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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 1996
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PREMIERE RADIO NETWORKS, INC.
(Name of small business issuer in its charter)
DELAWARE 0-20065 95-4083971
(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification No.)
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15260 VENTURA BOULEVARD, FIFTH FLOOR
LOS ANGELES, CALIFORNIA 91403-5339
(818) 377-5300
(Address and telephone number of principal executive offices and principal place
of business)
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Securities registered pursuant to Section 12(b) of the Securities Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Securities Exchange Act:
Title of Each Class Name of Exchange of Which Registered
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Common Stock, $.01 Par Value NASDAQ National Market
Class A Common Stock, $.01 Par Value NASDAQ National Market
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Indicate by a check mark whether the small business issuer (i.) Has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or such shorter period that
the small business issuer was required to file such reports), and (ii.) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by a check mark that there is no disclosure of delