of $389,000 as in effect on the date of the
Indenture.
Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Restricted
Subsidiaries shall acquire or create another Subsidiary after the date of the
Indenture, then such newly acquired or created Subsidiary shall become a
Guarantor and execute a supplemental indenture and deliver an Opinion of
Counsel, in accordance with the terms of the Indenture; provided, that all
Subsidiaries that have properly been designated as Unrestricted Subsidiaries
in accordance with the Indenture (i) shall not be subject to the requirements
of this covenant and (ii) shall be released from Obligations under any
Subsidiary Guarantee, in each case for so long as they continue to constitute
Unrestricted Subsidiaries.
Business Activities
The Company will not, and will not permit any Subsidiary to, engage in any
business other than Permitted Businesses, except to such extent as would not
be material to the Company and its Subsidiaries taken as a whole.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any Holder of any Exchange
Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Exchange Notes unless such
consideration is offered to be paid and is paid to all Holders of the Exchange
Notes in connection with such consent, waiver or agreement.
No Senior Subordinated Debt
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Indebtedness and
senior in any respect in right of payment to the Exchange Notes, and (ii) no
Guarantor will incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment
to any Indebtedness of such Guarantor and senior in any respect in right of
payment to the Subsidiary Guarantee of such Guarantor.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Exchange Notes are outstanding,
the Company will furnish to the Holders of Exchange Notes (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q (commencing with the fiscal quarter
ending June 30, 1998) and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition
and results of operations of the Company and its consolidated Subsidiaries
(showing in reasonable detail, either on the face of the financial statements
or in the footnotes thereto and in Management's Discussion and Analysis of
Financial Condition and Results of Operations, the financial condition and
results of operations of the Company and its Restricted Subsidiaries separate
from the financial condition and results of operations of the Unrestricted
Subsidiaries of the Company) and, with respect to the annual information only,
a report thereon by the Company's certified independent accountants and (ii)
all current reports that would be required to be filed with the Commission on
Form 8-K if the Company were required to file such reports, in each case
within the time periods specified in the Commission's rules and regulations.
In addition, following the consummation of the exchange offer contemplated by
the Registration Rights Agreement, whether or not required by the rules and
regulations of the
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Commission, the Company will file a copy of all such information and reports
with the Commission for public availability within the time periods specified
in the Commission's rules and regulations (unless the Commission will not
accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, the Company and
the Subsidiary Guarantors have agreed that, for so long as any Exchange Notes
remain outstanding, they will furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Exchange Notes; (ii) default in
payment when due of the principal of or premium, if any, on the Exchange
Notes; (iii) failure by the Company or any of its Subsidiaries to comply with
the provisions described under the captions "--Repurchase at the Option of
Holders--Change of Control," "--Repurchase at the Option of Holders--Asset
Sales," "--Certain Covenants--Restricted Payments" or "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock;" (iv) failure by
the Company or any of its Subsidiaries for 60 days after notice to comply with
any of its other agreements in the Indenture or the Exchange Notes; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $5.0 million or more; (vi) failure
by the Company or any of its Subsidiaries to pay final judgments aggregating
in excess of $5.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days; (vii) except as permitted by the Indenture, any
Subsidiary Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any Guarantor, or any Person acting on behalf of any Guarantor,
shall deny or disaffirm its obligations under its Subsidiary Guarantee and
(viii) certain events of bankruptcy or insolvency with respect to the Company
or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Exchange Notes may
declare all the Exchange Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, any
Significant Subsidiary or any group of Subsidiaries that, taken together,
would constitute a Significant Subsidiary, all outstanding Exchange Notes will
become due and payable without further action or notice. Holders of the
Exchange Notes may not enforce the Indenture or the Exchange Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Exchange Notes may direct
the Trustee in its exercise of any trust or power. The Trustee may withhold
from Holders of the Exchange Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Exchange Notes
pursuant to the optional redemption provisions of the Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Exchange Notes. If an Event of
Default occurs prior to July 1, 2003 by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of
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the Company with the intention of avoiding the prohibition on redemption of
the Exchange Notes prior to July 1, 2003, then the premium specified in the
Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Exchange Notes.
The Holders of a majority in aggregate principal amount of the Exchange
Notes then outstanding by notice to the Trustee may on behalf of the Holders
of all of the Exchange Notes waive any existing Default or Event of Default
and its consequences under the Indenture except a continuing Default or Event
of Default in the payment of interest on, or the principal of, the Exchange
Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company or such Guarantor under the Exchange Notes, any Guarantee thereof, the
Indenture, or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Exchange Notes by accepting an
Exchange Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Exchange Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws
and it is the view of the Commission that such a waiver is against public
policy.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Exchange Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Exchange
Notes to receive payments in respect of the principal of, premium, if any, and
interest and Liquidated Damages on such Exchange Notes when such payments are
due from the trust referred to below, (ii) the Company's obligations with
respect to the Exchange Notes concerning issuing temporary Exchange Notes,
registration of Exchange Notes, mutilated, destroyed, lost or stolen Exchange
Notes and the maintenance of an office or agency for payment and money for
security payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Exchange Notes. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Exchange Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages on the outstanding Exchange Notes on the stated maturity or
on the applicable redemption date, as the case may be, and the Company must
specify whether the Exchange Notes are being defeased to maturity or to a
particular redemption date; (ii) in the case of Legal Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Exchange Notes will not recognize income, gain or loss for federal
income tax purposes as a result
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of such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Exchange Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than
a Default or Event of Default resulting from the borrowing of funds to be
applied to such deposit) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or constitute a
default under any material agreement or instrument (other than the Indenture)
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound; (vi) the Company must have
delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; (vii) the Company must deliver to
the Trustee an Officers' Certificate stating that the deposit was not made by
the Company with the intent of preferring the Holders of Exchange Notes over
the other creditors of the Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and (viii) the
Company must deliver to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
Transfer and Exchange
A Holder may transfer or exchange the Exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or
exchange any Exchange Note selected for redemption. Also, the Company is not
required to transfer or exchange any Exchange Note for a period of 15 days
before a selection of Exchange Notes to be redeemed.
The registered Holder of an Exchange Note will be treated as the owner of it
for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture, the
Exchange Notes and the Subsidiary Guarantees may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the Exchange Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Exchange Notes), and any existing default or compliance with any
provision of the Indenture or the Exchange Notes may be waived with the
consent of the Holders of a majority in principal amount of the then
outstanding Exchange Notes (including, without limitation, consents obtained
in connection with a purchase of, or tender offer or exchange offer for,
Exchange Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Exchange Notes held by a non-consenting Holder): (i)
reduce the principal amount of Exchange Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Exchange Note or alter the provisions with respect to
the redemption of the Exchange Notes (other than provisions relating to the
covenants described above under the caption "--Repurchase at the Option of
Holders"), (iii) reduce the rate of or change the time for payment of interest
on any Exchange Note, (iv) waive a Default or Event of Default in the payment
of principal of or premium, if any, or interest on the Exchange Notes (except
a rescission of acceleration of the Exchange Notes by the Holders of at least
a majority in aggregate principal amount of the Exchange Notes and a waiver of
the payment default that resulted from such acceleration), (v) make any
Exchange Note payable in money other than that stated in the Exchange Notes,
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(vi) make any change in the provisions of the Indenture relating to waivers of
past Defaults or the rights of Holders of Exchange Notes to receive payments
of principal of or premium, if any, or interest on the Exchange Notes, (vii)
waive a redemption payment with respect to any Exchange Note (other than a
payment required by one of the covenants described above under the caption "--
Repurchase at the Option of Holders"), (viii) release any Guarantor from its
Obligations under its Subsidiary Guarantee or the Indenture, except in
accordance with the terms of the Indenture or (ix) make any change in the
foregoing amendment and waiver provisions. In addition, any amendment to the
provisions of Article 10 of the Indenture (which relate to subordination) will
require the consent of the Holders of at least 75% in aggregate principal
amount of the Exchange Notes then outstanding if such amendment would
adversely affect the rights of Holders of Exchange Notes.
Notwithstanding the foregoing, without the consent of any Holder of Exchange
Notes, the Company and the Trustee may amend or supplement the Indenture or
the Exchange Notes to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Exchange Notes in addition to or in place of certificated
Exchange Notes, to provide for the assumption of the Company's obligations to
Holders of Exchange Notes in the case of a merger or consolidation or sale of
all or substantially all of the Company's assets, to make any change that
would provide any additional rights or benefits to the Holders of Exchange
Notes or that does not adversely affect the legal rights under the Indenture
of any such Holder, or to comply with requirements of the Commission in order
to effect or maintain the qualification of the Indenture under the Trust
Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Exchange Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required,
in the exercise of its power, to use the degree of care of a prudent man in
the conduct of his own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Exchange Notes, unless such Holder
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
Additional Information
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Interep National
Radio Sales, Inc., 100 Park Avenue, New York, New York 10017, Attention: Chief
Financial Officer.
Book-Entry, Delivery and Form
The certificates representing the Exchange Notes will be issued in fully
registered global form in minimum denominations of $1,000 and integral
multiples of $1,000 in excess thereof. Except as described in the next
paragraph, the Exchange Notes initially will be represented by a single,
permanent global Exchange Note, in definitive, fully registered form without
interest coupons (the "Global Exchange Note") and will be deposited with the
Trustee as custodian for DTC and registered in the name of Cede & Co. or such
other nominee as DTC may designate. The Global Exchange Note (and any Exchange
Notes issued in exchange therefor) will be subject to certain restrictions on
transfer set forth therein and in the Indenture and will bear the respective
legends regarding such restrictions.
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Holders of Exchange Notes who elect to take physical delivery of their
certificates instead of holding their interest through the Global Exchange
Note (collectively referred to herein as the "Non-Global Holders") will be
issued in registered form a certificated Exchange Note ("Certificated Exchange
Note"). Upon the transfer of any Certificated Exchange Note initially issued
to a Non-Global Holder, such Certificated Exchange Note will, unless the
transferee requests otherwise or the Global Exchange Note has previously been
exchanged in whole for Certificated Exchange Notes, be exchanged for an
interest in the Global Exchange Note.
The following description of the operations and procedures of DTC, Euroclear
and Cedel are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them from time to time. The Company takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only thorough the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that, pursuant to procedures established by the
Depositary, (i) upon deposit of the Global Exchange Notes, the Depositary will
credit the accounts of Participants designated by the Initial Purchasers with
portions of the principal amount of the Global Exchange Notes and (ii)
ownership of the Exchange Notes evidenced by the Global Exchange Notes will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depositary (with respect to the interests of the
Depositary's Participants), the Depositary's Participants and the Depositary's
Indirect Participants. Prospective purchasers are advised that the laws of
some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer
Exchange Notes evidenced by the Global Exchange Notes will be limited to such
extent.
So long as the Global Exchange Note Holder is the registered owner of any
Exchange Notes, the Global Exchange Note Holder will be considered the sole
Holder under the Indenture of any Exchange Notes evidenced by the Global
Exchange Notes. Beneficial owners of Exchange Notes evidenced by the Global
Exchange Notes will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any
aspect of the records of the Depositary or for maintaining, supervising or
reviewing any records of the Depositary relating to the Exchange Notes.
Payments in respect of the principal of and premium, interest and Liquidated
Damages, if any, on any Exchange Notes registered in the name of the Global
Exchange Note Holder on the applicable record date will be payable by the
Trustee to or at the direction of the Global Exchange Note Holder in its
capacity as the registered Holder under the Indenture. Under the terms of the
Indenture, the Company and the Trustee may treat the persons in whose names
Exchange Notes, including the Global Exchange Notes, are registered as the
owners thereof for the purpose of receiving such payments. Consequently,
neither the Company nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of Exchange
Notes. The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants
with such payments, in amounts proportionate to their respective holdings of
beneficial interests in the relevant security as shown on the records of the
Depositary. Payments by the Depositary's Participants and the Depositary's
Indirect Participants to the beneficial owners of Exchange Notes
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will be governed by standing instructions and customary practice and will be
the responsibility of the Depositary's Participants or the Depositary's
Indirect Participants.
Additional Information Concerning Euroclear and Cedel Bank
Euroclear and Cedel Bank hold securities for participating organizations and
facilitate the clearance and settlement of securities transactions between
their respective participants through electronic book-entry changes in
accounts of such participants. Euroclear and Cedel Bank provide to their
participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Euroclear and Cedel Bank interface with domestic
securities markets. Euroclear and Cedel Bank participants are financial
institutions such as underwriters, securities brokers and dealers, banks,
trust companies and certain other organizations. Indirect access to Euroclear
and Cedel Bank is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodian relationship with a
Euroclear or Cedel Bank participant, either directly or indirectly. The
Company will have no direct control over the clearance and settlement of such
transactions.
When beneficial interests are to be transferred from the account of a
Participant (other than Morgan Guaranty Trust Company of New York and
Citibank, N.A., as depositaries for Euroclear and Cedel Bank, respectively) to
the account of a Euroclear participant or a Cedel Bank participant, the
purchaser must send instructions to Euroclear or Cedel Bank through a
participant at least one business day prior to settlement. Euroclear or Cedel
Bank, as the case may be, will instruct Morgan Guaranty Trust Company of New
York or Citibank, N.A. to receive the beneficial interests against payment.
Payment will include interest attributable to the beneficial interest from and
including the last payment date to and excluding the settlement date, on the
basis of a calendar year consisting of twelve 30-day calendar months. For
transactions settling on the 31st day of the month, payment will include
interest accrued to and excluding the first day of the following month.
Payment will then be made by Morgan Guaranty Trust Company of New York or
Citibank, N.A., as the case may be, to the Participant's account against
delivery of the beneficial interests. After settlement has been completed, the
beneficial interests will be credited to the respective clearing systems and
by the clearing system, in accordance with its usual procedures, to the
Euroclear participants' or Cedel Bank participants' account. Credit for the
beneficial interests will appear on the next business day (European time) and
the cash debit will be back-valued to, and interest attributable to the
beneficial interests will accrue from, the value date (which would be the
preceding business day when settlement occurs in New York). If settlement is
not completed on the intended value date (i.e., the trade fails), the
Euroclear or Cedel Bank cash debit will instead be valued as of the actual
settlement date.
Euroclear participants and Cedel Bank participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Euroclear or Cedel Bank. Under
this approach, they may take on credit exposure to Euroclear or Cedel Bank
until the beneficial interests are credited to their accounts one day later.
Finally, day traders that use Euroclear or Cedel Bank and that purchase
beneficial interests from Participants for credit to Euroclear participants or
Cedel Bank participants should note that these trades would automatically fall
on the sale side unless affirmative action were taken to avoid these potential
problems.
Due to time zone differences in their favor, Euroclear participants and
Cedel Bank participants may employ their customary procedures for transactions
in which beneficial interests are to be transferred by the respective clearing
system, through Morgan Guaranty Trust Company of New York or Citibank, N.A.,
to another Participant. The seller must send instructions to Euroclear or
Cedel Bank through a participant at least one business day prior to
settlement. In these cases, Euroclear or Cedel Bank will instruct Morgan
Guaranty Trust Company of New York or Citibank, N.A., as the case may be, to
credit the beneficial interests to the Participant's account against payment.
Payment will include interest attributable to the beneficial interest from and
including the last payment date to and excluding the settlement date on the
basis of a calendar year consisting of twelve 30-day calendar months. For
transactions settling on the 31st day of the month, payment will include
interest
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accrued to and excluding the first day of the following month. The payment
will then be reflected in the account of the Euroclear participant or Cedel
Bank participant the following business day, and receipt of the cash proceeds
in the Euroclear or Cedel Bank participant's account will be back-valued to
the value date (which would be the preceding business day, when settlement
occurs in New York). If the Euroclear participant or Cedel Bank participant
has a line of credit with its representative clearing system and elects to
draw on such line of credit in anticipation of receipt of the sale proceeds in
its account, the back-valuation may substantially reduce or offset any
overdraft charges incurred over that one-day period. If settlement is not
completed on the intended value date (i.e., if trade fails), receipt of the
cash proceeds in the Euroclear or Cedel Bank participant's account would
instead be valued as of the actual settlement date.
Certificated Securities
Subject to certain conditions, any person having a beneficial interest in a
Global Exchange Note may, upon request, exchange such beneficial interest for
Exchange Notes in the form of Certificated Securities. Upon any such issuance,
the Trustee is required to register such Certificated Securities in the name
of, and cause the same to be delivered to, such person or persons (or the
nominee of any thereof). In addition, if (i) the Company notifies the Trustee
in writing that the Depositary is no longer willing or able to act as a
depositary and the Company is unable to locate a qualified successor within 90
days or (ii) the Company, at its option, notifies the Trustee in writing that
it elects to cause the issuance of Exchange Notes in the form of Certificated
Securities under the Indenture, then, upon surrender by the Global Exchange
Note Holder of the Global Exchange Notes, Exchange Notes in such form will be
issued to each person that the Global Exchange Note Holder and the Depositary
identify as being the beneficial owner of the related Exchange Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Exchange Note Holder or the Depositary in identifying the beneficial
owners of Exchange Notes and the Company and the Trustee may conclusively rely
on, and will be protected in relying on, instructions from the Global Exchange
Note Holder or the Depositary for all purposes.
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the Exchange Notes
represented by the Global Exchange Notes (including principal, premium
interest and Liquidated Damages, if any) be made by wire transfer of
immediately available funds to the accounts specified by the Global Exchange
Note Holder. With respect to Certificated Securities, the Company will make
all payments of principal, premium, interest and Liquidated Damages, if any,
by wire transfer of immediately available funds to the accounts specified by
the Holders thereof or, if no such account is specified, by mailing a check to
each such Holder's registered address.
The Exchange Notes represented by the Global Exchange Notes are expected to
be eligible to trade in the PORTAL market and to trade in the Depositary's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such Exchange Notes will, therefore, be required by the Depositary
to be settled in immediately available funds. The Company expects that
secondary trading in the Certificated Securities will also be settled in
immediately available funds, although such settlement will not be within the
Company's control.
Registration Rights; Liquidated Damages
The Company and the Initial Purchasers entered into the Registration Rights
Agreement dated as of July 2, 1998. Pursuant to the Registration Rights
Agreement, the Company agreed to file with the Commission the Exchange Offer
Registration Statement on the appropriate form under the Securities Act with
respect to the Exchange Notes. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company will offer to the Holders of Transfer
Restricted Securities pursuant to the Exchange Offer who are able to make
certain representations the opportunity to exchange their Transfer Restricted
Securities for Exchange Notes. If (i) the Company is not required to file the
Exchange Offer Registration Statement or permitted to consummate the
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Exchange Offer because the Exchange Offer is not permitted by applicable law
or Commission policy or (ii) any Holder of Transfer Restricted Securities
notifies the Company prior to the 20th day following consummation of the
Exchange Offer that (A) it is prohibited by law or Commission policy from
participating in the Exchange Offer or (B) that it may not resell the Exchange
Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (C) that it is a
broker-dealer and owns Notes acquired directly from the Company or an
affiliate of the Company, the Company will file with the Commission a Shelf
Registration Statement to cover resales of the Series A Notes by the Holders
thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. The Company
will use its best efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission. For purposes of
the foregoing, "Transfer Restricted Securities" means each Series A Note until
(i) the date on which such Series A Note has been exchanged by a person other
than a broker-dealer for an Exchange Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of a Series A
Note for an Exchange Note, the date on which such Exchange Note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of such
sale a copy of the prospectus contained in the Exchange Offer Registration
Statement, (iii) the date on which such Series A Note has been effectively
registered under the Securities Act and disposed of in accordance with the
Shelf Registration Statement or (iv) the date on which such Series A Note is
distributed to the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company will file an
Exchange Offer Registration Statement with the Commission on or prior to 60
days after the Closing Date, (ii) the Company will use its best efforts to
have the Exchange Offer Registration Statement declared effective by the
Commission on or prior to 120 days after the Closing Date, (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will commence the Exchange Offer and use its best efforts to issue
on or prior to 30 business days after the date on which the Exchange Offer
Registration Statement was declared effective by the Commission, Exchange
Notes in exchange for all Series A Notes tendered prior thereto in the
Exchange Offer and (iv) if obligated to file the Shelf Registration Statement,
the Company will use its best efforts to file the Shelf Registration Statement
with the Commission on or prior to 60 days after such filing obligation arises
and to cause the Shelf Registration to be declared effective by the Commission
on or prior to 120 days after such obligation arises. If (a) the Company fails
to file any of the Registration Statements required by the Registration Rights
Agreement on or before the date specified for such filing, (b) any of such
Registration Statements is not declared effective by the Commission on or
prior to the date specified for such effectiveness (the "Effectiveness Target
Date"), or (c) the Company fails to consummate the Exchange Offer within 30
business days of the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement, or (d) the Shelf Registration Statement or the
Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of Transfer
Restricted Securities during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (a) through (d) above a
"Registration Default"), then the Company will pay Liquidated Damages to each
Holder of Series A Notes, with respect to the first 90-day period immediately
following the occurrence of the first Registration Default in an amount equal
to $0.05 per week per $1,000 principal amount of Series A Notes held by such
Holder. The amount of the Liquidated Damages will increase by an additional
$0.05 per week per $1,000 principal amount of Series A Notes with respect to
each subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum amount of Liquidated Damages for all Registration Defaults of
$0.50 per week per $1,000 principal amount of Series A Notes. All accrued
Liquidated Damages will be paid by the Company on each Damages Payment Date to
the Global Note Holder by wire transfer of immediately available funds or by
federal funds check and to Holders of Certificated Securities by wire transfer
to the accounts specified by them or by mailing checks to their registered
addresses if no such accounts have been specified. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Series A Notes will be required to make certain representations
to the Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver certain
information to be used in connection with the Shelf Registration Statement and
to provide comments on
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the Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Notes included in the
Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above. Holders of Notes will also be required to
suspend their use of the prospectus included in the Shelf Registration
Statement under certain circumstances upon receipt of written notice to that
effect from the Company.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices and other than any Contract Buy Out (provided
that the sale, conveyance or other disposition of all or substantially all of
the assets of the Company and its Restricted Subsidiaries taken as a whole
will be governed by the provisions of the Indenture described above under the
caption "--Repurchase at the Option of Holder--Change of Control" and/or the
provisions described above under the caption "--Certain Covenants--Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant), and (ii) the issue by any Restricted Subsidiary of the Company of
any Equity Interests of such Restricted Subsidiary and the sale by the Company
or any of its Restricted Subsidiaries of Equity Interests of any of the
Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a
single transaction or a series of related transactions (a) that have a fair
market value in excess of $1.0 million or (b) for net proceeds in excess of
$1.0 million; provided that with respect to Contract Buy Outs of Media
Representation Contracts of the Company and its Restricted Subsidiaries, if,
as of any Buy Out Determination Date after the Date of the Indenture, the Buy
Out Proceeds Amount exceeds $6.0 million, the Buy Out Proceeds Amount will be
deemed to be Net Proceeds with respect to an Asset Sale as of such Date and
shall be applied in accordance with the second paragraph of the covenant
entitled "Repurchase at the Option of Holders-Asset Sales." Notwithstanding
the foregoing, the following items shall not be deemed to be Asset Sales: (i)
a transfer of assets by the Company to a Wholly Owned Restricted Subsidiary or
by a Wholly Owned Subsidiary to the Company or to another Wholly Owned
Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary,
and (iii) a Restricted Payment that is permitted by the covenant described
above under the caption "--Certain Covenants--Restricted Payments."
"Buy Out Proceeds Amount" means an amount equal to (a) the aggregate amount
of cash consideration actually received by the Company and its Restricted
Subsidiaries in connection with Contract Buy Outs during a fiscal year
(whether or not a Contract Buy Out pursuant to which any such consideration
was received occurred during such fiscal year), minus (b) the aggregate amount
of cash consideration actually paid by the Company and its Restricted
Subsidiaries in connection with Contract Buy Outs during a fiscal year
(whether or not a
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Contract Buy Out pursuant to which any such consideration was paid occurred
during such fiscal year). Immediately following each But Out Proceeds
Determination Date, the Buy Out Proceeds Amount will be reset at zero.
"Buy Out Proceeds Determination Date" means the last day of each fiscal year
of the Company.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less
from the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with any lender
party to the New Credit Facility or with any domestic commercial bank having
capital and surplus in excess of $500 million and a Thompson Bank Watch Rating
of "B" or better, (iv) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (ii)
and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper having
the highest rating obtainable from Moody's Investors Service, Inc. or Standard
& Poor's Corporation and in each case maturing within six months after the
date of acquisition and (vi) money market funds at least 95% of the assets of
which constitute Cash Equivalents of the kinds described in clauses (i)--(v)
of this definition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, transfer, conveyance or other disposition (other than by way of merger
or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than a Principal or a Related Party of a Principal (as
defined below), (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of
which is that any "person" (as defined above), other than the Principals and
their Related Parties, becomes the "beneficial owner" (as such term is defined
in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in
calculating the beneficial ownership of any particular "person," such "person"
shall be deemed to have beneficial ownership of all securities that such
person has the right to acquire, whether such right is currently exercisable
or is exercisable only upon the occurrence of a subsequent condition),
directly or indirectly, of more than 35% of the Voting Stock of the Company
(measured by voting power rather than number of shares), (iv) the consummation
of the first transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above)
becomes the "beneficial owner" (as defined above), directly or indirectly, of
more of the Voting Stock of the Company (measured by voting power rather than
number of shares) than is at the time "beneficially owned" (as defined above)
by the Principals and their Related Parties in the aggregate or (v) the first
day on which a majority of the members of the Board of Directors of the
Company are not Continuing Directors.
"Closing Date" means the date of the closing of the sale of the Series A
Notes.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale, to the extent such losses were deducted in computing such
Consolidated Net Income, plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was deducted in computing such
Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or
accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that
was paid in a prior period) of such Person and its Restricted Subsidiaries for
such period to the extent that such depreciation, amortization and other non-
cash expenses were deducted in computing such Consolidated Net Income, minus
(v) non-cash items increasing such Consolidated Net Income for such period
(other than items that were accrued in the ordinary course of business), in
each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or
profits of, and the depreciation and amortization and other non-cash expenses
of, a Subsidiary of the Company shall be added to Consolidated Net Income to
compute Consolidated Cash Flow of the Company only to the extent that a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior governmental
approval (that has not been obtained), and without direct or indirect
restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof that is a Guarantor, (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable
to that Restricted Subsidiary or its stockholders, (iii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded, (iv) the cumulative effect of
a change in accounting principles shall be excluded; and (v) the Net Income
(but not loss) of any Unrestricted Subsidiary shall be excluded, whether or
not distributed to the Company or one of its Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the date of the
Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not
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Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Contract Buy Out" means the involuntary disposition or termination
(including, without limitation, pursuant to a buy out) by a media client of a
Media Representation Contract.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the New Credit Facility) or
commercial paper facilities, in each case with banks or other institutional
lenders providing for revolving credit loans, term loans, receivables
financing (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated,
modified, renewed, refunded, replaced or refinanced in whole or in part from
time to time. Indebtedness under Credit Facilities outstanding on the date on
which Notes are first issued and authenticated under the Indenture shall be
deemed to have been incurred on such date in reliance on the exception
provided by clause (i) of the definition of Permitted Debt.
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) any Indebtedness outstanding
under the New Credit Facility and (ii) any other Senior Indebtedness permitted
under the Indenture the principal amount of which is $25.0 million or more and
that has been designated by the Company as "Designated Senior Indebtedness."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the
Holder thereof, in whole or in part, on or prior to the date that is 91 days
after the date on which the Notes mature; provided, however, that any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require the Company to repurchase such Capital Stock
upon the occurrence of a Change of Control or an Asset Sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
the Company may not repurchase or redeem any such Capital Stock pursuant to
such provisions unless such repurchase or redemption complies with the
covenant described above under the caption "--Certain Covenants--Restricted
Payments."
"Employee Stock Ownership Plan" means an employee stock ownership plan that
constitutes a qualified plan or trust, under Sections 401(a) and 501(a),
respectively of the Code and meets the requirements of Section 4975(e)(7) of
the Code.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its Restricted
Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred
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in respect of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated
interest of such Person and its Restricted Subsidiaries that was capitalized
during such period, and (iii) any interest expense on Indebtedness of another
Person that is Guaranteed by such Person or one of its Restricted Subsidiaries
or secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv)
the product of (a) all dividend payments, whether or not in cash, on any
series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely
in Equity Interests of the Company (other than Disqualified Stock) or to the
Company or a Restricted Subsidiary of the Company, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in
accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiary for such period to the Fixed Charges of such Person and
its Restricted Subsidiary for such period. In the event that the referent
Person or any of its Restricted Subsidiaries incurs, assumes, Subsidiary
Guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation
of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that
have been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to
have occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated without
giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded,
and (iii) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of
the referent Person or any of its Restricted Subsidiaries following the
Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Guarantors" means each of (i) McGavren Guild, Inc., D&R Radio, Inc., CBS
Radio Sales, Inc., Allied Radio Partners, Inc., Clear Channel Radio Sales, LLC
and Caballero Spanish Media LLC and (ii) any other subsidiary that executes a
Subsidiary Guarantee in accordance with the provisions of the Indenture, and
their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
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"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable
or Media Representation Contract buyouts payable incurred in the ordinary
course of business and consistent with past practices, if and to the extent
any of the foregoing (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, as well as all Indebtedness of others secured by a Lien
on any asset of such Person (whether or not such Indebtedness is assumed by
such Person) and, to the extent not otherwise included, the Guarantee by such
Person of any indebtedness of any other Person. The amount of any Indebtedness
outstanding as of any date shall be (i) the accreted value thereof, in the
case of any Indebtedness issued with original issue discount, and (ii) the
principal amount thereof, together with any interest thereon that is more than
30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Subsidiary not sold or disposed
of in an amount determined as provided in the final paragraph of the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Media Representation Contract" means any contract between a media
representation firm and a media client providing for media representation
services.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any
of its Restricted Subsidiaries and (ii) any extraordinary gain (but not loss),
together with any related provision for taxes on such extraordinary gain (but
not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness (other than Indebtedness under the New Credit
Facility) secured by a
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Lien on the asset or assets that were the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"New Credit Facility" means that certain Credit Facility, dated as of July
2, 1998, by and among the Company, the Guarantors and BankBoston, N.A. and
Summit Bank providing for up to $10.0 million of borrowings, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other
than the Notes being offered hereby) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means the business of providing media representation
and media services and the sale of advertising and any other activities that
are reasonably incidental, similar or related thereto.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company that is a Guarantor; (b) any
Investment in Cash Equivalents; (c) any Investment by the Company or any
Subsidiary of the Company in a Person, if as a result of such Investment (i)
such Person becomes a Wholly Owned Restricted Subsidiary of the Company and a
Guarantor or (ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the
Company that is a Guarantor; (d) any Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales;" (e) any acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company; and (f) other Investments in any Person
having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause
(f) that are at the time outstanding, not to exceed $5.0 million.
"Permitted Junior Securities" means Equity Interests in the Company or any
Guarantor or debt securities that are subordinated to all Senior Indebtedness
(and any debt securities issued in exchange for Senior Indebtedness) to
substantially the same extent as, or to a greater extent than, the Notes are
subordinated to Senior Indebtedness pursuant to Article 10 of the Indenture.
"Permitted Liens" means (i) Liens on the assets of the Company and its
Subsidiaries securing Indebtedness under the New Credit Facility that was
permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of
the Company; (iii) Liens on property of a Person existing at the time such
Person is merged with or into or consolidated with the Company or any
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens to secure
the performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the
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ordinary course of business; (vi) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by clause (ii) of the second paragraph of
the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred
Stock" covering only the assets acquired with such indebtedness, (vii) Liens
existing on the date of the Indenture; (viii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor;
(ix) Liens incurred in the ordinary course of business of the Company or any
Subsidiary of the Company with respect to obligations that do not exceed $5.0
million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Subsidiary and (x) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that: (i) the principal
amount (or accreted value, if applicable) of such Permitted Refinancing
Indebtedness does not exceed the principal amount of (or accreted value, if
applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either
by the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Principal" means Ralph C. Guild.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Indebtedness" means (i) all Indebtedness outstanding under the New
Credit Facility and all Hedging Obligations with respect thereto, (ii) any
other Indebtedness permitted to be incurred by the Company under the terms of
the Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes and (iii) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
will not include (w) any liability for federal, state, local or other taxes
owed or owing by the Company, (x) any Indebtedness of the Company to any of
its Subsidiaries or other Affiliates, (y) any trade payables or (z) any
Indebtedness that is incurred in violation of the Indenture.
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"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Stock Growth Plan" means the Stock Growth Plan of the Company qualified
under Section 401(a) of the Code.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to
a Board Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any
direct or indirect obligation (x) to subscribe for additional Equity Interests
or (y) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has
at least one director on its board of directors that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
described above under the caption "Certain Covenants--Restricted Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of
the Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock," the Company
shall be in default of such covenant). The Board of Directors of the Company
may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only
be permitted if (i) such Indebtedness is permitted under the covenant
described under the caption "Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the reference period, and (ii) no
Default or Event of Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
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"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
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UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of United States federal income and
estate tax consequences of the acquisition, ownership and disposition of
Exchange Notes by an initial beneficial owner of Exchange Notes that, for
United States federal income tax purposes, is not a "United States person" (a
"Non-United States Holder"). This discussion is based upon the United States
federal tax law now in effect, which is subject to change, possibly
retroactively. For purposes of this discussion, a "United States person" means
a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in the United States or under the laws of
the United States or of any political subdivision thereof, an estate whose
income is includible in gross income for United States federal income tax
purposes regardless of its source or a trust, if a United States court is able
to exercise primary supervision over the administration of the trust and one
or more United States persons have the authority to control all substantial
decisions of the trust. The tax treatment of the holders of the Exchange Notes
may vary depending upon their particular situations. United States persons
acquiring the Exchange Notes are subject to different rules than those
discussed below. In addition, certain other holders (including insurance
companies, tax exempt organizations, financial institutions and broker-
dealers) may be subject to special rules not discussed below. Prospective
investors are urged to consult their tax advisors regarding the United States
federal tax consequences of acquiring, holding and disposing of Exchange
Notes, as well as any tax consequences that may arise under the laws of any
foreign, state, local or other taxing jurisdiction.
Interest
Interest paid by the Company to a Non-United States Holder will not be
subject to United States federal income or withholding tax if such interest is
not effectively connected with the conduct of a trade or business within the
United States by such Non-United States Holder and such Non-United States
Holder (i) does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company; (ii) is not a
controlled foreign corporation with respect to which the Company is a "related
person" within the meaning of the United States Internal Revenue Code of 1986,
as amended (the "Code"), and (iii) certifies, under penalties of perjury, that
such holder is not a United States person and provides such holder's name and
address.
Interest paid to a Non-United States Holder that is effectively connected
with a United States trade or business conducted by such Non-United States
Holder is taxed at the graduated rates applicable to United States citizens,
resident aliens and domestic corporations, and is not subject to withholding
tax if the Non-United States Holder gives an appropriate statement to the
Company or its paying agent in advance of the interest payment. In addition to
the graduated tax, effectively connected interest received by a Non-United
States Holder that is a corporation may also be subject to an additional
branch profits tax at a rate of 30% (or such lower rate as may be specified by
an applicable income tax treaty).
Gain on Disposition
A Non-United States Holder will generally not be subject to United States
federal income tax on gain recognized on a sale, redemption or other
disposition of a Note unless (i) the gain is effectively connected with the
conduct of a trade or business within the United States by the Non-United
States Holder or (ii) in the case of a Non-United States Holder who is a
nonresident alien individual and holds the Note as a capital asset, such
holder is present in the United States for 183 or more days in the taxable
year and certain other requirements are met.
If a Non-United States Holder falls under clause (i) in the preceding
paragraph, the holder will be taxed on the net gain derived from the sale
under the graduated United States federal income tax rates that are applicable
to United States citizens, resident aliens and domestic corporations, as the
case may be, and may be subject to withholding under certain circumstances
(and, with respect to corporate Non-United States Holders may also be subject
to the branch profits tax described above.) If an individual Non-United States
Holder falls under clause
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(ii) in the preceding paragraphs, the holder generally will be subject to
United States federal income tax at a rate of 30% on the amount by which the
gain derived from the sale from sources within the United States were to
exceed such holder's capital losses allocable to sources within the United
States for the taxable year of the sale.
Federal Estate Taxes
If interest on the Exchange Notes is exempt from withholding of United
States federal income tax under the rules described above, the Exchange Notes
will not be included in the estate of a deceased Non-United States Holder for
United States federal estate tax purposes.
Backup Withholding and Information Reporting
The Company must report annually to the IRS and to each Non-United States
Holder any interest that is subject to withholding, or that is exempt from
United States withholding pursuant to a tax treaty, or interest that is exempt
from United States tax under the portfolio interest exception. Copies of these
information returns may also be made available under the provisions of a
specific treaty or agreement to tax authorities of the country in which the
Non-United States Holder resides.
Treasury Regulations provide that backup withholding and additional
information reporting will not apply to payments of principal on the Exchange
Notes by the Company to a Non-United States Holder if the holder certifies as
to its Non-United States status under penalties of perjury or otherwise
establishes an exemption (provided that neither the Company nor its Paying
Agent has actual knowledge that the holder is a United States person or that
the conditions of any other exemption are not, in fact, satisfied).
The payment of the proceeds from the disposition of Exchange Notes to or
through the United States office of any broker, United States or foreign, will
be subject to information reporting and possible backup withholding at a rate
of 31%, unless the owner certifies as to its status as a Non-United States
Holder under penalties of perjury or otherwise establishes an exemption,
provided that the broker does not have actual knowledge that the holder is a
United States person or that the conditions of any other exemption are not, in
fact, satisfied. The payment of the proceeds from the disposition of an
Exchange Note to or through a non-United States office of a non-United States
broker that is not a United States related person will not be subject to
information reporting or backup withholding. In the case of the payment of
proceeds from the disposition of an Exchange Note to or through a non-United
States office of a broker that is either a United States person or a United
States related person, information reporting is required on the payment unless
the broker has documentary evidence in its files that the owner is a Non-
United States Holder and the broker has no actual knowledge to the contrary.
Backup withholding will not apply to payments made through foreign offices of
a broker that is not a United States person or a United States related person
(absent actual knowledge that the payee is a United States person). For
purposes of this paragraph, a "United States related person" is (i) a
"controlled foreign corporation" for United States federal income tax
purposes, (ii) a foreign person 50% or more of whose gross income from all
sources for the three-year period ending with the close of its taxable year
preceding the payment (or for such part of the period that the broker has been
in existence) is derived from activities that are effectively connected with
the conduct of a United States trade or business or (iii) with respect to
payments made after December 31, 1999, a foreign partnership that, at any time
during its taxable year, is 50% or more (by income or capital interest) owned
by United States persons or is engaged in the conduct of a United States trade
or business. Recently adopted Treasury Regulations provide certain
presumptions under which a Non-United States Holder will be subject to backup
withholding and information reporting unless the Non-United States Holder
provides a certification as to its Non-United States Holder status.
Any amounts withheld under the backup withholding rules from a payment to a
Non-United States Holder will be allowed as a refund or a credit against such
Non-United States Holder's United States federal income tax liability provided
that the requisite procedures are followed.
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PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Series A Notes where such Series A Notes were
acquired as a result of market-making activities or other trading activities.
The Company has agreed that it will make this Prospectus, as amended or
supplemented, available to any Participating Broker-Dealer for use in
connection with any such resale, and Participating Broker-Dealers shall be
authorized to deliver this Prospectus in connection with the sale or transfer
of the Exchange Notes. In addition, until , 1999 (90 days after the date
of this Prospectus), all dealers effecting transactions in the Exchange Notes
may be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers, Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time, in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer that resells the Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer. Any broker or dealer that participates
in a distribution of such Exchange Notes may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
Exchange Notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a Participating Broker-Dealer will not be deemed
to admit that is an "underwriter" within the meaning of the Securities Act.
The Company will promptly send additional copies of this Prospectus and any
amendment or supplement of this Prospectus to any Participating Broker-Dealer
that requests such documents in the Letter of Transmittal. See "The Exchange
Offer."
LEGAL MATTERS
The validity of certain legal matters will be passed upon on behalf of the
Company by Salans Hertzfeld Heilbronn Christy & Viener, New York, New York.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1997 and
1996, and the consolidated statements of operations and shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1997 included in this Prospectus and elsewhere in the Registration Statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Page
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 (As
restated--See Note 13)................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995
(As restated--See Note 13)............................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995 (As restated--See Note 13).............. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995
(As restated--See Note 13) .............................................. F-6
Notes to Consolidated Financial Statements................................ F-7
Consolidated Balance Sheet as of September 30, 1998 (unaudited)........... F-20
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 1998 and 1997 (unaudited).................................. F-21
Consolidated Statement of Shareholders' Deficit for the Nine Months Ended
September 30, 1998 (unaudited)........................................... F-22
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 1998 and 1997 (unaudited)............................................ F-23
Notes to Unaudited Interim Consolidated Financial Statements.............. F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Interep National Radio Sales, Inc.:
We have audited the accompanying consolidated balance sheets of Interep
National Radio Sales, Inc. (a New York corporation) and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Interep National Radio
Sales, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
As explained in Note 13 to the financial statements, the Company has given
retroactive effect to the change in revenue recognition for income resulting
from buyouts of representation contracts.
Arthur Andersen LLP
New York, New York
April 24, 1998
F-2
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share information)
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1996
-------- -------
(As Restated--
See Note 13)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,419 $ 2,653
Receivables, less allowance for doubtful accounts of
$1,220 and $982 in 1997 and 1996, respectively........... 31,196 25,923
Representation contract buyouts receivable................ 10,946 11,954
Current portion of deferred representation contract
costs.................................................... 38,698 22,753
Prepaid expenses and other current assets................. 678 1,059
-------- -------
Total current assets.................................... 82,937 64,342
-------- -------
Fixed assets, net........................................... 4,335 4,216
Deferred costs on representation contract purchases......... 36,270 12,290
Station contract rights, net................................ 2,922 3,618
Representation contract buyouts receivable.................. 6,974 --
Other assets................................................ 7,592 9,464
-------- -------
Total assets............................................ $141,030 $93,930
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 291 $ 4,200
Accounts payable and accrued expenses..................... 24,853 25,650
Representation contract buyouts payable................... 21,691 12,399
Accrued employee-related liabilities...................... 4,586 2,129
-------- -------
Total current liabilities............................... 51,421 44,378
-------- -------
Long-term debt.............................................. 44,134 30,035
-------- -------
Representation contract buyouts payable..................... 23,885 --
-------- -------
Other noncurrent liabilities................................ 8,623 9,197
-------- -------
Commitments and contingencies
Common and preferred stock subject to redemption:
Series A cumulative redeemable preferred stock, $.01 par
value--subject to mandatory redemption, 25,000 shares
authorized, 7,441 and 6,765 issued and outstanding in
1997 and 1996, respectively (redemption value of $7,441
and $6,765 in 1997 and 1996, respectively)............... 6,174 4,763
Series B cumulative redeemable preferred stock, $.01 par
value--5,000 shares authorized, 1,323 and 1,202 issued
and outstanding in 1997 and 1996, respectively
(redemption value of $1,323 and $1,202 in 1997 and 1996,
respectively)............................................ 750 571
Common stock subject to redemption--57,117 shares issued
and outstanding (stated at redemption value)............. 4,522 4,662
-------- -------
Total common and preferred stock subject to redemption.. 11,446 9,996
Shareholders' equity:
Common stock, $.04 par value--1,000,000 shares authorized,
334,549 and 323,549 shares issued excluding common stock
subject to redemption.................................... 14 13
Additional paid-in-capital................................ 638 895
Retained earnings......................................... 2,993 1,407
Receivable from Employee Stock Ownership Plan............. (182) (255)
Treasury stock, at cost--34,955 and 22,309 shares in 1997
and 1996, respectively................................... (1,942) (1,736)
-------- -------
Total shareholders' equity.............................. 1,521 324
-------- -------
Total liabilities and shareholders' equity.............. $141,030 $93,930
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-----------------------
1997 1996 1995
------- ------- -------
(As Restated--See Note
13)
<S> <C> <C> <C>
Commission revenues..................................... $87,096 $72,858 $70,306
Contract termination revenue............................ 26,586 18,876 12,194
------- ------- -------
Total revenues........................................ 113,682 91,734 82,500
------- ------- -------
Operating expenses:
Selling expenses...................................... 63,135 53,251 48,240
General and administrative expenses................... 12,541 9,626 14,005
Depreciation and amortization expense................. 28,954 20,988 13,073
------- ------- -------
Total operating expenses............................ 104,630 83,865 75,318
------- ------- -------
Operating income...................................... 9,052 7,869 7,182
Interest expense, net................................... 3,779 3,911 3,385
------- ------- -------
Income before provision for income taxes.............. 5,273 3,958 3,797
Provision for income taxes.............................. 2,237 400 320
------- ------- -------
Net income............................................ 3,036 3,558 3,477
Preferred stock dividends requirements.................. 1,590 1,364 1,159
------- ------- -------
Net income applicable to common shareholders........ $ 1,446 $ 2,194 $ 2,318
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands except share information)
(As Restated--See Note 13)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
-------------- Paid-in Retained Receivable ---------------
Shares Amount Capital Earnings from ESOP Shares Amount
------- ------ ---------- -------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1995................... 323,549 $ 13 $ 485 $(2,121) $ -- 15,004 $ 966
Net income.............. -- -- -- 3,477 -- -- --
Treasury stock
purchases.............. -- -- -- -- -- 142 10
Accretion of preferred
stock.................. -- -- -- (512) -- -- --
Other issuances and
sales.................. -- -- -- -- -- (11,233) (584)
Accrued dividends in-
kind on preferred
stock.................. -- -- -- (647) -- -- --
Increase of receivable
from ESOP.............. -- -- -- -- (188) -- --
Earned compensation,
executive stock
options................ -- -- 410 -- -- -- --
Revaluation of common
stock subject to
redemption............. -- -- -- (454) -- -- --
------- ---- ----- ------- ----- ------- ------
Balance, December 31,
1995................... 323,549 13 895 (257) (188) 3,913 392
Net income.............. -- -- -- 3,558 -- -- --
Treasury stock
purchases.............. -- -- -- -- -- 18,396 1,344
Accretion of preferred
stock.................. -- -- -- (640) -- -- --
Accrued dividends in-
kind on preferred
stock.................. -- -- -- (724) -- -- --
Increase of receivable
from ESOP.............. -- -- -- -- (67) -- --
Revaluation of common
stock subject to
redemption............. -- -- -- (530) -- -- --
------- ---- ----- ------- ----- ------- ------
Balance, December 31,
1996................... 323,549 13 895 1,407 (255) 22,309 1,736
Net income.............. -- -- -- 3,036 -- -- --
Treasury stock
purchases.............. -- -- -- -- -- 12,646 206
Accretion of preferred
stock.................. -- -- -- (793) -- -- --
Accrued dividends in-
kind on preferred
stock.................. -- -- -- (797) -- -- --
Reduction of receivable
from ESOP.............. -- -- -- -- 73 -- --
Revaluation of common
stock subject to
redemption............. -- -- -- 140 -- -- --
Exercise of stock
options................ 11,000 1 (257) -- -- -- --
------- ---- ----- ------- ----- ------- ------
Balance, December 31,
1997................... 334,549 $ 14 $ 638 $ 2,993 $(182) 34,955 $1,942
======= ==== ===== ======= ===== ======= ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
--------------------------
1997 1996 1995
-------- ------- -------
(As Restated--See Note
13)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 3,036 $ 3,558 $ 3,477
Adjustments to reconcile income to net cash
provided by operating activities:
Depreciation and amortization................... 28,954 20,988 13,073
Stock option compensation expense............... -- -- 410
Changes in assets and liabilities--
Receivables................................... (4,487) (1,450) (5,328)
Representation contracts buyout receivable.... (5,966) 9,471 6,877
Prepaid expenses and other current assets..... 243 654 (680)
Other noncurrent assets....................... 954 (5,211) (5,626)
Accounts payable and accrued expenses......... (796) 9,502 5,903
Accrued employee-related liabilities.......... 2,457 (383) (1,385)
Other noncurrent liabilities.................. (574) (1,147) (2,720)
-------- ------- -------
Net cash provided by operating activities... 23,821 35,982 14,001
-------- ------- -------
Cash flows from investing activities:
Additions to fixed assets....................... (792) (1,021) (1,689)
Businesses purchased............................ -- -- (3,510)
-------- ------- -------
Net cash used in investing activities....... (792) (1,021) (5,199)
-------- ------- -------
Cash flows from financing activities:
Station representation contracts payments....... (33,991) (31,427) (21,273)
Debt repayments................................. (6,100) (1,820) --
Borrowings in accordance with credit agreement,
net............................................ 16,519 1,341 9,076
Sales and issuances of stock, net of issuance
costs.......................................... (256) -- 747
Purchases of treasury stock..................... (206) (1,344) (314)
Other, net...................................... (229) (810) (494)
-------- ------- -------
Net cash used in financing activities....... (24,263) (24,060) (12,258)
-------- ------- -------
Net increase (decrease) in cash and cash
equivalents................................ (1,234) 901 (3,456)
Cash and cash equivalents, beginning of period.... 2,653 1,752 5,208
-------- ------- -------
Cash and cash equivalents, end of period.......... $ 1,419 $ 2,653 $ 1,752
======== ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest paid................................... $ 3,220 $ 3,274 $ 2,995
Income taxes paid, net.......................... 235 628 1,670
Non-cash investing and financing activities:
Station representation contracts acquired....... $ 67,168 $39,342 $22,673
Details of businesses purchased:
Fair value of assets acquired................. $ 8,791
Less--Liabilities assumed..................... 5,281
-------
Cash paid for businesses purchased.......... $ 3,510
=======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share information)
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Interep
National Radio Sales, Inc. ("Interep"), together with its subsidiaries
(collectively, the "Company"). All significant intercompany transactions and
balances have been eliminated.
Revenue Recognition
The Company is a national representation ("rep") firm serving radio
broadcast clients throughout the United States. Commission revenue is derived
from sales of advertising time for radio stations under representation
contracts. Commissions and fees are recognized in the month the advertisement
is broadcast. In connection with its unwired network business, the Company
collects fees for unwired network radio advertising and, after deducting its
commissions, remits the fees to the respective radio stations. Since it is
common practice in the industry for rep companies not to pay a station until
the corresponding receivable is paid, and since the receivable and payable are
equal, except for the commissions, fees payable to stations have been offset
against the related receivable from advertising agencies in the accompanying
consolidated balance sheets.
In accordance with industry practice, commissions are recognized based on
the standard broadcast calendar that ends on the last Sunday in each reporting
period. The broadcast calendar for the calendar years ended December 31, 1997
and 1996 had 52 weeks. The broadcast calendar for the calendar year ended
December 31, 1995 had 53 weeks.
Representation Contract Termination Revenue and Contract Acquisition Costs
The Company's station representation contracts usually renew automatically
from year to year unless either party provides written notice of termination
at least twelve months prior to the next automatic renewal date. In accordance
with industry practice, in lieu of termination, an arrangement is normally
made for the purchase of such contracts by a successor representative firm.
The purchase price paid by the successor representation firm is generally
based upon the historic commission income projected over the remaining
contract period plus two months (the "Buyout Period").
Costs of obtaining station representation contracts are deferred and
amortized over the Buyout Period. Such amortization is included in the
accompanying consolidated statements of operations as a component of
depreciation and amortization expense. Amounts which are to be amortized
during the next year are included as current assets in the accompanying
consolidated balance sheets. Income earned from loss of station representation
contracts (contract termination revenue) is recognized on the effective date
of the buyout agreement.
In addition, costs incurred as a result of commission rate reductions are
deferred and amortized over the remaining life of the existing representation
agreement. Such amortization is included in the accompanying consolidated
statements of operations as a component of depreciation and amortization
expense.
Fixed Assets, net
Furniture, fixtures and equipment are recorded at cost and are depreciated
over three to ten-year lives, and leasehold improvements are amortized over
the shorter of the lives of the leases or assets, all on a straight-line
basis.
F-7
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share information)
Depreciation and Amortization Expense
A summary of depreciation and amortization expense for the years ended
December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Depreciation and amortization of office
facilities....................................... $ 1,587 $ 1,796 $ 1,817
Amortization of contract acquisition costs........ 24,603 16,562 10,364
Amortization of intangible assets................. 2,764 2,630 892
------- ------- -------
$28,954 $20,988 $13,073
======= ======= =======
</TABLE>
Cash and Cash Equivalents
Cash equivalents consist of cash in excess of daily requirements which are
invested in overnight deposits.
Station Contract Rights, Net
Station contract rights consist of costs of purchased businesses in excess
of net tangible assets acquired and are stated at cost less accumulated
amortization. These costs are being amortized using the straight-line method
over 5 years. Amortization expense for 1997, 1996 and 1995 was $978, $1,206
and $496, respectively, and is included in the above table. Other intangible
assets include noncompete agreements which are being amortized over their
contractual lives of two to four years.
Recoverability of intangible assets is assessed regularly (at least
annually) and impairments, if any, are recognized in operating results if a
permanent diminution in value were to occur based upon an undiscounted cash
flow analysis. The Company has determined that no such impairment exists.
Employee Stock Ownership Plan
The Company has an Employee Stock Ownership Plan ("ESOP") for eligible
employees. Cash contributions made by the Company to the ESOP are recorded as
compensation expense and stock repurchases made by the Company from the ESOP
are recorded in treasury stock. Any outstanding receivable to the Company from
the ESOP is recorded as a reduction to shareholders' equity and shares of the
Company's stock owned by the ESOP are treated as outstanding common stock.
Income Taxes
Income taxes are recognized during the year in which transactions enter into
the determination of financial statement income, with deferred taxes being
provided for temporary differences between amounts of assets and liabilities
recorded for tax and financial reporting purposes.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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.
F-8
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share information)
2. Fixed Assets
Fixed assets are comprised of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
Furniture and equipment.................................. $ 10,145 $ 9,451
Leasehold improvements................................... 5,778 5,191
Equipment held under lease............................... 3,461 3,036
-------- --------
19,384 17,678
Less--Accumulated depreciation and amortization.......... (15,049) (13,462)
-------- --------
Fixed assets, net...................................... $ 4,335 $ 4,216
======== ========
</TABLE>
3. Acquisitions
In May 1995, the Company acquired the station representation agreements and
certain other assets of Concert Music Broadcasting, Inc., which specializes in
the representation of classical music radio stations, for approximately
$1,500,000.
In 1991, the Company exchanged 2.7% of the outstanding stock of one of its
subsidiaries, McGavren Guild, Inc. ("McGavren Guild"), for a 19.8% interest in
Caballero Spanish Media, Inc. ("Caballero"). Concurrent with the original
exchange, the Company entered into an arrangement with Caballero whereby the
Company would provide representation in certain cities for Caballero's clients
in return for a portion of the commission revenues, after deducting selling
expenses. In 1995 prior to the acquisition, shared revenues approximated
selling and other expenses. Income attributable to the minority interest in
McGavren Guild, Inc. was not material. In September 1995, the Company acquired
the station representation agreements and certain other assets of Caballero
for approximately $6,300,000. In connection with the acquisition, the Company
also exchanged its 19.8% interest in Caballero for the 2.7% interest in
McGavren Guild owned by Caballero.
The acquisitions have been accounted for using the purchase method of
accounting. The consolidated statements of operations include the operations
of the acquired businesses since their respective date of acquisition.
4. Accounts Payable
The Company utilizes a cash management system whereby repayments of the
revolving credit note (Note 8) and overnight investments are determined daily.
Included in accounts payable are $5,580 and $5,955 of book overdrafts as of
December 31, 1997 and 1996, respectively, which result from this cash
management program.
5. Employee Stock Plans
Employee Stock Ownership Plan
Under the terms of the Company's nonleveraged Employee Stock Ownership Plan
("ESOP") and Trust ("ESOT"), the Company may make annual contributions to the
ESOT in the form of either cash or common stock of the Company for the benefit
of eligible employees. In lieu of contributions, the Company may repurchase
shares of common stock from the ESOP or advance money to the plan from time to
time. The amount of annual funding is at the discretion of the Board of
Directors of the Company except that the minimum amount must be sufficient to
enable the ESOT to meet its current obligations. No cash contributions were
made by the
F-9
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share information)
Company in 1997, 1996 and 1995 and consequently no compensation cost was
incurred during 1997, 1996 or 1995. In lieu of contributions during 1997 and
1996, the Company loaned money to the ESOP. At December 31, 1997 and 1996,
$182 and $255, respectively, of this advance remained outstanding and is
recorded as a reduction of shareholders' equity. The ESOP intends to repay the
Company through the proceeds of the sale of company stock to the Interep Radio
Store Stock Growth Plan (the "Stock Growth Plan"). Substantially all assets of
the ESOT consist of common shares of the Company, and the ESOT currently has
no alternative method to fund its payment to participants except through
Company funding (see the Stock Growth Plan below).
Pursuant to the ESOP, as amended, employees of the Company and each of its
subsidiaries are eligible to participate, subject to certain uniform
requirements. Upon leaving the Company, employees may sell the shares back to
the ESOT at the then fair market value of the Company's common stock; related
distributions are made in quarterly installments over a period not to exceed
five years, depending upon the former employee's total account balance. The
portion of the vested liability relating to terminated employees as of
December 31, 1996 was $4,506 and is payable over a one to five-year period. As
discussed in Note 9, the independent appraisal as of December 31, 1997 has not
yet been completed.
The Company has purchased life insurance policies on certain of its
executives for which Interep is the beneficiary. Proceeds from these policies
will be used to partially fund payments under the ESOP for these executives.
Such policies had a cash surrender value of $2,405 and $1,937 as of December
31, 1997 and 1996, respectively, with no offsetting loans.
As of December 31, 1997 and 1996, the Company's ESOP owned 223,363 and
220,027 shares, respectively, representing approximately 67% and 66%,
respectively, of the Company's total shares outstanding, before consideration
of common stock equivalents. All shares owned by the ESOP as of December 31,
1997 and 1996 were allocated and earned.
Stock Growth Plan
On January 1, 1995, the Company established the Stock Growth Plan, a
qualified stock bonus plan through which a portion of qualified employee
compensation is allocated to the plan. Participation in the Stock Growth Plan
is mandatory and non-contributory for all eligible employees. Stock Growth
Plan participants are at all times fully vested in their accounts without
regard to age or years of service. The Company, through employee withholdings,
makes regular quarterly cash contributions to the Stock Growth Plan. For the
years ended December 31, 1997, 1996 and 1995, the Company recorded
compensation expense of $2,886, $1,882 and $1,290, respectively in relation to
these contributions. Contributions to the Stock Growth Plan are used to
repurchase shares of Interep common stock from the ESOP, the Interep Radio
Store Wealth Attainment Plan (the "401(k) Plan") and shares held by terminated
employees. Shares owned by the Stock Growth Plan are recorded as outstanding
stock of the Company. Distributions to participants will be made in cash upon
termination of employment over a period not to exceed three years. The Stock
Growth Plan purchased 24,345, 22,839 and 13,687 shares from the ESOP in 1997,
1996 and 1995, respectively. The weighted average fair value of stock
purchased by the plan during 1997, 1996 and 1995 was $82.26, $80.40 and
$76.99, respectively, based on independent appraisals.
F-10
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share information)
Stock Options
A summary of the stock options outstanding during the years ended December
31, 1997, 1996 and 1995 is set forth below:
<TABLE>
<CAPTION>
Number of Weighted
Shares Subject Average
to Option Exercise Price
-------------- --------------
<S> <C> <C>
Outstanding at December 31, 1994.............. 46,000 $52.41
Granted during 1995, at market value........ 23,183 81.63
------- ------
Outstanding at December 31, 1995.............. 69,183 62.20
Exercised during 1996....................... (10,000) 57.91
------- ------
Outstanding at December 31, 1996.............. 59,183 62.93
Exercised during 1997....................... (11,000) 57.91
------- ------
Outstanding at December 31, 1997.............. 48,183 64.07
------- ------
Options exercisable at December 31, 1997...... 48,183 64.07
------- ------
</TABLE>
The following table summarizes information regarding the stock options
outstanding at December 31, 1997, pursuant to the terms of the Plan:
Options Outstanding and Exercisable
<TABLE>
<CAPTION>
Remaining
At December 31, 1997 Exercise Price Contractual Life
-------------------- -------------- ----------------
<S> <C> <C>
10,000..................................... $32.62 8 Years
15,000..................................... 57.91 8 Years
23,183..................................... 81.63 8 Years
48,183
======
</TABLE>
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123, "Accounting for Stock-Based Compensation." The Company
adopted the disclosure provisions of FASB Statement No. 123 in 1996, but opted
to remain under the expense recognition provisions of Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," in
accounting for stock option plans. Had compensation expense for stock options
granted under the Plan been determined based on fair value at the grant dates
consistent with the disclosure method required in accordance with FASB
Statement No. 123, there would have been no impact on 1997 or 1996 reported
results as all options granted in previous years vested 100% on the grant
dates, and no options were granted in 1997 or 1996. The Company's net income
for 1995 would have been decreased to the pro forma amounts shown below:
<TABLE>
<S> <C>
Net income:
As reported......................................................... $3,477
Pro forma........................................................... 2,645
</TABLE>
The weighted average fair value of options granted in 1995 of $35.88 was
estimated as of the date of grant using the Black-Scholes stock option pricing
model, based on the following weighted average assumptions: risk free interest
rate of 5.79% and expected term of 10 years. All options granted in 1995
vested 100% on the grant dates.
F-11
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share information)
6. Employee Benefit Plans
Managers' Incentive Compensation Plans
The Company maintains various managers' incentive compensation plans for
substantially all managerial employees. The plans provide for incentives to be
earned based on attainment of threshold operating profit and market share
goals established each year, as defined. The Company provided approximately
$4,551, $3,030 and $2,639 for such compensation during 1997, 1996 and 1995,
respectively.
401(k) Plan
The Company has a defined contribution plan, the 401(k) Plan, which covers
substantially all employees who have completed one year of service with the
Company. Under the terms of the 401(k) Plan, the Company may contribute a
matching contribution percentage determined by, and at the discretion of, the
Board of Directors but not in excess of the maximum amount deductible for
federal income tax purposes. Company contributions vest to the employees at
20% per year over a five-year period. The Company provided $728, $641 and $285
in the form of cash in 1997, 1996 and 1995, respectively, and $250 in the form
of common stock (representing 3,780 shares) in 1995.
As of December 31, 1996, the 401(k) Plan owned 21,029 shares, representing
approximately 6% of the Company's total shares outstanding, before
consideration of common stock equivalents. Upon termination of employment,
individual shares are repurchased by the Company to fund that portion of the
individual's account balance attributable to Interep common stock. The 401(k)
Plan currently has no alternative method to fund the repurchase of Company
common stock except through Company funding (see the Stock Growth Plan in Note
5). During 1996 and 1995, the Company repurchased 3,948 and 2,033 shares,
respectively, from the 401(k) Plan relating to terminated employees. During
1997, the ESOP purchased all remaining shares held by the 401(k) Plan.
Deferred Compensation Plans
Certain of Interep's subsidiaries maintain deferred compensation plans which
cover employees selected at the discretion of management. Participants are
entitled to deferred compensation and other benefits under these plans. In
1997, 1996 and 1995, the Company provided compensation expense (income) of
$14, $14 and $(278) related to these plans. All amounts due under these plans
were fully vested as of December 31, 1997 and are recorded as liabilities on
the Company's consolidated balance sheet; however, they remain subject to
further appreciation/depreciation upon changes in value (as defined).
The Company has agreements with several of its employees to provide
supplemental income benefits. The benefits under these plans were fully vested
as of December 31, 1997. The Company provided $262, $476 and $263 in 1997,
1996 and 1995, respectively, for these plans which principally represented
interest on the vested benefits.
In 1994, the Company established a compensation deferral plan for key
executives. Participants made a one-time election to defer certain of their
compensation and have such amounts contributed to a tax-deferred trust in the
form of Series B Cumulative Redeemable Preferred Stock (the "Series B
Preferred Stock") and Interep common stock. As of December 31, 1995, 11,263
shares of common stock (fair market value of $725) and 998 shares of Series B
Preferred Stock were held by the trust. No contributions were made in 1997 or
1996. In the accompanying consolidated financial statements, the amounts
allocated to the Series B Preferred Stock and common stock were determined
based on the relative fair values of each class of stock to the total amount
F-12
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share information)
contributed to the trust. Distribution to participants out of the trust are
made in cash upon termination as follows: for shares of common stock,
depending on the total fair market value of such common stock in a
participant's account, over a period up to five years and, with respect to
shares of the Series B Preferred Stock, at the later of the participant's
termination of employment or when the Company redeems such Series B Preferred
Stock (see Note 9). All amounts under these plans are fully vested.
Other
The Company has life insurance policies on certain of its executives for
which Interep is the beneficiary. Proceeds from these policies will be used to
partially fund certain of the retirement benefits under these supplemental
agreements. Such policies had cash surrender values of $1,115 and $1,022 as of
December 31, 1997 and 1996, respectively, and offsetting loans of $673 and
$617, respectively.
7. Income Taxes
Interep and its subsidiaries file a consolidated federal tax return.
However, for state tax purposes, separate tax returns are filed in various
jurisdictions where losses on certain subsidiaries are not available to offset
income on other subsidiaries, and tax benefits on such losses may not be
realized. As a result, the consolidated tax provisions are determined
considering this tax reporting structure and may not fluctuate directly with
consolidated pretax income.
Components of the provisions for income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal.......................................... $ -- $ -- $ 458
State............................................ 412 400 320
Deferred........................................... 1,825 -- (458)
-------- ------- -------
Total provision.................................. $ 2,237 $ 400 $ 320
======== ======= =======
</TABLE>
A reconciliation of the U.S. federal statutory tax rate to the effective tax
rate on the income before income taxes for the periods ended December 31,
1997, 1996 and 1995, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Provision computed at the federal statutory rate of
34%............................................... $1,793 $1,346 $1,291
State and local taxes, net of federal income tax
benefit........................................... 272 264 211
Nondeductible travel and entertainment expense..... 249 298 309
Nondeductible insurance premiums................... 45 (23) 102
Valuation allowance utilization ................... (122) (1,485) (1,593)
------ ------ ------
Total............................................ $2,237 $ 400 $ 320
====== ====== ======
</TABLE>
F-13
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share information)
Temporary differences and carryforwards which gave rise to deferred tax
assets and liabilities and the related valuation allowance at December 31,
1997 and 1996, are as follows:
<TABLE>
<CAPTION>
December 31,
-------------
1997 1996
------ ------
<S> <C> <C>
Deferred tax assets:
Depreciation and amortization............................... $1,349 $ 519
Accruals not currently deductible for tax purposes.......... 2,603 3,372
Consolidated net operating loss carryforward................ 2,958 2,070
Other....................................................... -- 1,512
------ ------
6,910 7,473
------ ------
Deferred tax liabilities:
Buyout receivable........................................... 6,093 4,064
Unamortized representation contracts........................ 1,280 3,531
Other....................................................... 1,362 --
Valuation allowance........................................... -- 122
------ ------
Net deferred tax liability.................................. $1,825 $ --
====== ======
</TABLE>
The amount of net deferred tax assets recorded in prior years was limited to
the extent of then available carryback of losses. As of December 31, 1997 and
1996, the Company has a refund receivable of $110 and $620, respectively.
Future utilizations of tax loss carryforwards are subject to Internal Revenue
Service examination and there is no assurance that the entire amount would be
sustained.
8. Long-Term Debt
Long-term debt at December 31, 1997 and 1996, includes the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Borrowings under term loan(a)............................... $ -- $26,180
Borrowings under revolving credit facility(a)............... 44,000 7,401
------- -------
44,000 33,581
Capitalized lease obligations(b)............................ 425 654
------- -------
44,425 34,235
Less--Current portion....................................... 291 4,200
------- -------
$44,134 $30,035
======= =======
</TABLE>
(a) In 1997, the Company entered into an Amended and Restated Revolving Line
of Credit Agreement (the "Credit Agreement") which provides for borrowings of
up to $55,000. The Credit Agreement replaces the 1995 secured senior financing
facility. Unamortized debt issue costs relating to the 1995 secured senior
financing facility of $186 were written off in conjunction with the
refinancing. The outstanding borrowings under the Credit Agreement bear
interest, payable quarterly, at .625% to 1.625% above the bank's base rate or
1.625% to 2.625% above the bank's Eurodollar rate, at the option of the
Company. A commitment fee of .5% per annum is payable on any unused portion of
the revolving credit agreement.
The Credit Agreement requires the Company to maintain certain financial
ratios and includes other restrictions relating to additional indebtedness,
guarantees, liens, leases, investments, capital expenditures, mergers,
consolidations and sales of assets. Dividends or distributions of any kind by
Interep or any of its
F-14
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share information)
subsidiaries are prohibited except that a subsidiary may make a dividend or
distribution to its immediate parent, Interep may purchase shares of the
Company's stock from terminated employees and Interep may make "payment in
kind" distributions to the holders of Series A Cumulative Redeemable Preferred
Stock (the "Series A Preferred Stock") and Series B Preferred Stock (see Note
9).
The weighted average interest rate charged to the Company under the
revolving credit facilities was 8.8% in both 1997 and 1996 and 9.9% in 1995.
The "Borrowings in accordance with credit agreement, net" on the
consolidated statements of cash flows were net of repayments under the
revolving credit facility of $4,100 and $1,550 in 1996 and 1995, respectively.
The Credit Agreement requires scheduled reductions on a quarterly basis
beginning October 1, 1998, resulting in maximum allowed borrowings as follows:
<TABLE>
<S> <C>
December 31:
1998............................................................... $53,625
1999............................................................... 45,705
2000............................................................... 36,190
2001............................................................... 25,318
2002............................................................... 13,748
2003............................................................... --
</TABLE>
Total borrowings are classified as long-term on the consolidated balance
sheets as of December 31, 1997 as they are less than the maximum allowed at
December 31, 1998.
(b) Certain of the Company's office furniture and equipment is rented under
lease arrangements expiring between 1998 and 2000. Such leases have been
capitalized, and the discounted obligations have been reflected as liabilities
in the accompanying consolidated balance sheets. Future payments under these
leases are as follows:
<TABLE>
<S> <C>
1998................................................................... $456
1999................................................................... 197
2000................................................................... 13
Thereafter............................................................. --
----
666
Less--Amount representing interest..................................... 241
----
Present value of net minimum lease payments............................ $425
====
</TABLE>
The Company has long term representation contract buyouts payable due over
the next five years, as follows:
<TABLE>
<S> <C>
December 31,
1998............................................................... $21,691
1999............................................................... 13,873
2000............................................................... 6,130
2001............................................................... 1,806
2002............................................................... 1,718
Thereafter......................................................... 358
</TABLE>
F-15
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share information)
9. Common and Preferred Stock Subject to Redemption
Series A Preferred Stock accrues dividends at 10% per annum on the sum of
all issued shares plus accumulated and unpaid dividends thereon. On the
occurrence of certain events, as defined in the Company's Certificate of
Amendment of the Certificate of Incorporation, the dividend rate will increase
to 15% per annum and will decrease back to 10% per annum once these events
have been cured. Dividends, in the form of cash or additional shares of Series
A Preferred Stock (valued at $1,000 per share), are payable annually. Series A
Preferred Stock shares outstanding on October 31, 2003 must be redeemed in
whole by the Company, inclusive of accrued or unpaid dividends. Series A
Preferred Stock is redeemable at the option of the holder on the earlier of
the sale of the Company, May 1, 1999, or certain events, as defined, or at the
option of the Company subject to the provisions of applicable corporate law.
The Securities Purchase Agreement includes certain restrictions relating to
the Company's ability to issue additional equity, incur additional
indebtedness, pay dividends and sell assets. Furthermore, the Securities
Purchase Agreement allows the holders to require the Company to redeem the
shares of both the Series A Preferred Stock and common stock on the earliest
of the payment in full of all Senior Indebtedness (Note 8), May 1, 1999, sale
of the corporation, or certain other events as defined in the Securities
Purchase Agreement. The redemption value of the Series A Preferred Stock shall
be equal to the sum of $1,000 per share plus all dividends accrued and unpaid
thereon to the date of the redemption notice. Accordingly, the value of Series
A Preferred Stock is being accreted using the effective interest rate method
to achieve the redemption value at May 1, 1999. The redemption value of the
common stock at that date would be equal to the then appraised market value of
the common stock. At December 31, 1997, the common stock subject to redemption
is valued at the latest available appraised value and will be adjusted each
year. The adjustment for revaluation of common stock subject to redemption was
$(140), $530 and $454 in 1997, 1996 and 1995, respectively.
Series B Preferred Stock accrues dividends at 10% per annum on the sum of
all issued shares, plus accumulated and unpaid dividends thereon. In the event
of liquidation of the Company, Series B Preferred Stock shares are subordinate
to the Company's debt and Series A Preferred Stock. Dividends, in the form of
cash or additional shares of Series B Preferred Stock (valued at $1,000 per
share), are payable annually. Series B Preferred Stock may be redeemed at the
option of the Company or the holders of a majority of the then outstanding
Series B Preferred Stock on the later of the redemption of all outstanding
Series A Preferred Stock or November 1, 2003.
The redemption value of the Series B Preferred Stock shall be equal to the
sum of $1,000 per share plus all dividends accrued and unpaid thereon to the
date of the redemption notice. Accordingly, the Series B Preferred Stock is
being accreted using the effective interest method to achieve the redemption
value at November 1, 2003.
Accretion of the Series A Preferred Stock in 1997, 1996 and 1995 was $735,
$590 and $474, respectively. Accretion of the Series B Preferred Stock in
1997, 1996 and 1995 was $58, $50 and $38, respectively. Dividends-in-kind on
the Series A Preferred Stock in 1997, 1996 and 1995 were $676, $615 and $559,
respectively (consisting of 676, 615 and 559 shares, respectively). Dividends-
in-kind on the Series B Preferred Stock for 1997, 1996 and 1995 were $121,
$109 and $88, respectively (consisting of 121, 109 and 88 shares,
respectively).
The Company has traditionally repurchased the shares of its common stock
held by departing employees outside the ESOP at a price equal to the then
independently appraised value. The purchase price is payable in quarterly
installments, including interest at rates prevailing for U.S. Treasury
securities, over a one to five-year period depending upon the total value of
the shares. During 1997, 1996 and 1995, in connection with employee
F-16
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share information)
terminations, the Company repurchased 12,646, 18,396 and 142 shares of common
stock, respectively, at a price equal to the then fair market value of the
shares. The independent appraisal as of December 31, 1996 and 1995 was $79.17
and $81.63, respectively.
10. Related Party Transactions
In connection with the 1988 repayment of certain promissory notes to one of
the Company's executives, the Company issued to the executive options to
purchase up to 10,000 shares of the common stock of the Company at an option
price of $32.62 per share. Effective January 1991, as part of the executive's
1991 Amended and Restated Employment Agreement, options to purchase an
additional 10,000 shares of the Company's stock were granted at an option
price of $57.91 per share and an expiration date in 2001. Effective June 18,
1993, in connection with an amendment to the executive's 1991 Amended and
Restated Employment Agreement, the expiration date of the options at $32.62
per share was extended until January 1, 1997. The option prices represented
the fair market value at the date of grant as determined by an independent
appraisal. In December 1995, by a Unanimous Written Consent of the Board of
Directors, the expiration date of all the executive's outstanding options was
extended until December 31, 2005. Compensation expense recognized in 1995 in
relation to the extension of $410, which represents the difference between
fair market value and the option exercise price, is included in general and
administrative expenses for the year ended December 31, 1995. Under generally
accepted accounting principles this also resulted in a credit to additional
paid in capital.
Since December 1979, the Company has leased from a trust, of which one of
its executives is an income beneficiary and one of its executives is the
trustee, a building which is used by the Company for training sessions and
management meetings. The current lease expires on December 31, 1999 and
provides for a base annual rental which is adjusted each year to reflect
inflation and actual usage. Total lease expense was $74 in 1997, 1996 and
1995.
At December 31, 1997 and 1996, an executive was indebted to Interep in the
total amount of $170 and $222, respectively (including accrued interest),
which is evidenced by a promissory note payable to Interep. This note bears
variable interest at the lowest rate permitted for federal income tax
purposes, which was 5.68% and 5.75% at December 31, 1997 and 1996,
respectively, and is due in equal annual installments of principal and
interest through December 31, 1999.
From June 1997 to December 1997, Interep was indebted to an executive of the
Company for amounts up to $2,000 plus interest. The interest expense incurred
is included in the consolidated statements of operations.
In 1997, the Company entered into an agreement with Media Financial
Services, an affiliate of one of the Company's executives, whereby Media
Financial Services provides financial and accounting services to the Company.
The fee for these services amounted to approximately $1,435 in 1997.
The Company believes the terms of the arrangements relating to the building
rental, indebtedness and accounting services are at least comparable to, if
not more favorable for the Company, than the terms which would have been
obtained in transactions with unrelated parties.
11. Commitments and Contingencies
At December 31, 1997, the Company was committed under operating leases,
principally for office space, which expire at various dates through 2009.
Certain leases are subject to rent reviews and require payment of expenses
under escalation clauses. Rent expense was $4,266, $4,145 and $4,068 in 1997,
1996 and 1995,
F-17
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share information)
respectively. The noncash portion of rent expense was $85, $89 and $26 for
1997, 1996 and 1995, respectively. Future minimum rental commitments under
noncancellable leases are as follows:
<TABLE>
<S> <C>
1998................................................................. $ 4,040
1999................................................................. 3,843
2000................................................................. 3,538
2001................................................................. 3,475
2002................................................................. 3,407
Thereafter........................................................... 10,011
</TABLE>
The Company has employment agreements with certain of its officers and
employees for terms ranging from three to six years with annual compensation
aggregating approximately $1,643. These agreements include escalation clauses
(as defined) and provide for certain additional bonus and incentive
compensation.
The Company may be involved in various legal actions from time to time
arising in the normal course of business. In the opinion of management, there
are no matters outstanding that would have a material adverse effect on the
consolidated financial position or results of operations of the Company.
12. Supplemental Information
Interest expense is shown net of interest income of $109, $138 and $109 in
1997, 1996 and 1995, respectively.
One broadcast group (a different group in each year) contributed
approximately 28.7%, 13.1% and 12.8% of the Company's total revenues in 1997,
1996 and 1995, respectively. No other client group contributed revenues in
excess of 10% in 1997, 1996 or 1995.
In 1997 and 1996, contract buyout receivables from one group of radio rep
firms represented $17,425 and $11,197, respectively, of the Company's total
contract buyout receivables.
In 1997, the Company relocated its accounting department from New York to
Florida. Severance and relocation costs in connection with this move totaled
$1,350.
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
<TABLE>
<CAPTION>
December 31, 1997
-------------------
Carrying Estimated
Amount Fair Value
-------- ----------
<S> <C> <C>
Assets:
Cash and cash equivalents.............................. $ 1,419 $ 1,419
Liabilities:
Long-term debt......................................... 44,134 44,134
</TABLE>
F-18
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share information)
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity of
those instruments.
Long-Term Debt
The fair value of long-term debt is estimated based on financial instruments
or financial instruments with similar terms, credit characteristics and
expected maturities.
The fair value estimates presented herein are based on pertinent information
available to the Company as of December 31, 1997. Although the Company is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively reevaluated for purposes
of these financial statements since that date, and current estimates of fair
value may differ significantly from the amounts presented herein.
13. Restatement
In 1998, in connection with this initial filing in the public marketplace,
the Company retroactively restated its financial statements for all periods in
respect to revenue recognition for revenue resulting from the termination of
representation contracts to recognize revenue upon the effective date of the
buyout. This change has been made since upon the effective date of the buyout,
the Company has no further performance obligations under the buyout agreement.
Previously, the Company recognized revenue ratably over the remaining life of
the representation agreement in accordance with industry practice.
Accordingly, net income in the accompanying consolidated statement of
operations has been restated to reflect the additional revenue of $26,586,
$18,876 and $12,194 for the years ended December 31, 1997, 1996 and 1995,
respectively, and the elimination of amortization of buyout income of $17,829,
$12,043 and $8,719, respectively. In addition, retained earnings as of January
1, 1995 has been increased to reflect the cumulative impact on prior years.
F-19
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands except share information)
(Unaudited)
<TABLE>
<CAPTION>
September 30,
1998
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 31,260
Receivables, less allowance for doubtful accounts of $633...... 33,203
Representation contract buyouts receivable..................... 11,003
Current portion of deferred representation contract costs...... 34,460
Prepaid expenses and other current assets...................... 1,675
--------
Total current assets......................................... 111,601
--------
Fixed assets, net................................................ 3,826
Deferred costs on representation contract purchases.............. 46,328
Station contract rights, net..................................... 2,243
Other assets..................................................... 13,175
--------
Total assets................................................. $177,173
========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Capitalized lease obligations.................................. $ 233
Accounts payable and accrued expenses.......................... 13,012
Representation contract buyouts payable........................ 22,750
Accrued employee-related liabilities........................... 3,531
--------
Total current liabilities.................................... 39,526
--------
Senior subordinated notes........................................ 100,000
--------
Representation contract buyouts payable.......................... 26,510
--------
Other noncurrent liabilities..................................... 11,660
--------
Commitments and contingencies
Shareholders' deficit:
Common stock, $.04 par value--1,000,000 shares authorized,
334,549 shares issued excluding common stock subject to
redemption.................................................... 14
Additional paid-in-capital..................................... 410
Retained earnings.............................................. 1,050
Treasury stock, at cost--36,573 shares......................... (1,997)
--------
Total shareholders' deficit.................................. (523)
--------
Total liabilities and shareholders' deficit.................. $177,173
========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-20
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------- --------------------
1998 1997 1998 1997
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Commission revenues.............. $ 24,941 $ 24,805 $ 62,943 $ 61,483
Contract Termination Revenue..... 713 596 27,794 22,768
---------- ---------- --------- ---------
Total revenues............... 25,654 25,401 90,737 84,251
---------- ---------- --------- ---------
Operating expenses:
Selling expenses............... 18,967 20,521 46,913 48,158
General and administrative
expenses...................... 2,940 2,536 8,286 8,323
Depreciation and amortization
expense....................... 9,451 10,225 25,577 21,220
---------- ---------- --------- ---------
Total operating expenses..... 31,358 33,282 80,776 77,701
---------- ---------- --------- ---------
Operating income (loss)...... (5,704) (7,881) 9,961 6,550
Interest expense, net............ 2,206 1,068 4,447 2,705
---------- ---------- --------- ---------
Income (loss) before provision
for income taxes.............. (7,910) (8,949) 5,514 3,845
(Benefit) Provision for income
taxes........................... (3,480) (3,921) 2,426 1,570
---------- ---------- --------- ---------
Net income (loss)............ (4,430) (5,028) 3,088 2,275
Preferred stock dividends
requirements and redemption
premium......................... 4,097 397 5,031 1,192
---------- ---------- --------- ---------
Net income (loss) applicable
to common shareholders...... $ (8,527) $ (5,425) $ (1,943) $ 1,083
========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-21
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
(in thousands except share information)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
-------------- Paid-in Retained Receivable ----------------
Shares Amount Capital Earnings from ESOP Shares Amount
------- ------ ---------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1998................... 334,549 $ 14 $638 $2,993 $(182) 34,955 $1,942
Net income.............. -- -- -- 3,088 -- -- --
Treasury stock
purchases.............. -- -- -- -- -- 3,247 302
Reduction of receivable
from ESOP.............. -- -- -- -- 182 -- --
Accretion of preferred
stock.................. -- -- -- (492) -- -- --
Accrued dividends in-
kind on preferred
stock.................. -- -- -- (442) -- -- --
Redemption of preferred
stock and common stock
subject to redemption.. -- -- (228) (4,097) -- (1,629) (247)
------- ---- ---- ------ ----- ------- -------
Balance, September 30,
1998................... 334,549 $ 14 $410 $1,050 $ -- 36,573 $ 1,997
======= ==== ==== ====== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-22
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the
Nine Months
Ended September 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 3,088 $ 2,275
Adjustments to reconcile income to net cash provided by
operating activities:
Depreciation and amortization......................... 25,577 21,220
Changes in assets and liabilities--
Receivables......................................... (2,804) (11,773)
Representation contracts buyout receivables......... 4,697 4,553
Prepaid expenses and other current assets........... (1,807) 95
Other noncurrent assets............................. (3,735) (1,577)
Accounts payable and accrued expenses............... (11,841) 3,750
Accrued employee-related liabilities................ (1,055) 676
Other noncurrent liabilities........................ 3,028 (1,118)
--------- ---------
Net cash provided by operating activities......... 15,148 18,101
--------- ---------
Cash flows from investing activities:
Net additions to fixed assets......................... (780) (537)
--------- ---------
Net cash used in investing activities............. (780) (537)
--------- ---------
Cash flows from financing activities:
Station representation contracts payments............. (23,584) (22,313)
Debt repayments....................................... (61,250) (3,225)
Borrowings in accordance with credit agreement, net... 17,250 9,850
Issuance of senior subordinated notes................. 100,000 --
Redemption of preferred stock and common stock subject
to redemption........................................ (16,696) --
Purchases of treasury stock........................... (55) (162)
Other, net............................................ (192) (340)
--------- ---------
Net cash provided by (used in) financing
activities....................................... 15,473 (16,190)
--------- ---------
Net increase in cash and cash equivalents......... 29,841 1,374
Cash and cash equivalents, beginning of period.......... 1,419 2,653
--------- ---------
Cash and cash equivalents, end of period................ $ 31,260 $ 4,027
========= =========
Supplemental disclosures of cash flow information:
Cash paid during year for:
Interest paid....................................... $ 2,109 $ 2,083
Income taxes paid, net.............................. 188 249
Non-cash investing and financing activities:
Station representation contracts acquired............. $ 27,268 $ 64,816
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-23
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Interep
National Radio Sales, Inc. ("Interep"), together with its subsidiaries
(collectively, the "Company") and have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. All significant intercompany
transactions and balances have been eliminated.
The consolidated financial statements as of September 30, 1998 and 1997 are
unaudited; however, in the opinion of management, such statements include all
adjustments necessary for a fair presentation of the results for the periods
presented. The interim financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
Consolidated Financial Statements for the year ended December 31, 1997, which
are available upon request of the Company. Due to the seasonal nature of the
Company's business, the results of operations for the interim periods are not
necessarily indicative of the results that might be expected for future
interim periods or for the full year ended December 31, 1998.
Revenue Recognition
The Company is a national representation ("rep") firm serving radio
broadcast clients throughout the United States. Commission revenue is derived
from sales of advertising time for radio stations under representation
contracts. Commissions and fees are recognized in the month the advertisement
is broadcast. In connection with its unwired network business, the Company
collects fees for unwired network radio advertising and, after deducting its
commissions, remits the fees to the respective radio stations. Since it is
common practice in the industry for rep companies not to pay a station until
the corresponding receivable is paid, and since the receivable and payable are
equal, except for the commissions, fees payable to stations have been offset
against the related receivable from advertising agencies in the accompanying
consolidated balance sheets.
Representation Contract Termination Revenue and Contract Acquisition Costs
The Company's station representation contracts usually renew automatically
from year to year unless either party provides written notice of termination
at least twelve months prior to the next automatic renewal date. In accordance
with industry practice, in lieu of termination, an arrangement is normally
made for the purchase of such contracts by a successor representative firm.
The purchase price paid by the successor representation firm is generally
based upon the historic commission income projected over the remaining
contract period plus two months (the "Buyout Period").
Costs of obtaining station representation contracts are deferred and
amortized over the Buyout Period. Such amortization is included in the
accompanying consolidated statements of operations as a component of
depreciation and amortization expense. Amounts which are to be amortized
during the next year are included as current assets in the accompanying
consolidated balance sheets.
In addition, costs incurred as a result of commission rate reductions are
deferred and amortized over the remaining life of the existing representation
agreement. Such amortization is included in the accompanying consolidated
statements of operations as a component of depreciation and amortization
expense.
F-24
<PAGE>
INTEREP NATIONAL RADIO SALES, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
2. Financing Transaction
On July 2, 1998, the Company issued (the "Offering") $100,000,000 aggregate
principal amount of 10.0% Senior Subordinated Notes (the "Notes") due on July
1, 2008. The Notes are general unsecured obligations of the Company, and the
indenture agreement for the Notes stipulates, among other things, restrictions
on incurrence of additional indebtedness, payment of dividends, repurchase of
equity interests (as defined), create liens (as defined), enter into
transactions with affiliates (as defined), sell assets or enter into certain
mergers and consolidations. The Notes bear interest at the rate of 10.0% per
annum, payable semiannually in arrears on January 1 and July 1 of each year,
commencing on January 1, 1999. The Notes are subject to redemption at the
option of the Company, in whole or in part, at any time after July 1, 2003. In
addition, at any time and from time to time prior to July 1, 2001, the Company
may redeem up to an aggregate of 30% in principal amount of Notes originally
issued under the indenture agreement at a redemption price equal to 110.00% of
the principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, with the net cash proceeds of one or more equity offerings
(as defined). All of the Company's now existing subsidiaries are guarantors of
these Notes and all guarantor subsidiaries are wholly owned by the Company.
The guarantee is full, unconditional, joint and several with other guarantor
subsidiaries. The Company has no other assets or operations separate from its
investment in the subsidiaries.
A portion of the net proceeds of the Offering were used to refinance bank
indebtedness and to redeem all of the outstanding shares of Series A and
Series B cumulative redeemable preferred stock and all of the outstanding
shares of the common stock subject to redemption.
As part of the Financing Transactions, on July 2, 1998, the Company has
entered into a $10.0 million revolving credit facility (the "New Credit
Facility") with BankBoston, N.A. ("BankBoston") and Summit Bank ("Summit").
The term of the New Credit Facility is six years. The lenders under the New
Credit Facility are BankBoston, Summit and any other lenders reasonably
acceptable to the Company, with BankBoston acting as administrative agent.
F-25
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Financial
Statements of Interep are based on the historical financial statements of
Interep included elsewhere in the Offering Memorandum and give pro forma
effect to the adjustments described in the notes hereto. The Unaudited Pro
Forma Condensed Consolidated Statement of Operations for the year ended
December 31, 1997 gives effect to the Financing Transactions as though these
transactions had occurred on January 1, 1997. The Unaudited Pro Forma
Condensed Consolidated Statement of Operations for the nine months ended
September 30, 1998 gives effect to the Financing Transactions as though these
transactions had occurred on January 1, 1998.
The pro forma adjustments are based upon available data and certain
assumptions that Company management believes are reasonable. The Unaudited Pro
Forma Condensed Consolidated Financial Statements are not necessarily
indicative of the Company's financial position or results of operations that
might have occurred had the aforementioned transactions been completed as of
the dates indicated above and do not purport to represent what the Company's
financial position or results of operations might be for any future period or
date. The Unaudited Pro Forma Condensed Consolidated Financial Statements
should be read in conjunction with the financial statements and the related
notes and the information contained in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
P-1
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------------------
Pro Forma Pro
Actual Adjustments Forma
-------- ----------- --------
<S> <C> <C> <C>
Total revenues................................. $113,682 $113,682
Operating expenses:
Selling expenses............................. 63,135 63,135
General and administrative expenses.......... 12,541 12,541
Depreciation and amortization expense........ 28,954 365(a) 29,319
-------- --------
Total operating expenses................... 104,630 104,995
-------- --------
Operating income............................... 9,052 8,687
Interest expense, net.......................... 3,779 6,221(b) 10,000
-------- --------
Income (loss) before provision for income
taxes......................................... 5,273 (1,313)
Provision for income taxes..................... 2,237 2,237
-------- --------
Net income (loss).............................. $ 3,036 $ (3,550)
======== ========
</TABLE>
<TABLE>
<C> <S> <C>
(a) Depreciation and amortization
Amortization of deferred financing costs from the Offering..... $ 400
Elimination of previously recorded amortization of deferred
financing costs associated with current bank facility......... (35)
-------
$ 365
=======
(b) Interest expense, net
Interest expense on the Notes at a rate of 10% per annum....... $10,000
Elimination of previously recorded interest expense............ (3,779)
-------
$ 6,221
=======
</TABLE>
P-2
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1998
----------------------------
Pro Forma Pro
Actual Adjustments Forma
------- ----------- -------
<S> <C> <C> <C>
Total revenues.................................... $90,737 $90,737
Operating expenses:
Selling expenses................................ 46,913 46,913
General and administrative expenses............. 8,286 8,286
Depreciation and amortization expense........... 25,577 (505)(a) 25,072
------- -------
Total operating expenses...................... 80,776 80,271
------- -------
Operating income.................................. 9,961 10,466
Interest expense, net............................. 4,447 2,605 (b) 7,052
------- -------
Income before provision for income taxes.......... 5,514 3,414
Provision for income taxes........................ 2,426 2,426
------- -------
Net income........................................ $ 3,088 $ 988
======= =======
</TABLE>
<TABLE>
<C> <S> <C>
(a) Depreciation and amortization
Amortization of deferred financing costs from the Offering..... $ 200
Elimination of previously recorded amortization of deferred
financing costs associated with current bank facility......... (705)
-------
$ (505)
=======
(b) Interest expense, net
Interest expense on the Notes at a rate of 10% per annum....... $ 5,000
Elimination of previously recorded interest expense............ (2,395)
-------
$ 2,605
=======
</TABLE>
P-3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, sales person or other person has been authorized to give any in-
formation or make any representations not contained in this Prospectus or the
accompanying Letter of Transmittal in connection with the Exchange Offer cov-
ered by this Prospectus or the accompanying Letter of Transmittal. If given or
made, such information or representation must not be relied upon as having
been authorized by the Company. Neither the delivery of this Prospectus nor
the accompanying Letter of Transmittal, nor any sale made hereunder shall, un-
der any circumstances, create any implication that there has been no change in
the facts set forth in this Prospectus or in the affairs of the Company since
the date hereof. This Prospectus and the accompanying Letter of Transmittal do
not constitute an offer to sell or a solicitation of an offer to buy any secu-
rities, other than the securities to which it relates, or any offer to buy the
Exchange Notes in any jurisdiction where, or to any person to whom, it is un-
lawful to make such offer or solicitation in such jurisdiction.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Notice to Investors...................................................... i
Disclosure Regarding Forward-Looking Statements.......................... ii
Available Information.................................................... iii
Summary.................................................................. 1
Risk Factors............................................................. 11
The Exchange Offer....................................................... 19
Use of Proceeds.......................................................... 27
Capitalization........................................................... 28
Selected Consolidated Financial Data..................................... 29
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 31
Business................................................................. 38
Management............................................................... 45
Principal Shareholders................................................... 52
Certain Transactions and Relationships................................... 54
Description of New Credit Facility....................................... 55
Description of Exchange Notes............................................ 56
United States Federal Tax Considerations for Non-United States Holders... 85
Plan of Distribution..................................................... 87
Legal Matters............................................................ 87
Experts.................................................................. 87
Index to Consolidated Financial Statements............................... F-1
Unaudited Pro Forma Condensed Consolidated Financial Statements.......... P-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Interep National Radio Sales, Inc.
Offer to Exchange
10% Senior Subordinated Notes Due 2008, Series B
For all Outstanding
10% Senior Subordinated Notes Due 2008, Series A
---------------
PROSPECTUS
---------------
February 16, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
Item 20. Indemnification of Directors and Officers.
Section 727 of the Business Corporation Law of the State of New York grants
each corporation organized under such laws, such as the Company, the power to
indemnify its officers and directors. Article 12 of the Restated Certificate
of Incorporation of the Company provides that any person made a party to any
action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or director of the Company or of any company
which he served as such at the request of the Company, shall be indemnified by
the Company against the reasonable expenses, including attorneys' fees,
actually and necessarily incurred by him in connection with the defense of
such action, suit or proceeding or in connection with any appeal therein,
except in relation to matters as to which it shall be adjudged in such action,
suit or proceeding that such officer or director is or was liable for
negligence or misconduct in the performance of his duties.
Article V of the Company's By-laws provides that, without limiting the
generality of the foregoing, the expenses referred to in the preceding
paragraph shall be deemed to include (1) if any such action, suit or
proceeding shall proceed to judgment, any and all costs and other expenses
imposed upon such person by reason of such judgment, except in relation to
matters as to which it shall be adjudged in such action, suit or proceeding
that such officer or director is liable for negligence or misconduct in the
performance of his duties; and (2) in the event of any settlement of any such
action, suit or proceeding, all reasonable costs and other expenses of such
settlement (other than any payments made to the Company itself), subject to
the condition that the costs and other expenses of such settlement shall not
substantially exceed the expenses which might reasonably be incurred in
conducting such litigation to a final conclusion. A determination that the
costs and other expenses of such settlement do not or did not substantially
exceed the expense which might reasonably be incurred in conducting such
litigation to a final conclusion made or approved (A) by a majority of the
directors of the Company then in office other than any directors who may be
involved in such litigation (whether or not such majority constitutes a
quorum, but provided that there shall be at least two such directors in
office), or (B) by the vote of the holders of at least a majority of the
outstanding stock at any annual or special meeting of the shareholders of the
Company, either before or after such settlement, shall conclusively satisfy
such condition.
If any such indemnity is paid otherwise than pursuant to a court order or
action by the shareholders, the Company shall within 18 months from the date
of such payment mail to its shareholders at the time entitled to vote for the
election of directors a statement specifying the persons paid, the amounts of
the payments and the final disposition of the litigation.
The foregoing rights of indemnification are not exclusive of any other
rights to which any director or officer may be entitled under any present or
future law, statute, by-law, agreement, vote of stockholders or otherwise.
The Company has entered into indemnity agreements with each of its directors
and certain of its executive officers which provides that the indemnitee will
be entitled to receive indemnification, which may include advancement of
expenses, to the full extent permitted by law for all expenses, judgments,
fines, penalties and settlement payments incurred by the indemnitee in actions
brought against him or her in connection with any act taken in the
indemnitee's capacity as a director or executive officer of the Company. Under
these agreements, and indemnitee's entitlement to indemnification in a
particular case will be made by a majority of the disinterested members of the
Board of Directors, if such members constitute a quorum of the full Board and,
if they do not, by independent legal counsel selected by the Board.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits (All exhibits have been previously filed, except as noted.)
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Purchase Agreement, dated June 29, 1998, among the Company, BancBoston
Securities Inc., Loewenbaum & Company Incorporated and SPP Hambro &
Co., LLC.
3.1 Restated Certificate of Incorporation of the Company dated April 25,
1985.
3.2 Certificate of Amendment of the Certificate of Incorporation of the
Company, dated June 24, 1993.
3.3 Certificate of Amendment of the Certificate of Incorporation of the
Company, dated November 9, 1993.
3.4 Certificate of Amendment of the Certificate of Incorporation of the
Company, dated February 14, 1994.
3.5 By-Laws (as amended) of the Company.
4.1 A/B Exchange Registration Rights Agreement, dated July 2, 1998, among
the Company, the Guarantors, BancBoston Securities Inc, Loewenbaum &
Company Incorporated and SPP Hambro & Co., LLC.
4.2 Indenture, dated July 2, 1998, between the Company, the Guarantors and
Summit Bank.
4.3 Form of Note (Included in Exhibit 4.2).
4.4 Form of Note Guarantee (Included in Exhibit 4.2).
5.1* Opinion of Salans Hertzfeld Heilbronn Christy & Viener.
10.1 Revolving Line of Credit Agreement, dated July 2, 1998, among the
Company, the Guarantors and Various Financial Institutions Now or
Hereafter Parties Hereto, BancBoston, N.A. and Summit Bank.
10.2 LLC Membership Interest Pledge Agreement, dated July 2, 1998, made by
the Company and McGavren Guild, Inc. in favor of BancBoston, N.A.
10.3 Security Agreement, dated July 2, 1998, among the Company, the
Guarantors and BankBoston, N.A.
10.4 Stock Pledge Agreement, dated July 2, 1998, by the Company in favor of
BankBoston, N.A.
10.5 Agreement of Lease, dated December 31, 1992, between the Prudential
Insurance Company of America and the Company.
10.6* Amended Lease, dated June 15, 1998, between the Tuxedo Park Executive
Conference Center Proprietorship and the Company.
10.7 Agreement, dated June 29, 1998, between the Company and Ralph C.
Guild.
10.8 Promissory Note, dated June 29, 1998 by Ralph C. Guild in favor of the
Company.
10.9 Interep National Radio Sales, Inc. Compensation Deferral Plan.
10.10 Trust Agreement under the Interep National Radio Sales, Inc.
Compensation Deferral Plan, dated August 22, 1994.
10.11 Services Agreement, dated June 1, 1997, between the Company and Media
Financial Services, Inc.
10.12 Amendment to Services Agreement, dated July 1, 1997, between the
Company and Media Financial Services, Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.13 Fourth Amended and Restated Employment Agreement, dated June 1, 1995,
between the Company and Ralph C. Guild.
10.14 Employment Agreement, dated January 1, 1991, between the Company and
Marc G. Guild.
10.15 Amendment, dated June 29, 1998, to Employment Agreement, dated January
1, 1991, between the Company and Marc G. Guild.
10.16 Non-Qualified Stock Option granted to Ralph C. Guild on December 31,
1988.
10.17 Amendment and Extension of Option, dated January 1, 1991, between the
Company and Ralph C. Guild.
10.18 Non-Qualified Stock Option granted to Ralph C. Guild on January 1,
1991.
10.19 Non-Qualified Stock Option granted to Ralph C. Guild on December 31,
1995.
10.20 Non-Qualified Stock Option granted to Marc G. Guild on January 1,
1991.
10.21 Non-Qualified Stock Option granted to Ralph C. Guild on June 29, 1997.
10.22 Non-Qualified Stock Option granted to Marc G. Guild on June 29, 1997.
10.23 Non-Qualified Stock Option granted to William J. McEntee, Jr. on June
29, 1997.
10.24 Deferred Compensation Agreement, dated September 30, 1997, between the
Company and Stewart Yaguda.
10.25 Supplemental Income Agreement, dated December 31, 1986, between the
Company and Ralph C. Guild.
10.26 Agreement, dated June 18, 1993, between the Company and Ralph C.
Guild.
10.27* Non-Qualified Stock Option granted to Ralph C. Guild on July 10, 1998.
10.28* Non-Qualified Stock Option granted to Marc G. Guild on July 10, 1998.
10.29* Non-Qualified Stock Option granted to Stewart Yaguda on July 10, 1998.
10.30* Non-Qualified Stock Option granted to William J. McEntee, Jr. on July
10, 1998.
12.1* Calculation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of Registrant.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of Salans Hertzfeld Heilbronn Christy & Viener (included in
Exhibit 5.1).
24.1 Power of Attorney (included on signature pages hereto).
25.1 Form T-1 Statement of Eligibility Under the Trust Indenture Act of
1939 of Summit Bank.
27.1 Financial Data Schedule.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
</TABLE>
- --------
*Filed herewith.
Item 22. Undertakings.
Each undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-3
<PAGE>
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(d) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrant has duly caused this amendment to be signed on its
behalf by the undersigned, hereunto duly authorized, in the State of New York,
on February 16, 1999.
Interep National Radio Sales, Inc.
*
By: _________________________________
Ralph C. Guild
President and Chief Executive
Officer
<TABLE>
<S> <C>
Pursuant to the requirements of the Act, this amendment has been signed
below by the following persons in the capacities and on the dates indicated.
* President, Chief February 16,
- ------------------------------------- Executive Officer and 1999
Ralph C. Guild Director (Principal
Chief Executive Officer Executive Officer)
* President, Marketing February 16,
- ------------------------------------- Division; Director 1999
Marc G. Guild
/s/ William J. McEntee, Jr. Vice President and February 16,
- ------------------------------------- Chief Financial 1999
William J. McEntee, Jr. Officer (Principal
Financial and
Accounting Officer)
* Director February 16,
- ------------------------------------- 1999
Leslie D. Goldberg
* Director February 16,
- ------------------------------------- 1999
Jerome S. Traum
</TABLE>
/s/ William J. McEntee, Jr.
*By:_________________________________
William J. McEntee, Jr.
Attorney-in-Fact
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrant has duly caused this amendment to be signed on its
behalf by the undersigned, hereunto duly authorized, in the State of New York,
on February 16, 1999.
McGavren Guild, Inc.
*
By: _________________________________
Peter M. Doyle
President
Pursuant to the requirements of the Act, this amendment has been signed below
by the following persons in the capacities and on the dates indicated.
<TABLE>
<S> <C>
* President, Director February 16,
- ------------------------------------- 1999
Peter M. Doyle
* Vice President, February 16,
- ------------------------------------- Director 1999
Ralph C. Guild
/s/ William J. McEntee, Jr. Vice President and February 16,
- ------------------------------------- Chief Financial 1999
William J. McEntee, Jr. Officer (Principal
Financial and
Accounting Officer)
* Vice President and February 16,
- ------------------------------------- Secretary 1999
Paul J. Parzuchowski
* Director February 16,
- ------------------------------------- 1999
Leslie D. Goldberg
/s/ William J. McEntee, Jr.
*By:_________________________________
William J. McEntee, Jr.
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned co-registrant has duly caused this amendment to be signed on its
behalf by the undersigned, hereunto duly authorized, in the State of New York,
on February 16, 1999.
D&R Radio, Inc.
*
By: _________________________________
Jacqueline Rossinsky
President
<TABLE>
<S> <C>
Pursuant to the requirements of the Act, this amendment has been signed below
by the following persons in the capacities and on the dates indicated.
* President February 16,
- ------------------------------------- 1999
Jacqueline Rossinsky
* Vice President February 16,
- ------------------------------------- Director 1999
Ralph C. Guild
* Vice President February 16,
- ------------------------------------- Director 1999
Marc G. Guild
/s/ William J. McEntee, Jr. Vice President and February 16,
- ------------------------------------- Chief Financial 1999
William J. McEntee, Jr. Officer (Principal
Financial and
Accounting Officer)
* Vice President and February 16,
- ------------------------------------- Secretary 1999
Paul J. Parzuchowski
* Director February 16,
- ------------------------------------- 1999
Leslie D. Goldberg
/s/ William J. McEntee, Jr.
*By:_________________________________
William J. McEntee, Jr.
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned co-registrant has duly caused this amendment to be signed on its
behalf by the undersigned, hereunto duly authorized, in the State of New York,
on February 16, 1999.
CBS Radio Sales, Inc.
*
By: _________________________________
Michael C. Weiss
President
Pursuant to the requirements of the Act, this amendment has been signed below
by the following persons in the capacities and on the dates indicated.
<TABLE>
<S> <C>
</TABLE>
* President, Director
- ------------------------------------- February 16,
Michael C. Weiss 1999
* Vice President,
- ------------------------------------- Director February 16,
Ralph C. Guild 1999
/s/ William J. McEntee, Jr. Vice President and
- ------------------------------------- Chief Financial February 16,
William J. McEntee, Jr. Officer (Principal 1999
Financial and
Accounting Officer)
* Vice President and
- ------------------------------------- Secretary February 16,
Paul J. Parzuchowski 1999
* Director
- ------------------------------------- February 16,
Leslie D. Goldberg 1999
/s/ William J. McEntee, Jr.
- -------------------------------------
William J. McEntee, Jr.
Attorney-in-Fact
<TABLE>
<S> <C>
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned co-registrant has duly caused this amendment to be signed on its
behalf by the undersigned, hereunto duly authorized, in the State of New York,
on February 16, 1999.
Allied Radio Partners, Inc.
*
By: _________________________________
Michael Bellantoni
President
Pursuant to the requirements of the Act, this amendment has been signed below
by the following persons in the capacities and on the dates indicated.
* President, Director
- ------------------------------------- February 16,
Michael Bellantoni 1999
* Vice President,
- ------------------------------------- Director February 16,
Ralph C. Guild 1999
/s/ William J. McEntee, Jr. Vice President and
- ------------------------------------- Chief Financial February 16,
William J. McEntee, Jr. Officer (Principal 1999
Financial and
Accounting Officer)
* Vice President and
- ------------------------------------- Secretary February 16,
Paul J. Parzuchowski 1999
* Director
- ------------------------------------- February 16,
Leslie D. Goldberg 1999
/s/ William J. Mcentee, Jr.
*By:_________________________________
William J. McEntee, Jr.
Attorney-in-Fact
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned coregistrant has duly caused this amendment to be signed on its
behalf by the undersigned, hereunto duly authorized, in the State of New York,
on February 16, 1999.
Clear Channel Radio Sales, LLC
*
By: _________________________________
Robert Turner
President
Pursuant to the requirements of the Act, this amendment has been signed below
by the following persons in the capacities and on the dates indicated.
* President
- ------------------------------------- February 16,
Robert Turner 1999
* Vice President
- ------------------------------------- February 16,
Ralph C. Guild 1999
/s/ William J. McEntee, Jr. Vice President and
- ------------------------------------- Chief Financial February 16,
William J. McEntee, Jr. Officer (Principal 1999
Financial and
Accounting Officer)
* Vice President and
- ------------------------------------- Secretary February 16,
Paul J. Parzuchowski 1999
/s/ William J. McEntee, Jr.
*By: ________________________________
William J. McEntee, Jr.
Attorney-in-Fact
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned co-registrant has duly caused this amendment to be signed on its
behalf by the undersigned, hereunto duly authorized, in the State of New York,
on February 16, 1999.
Caballero Spanish Media LLC
*
By: _________________________________
Ramon Pineda
President
Pursuant to the requirements of the Act, this amendment has been signed below
by the following persons in the capacities and on the dates indicated.
* President
- ------------------------------------- February 16,
Ramon Pineda 1999
/s/ William J. McEntee, Jr. Vice President and
- ------------------------------------- Chief Financial February 16,
William J. McEntee, Jr. Officer (Principal 1999
Financial and
Accounting Officer)
* Vice President and
- ------------------------------------- Secretary February 16,
Paul J. Parzuchowski 1999
/s/ William J. McEntee, Jr.
*By: ________________________________
William J. McEntee, Jr.
Attorney-in-Fact
II-11
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated April 24, 1998 on the consolidated financial statements of Interep
National Radio Sales, Inc. and subsidiaries for the three years ended December
31, 1997 (and to all references to our Firm) included in or made part of this
Form S-4.
ARTHUR ANDERSEN LLP
New York, New York
February 16, 1999
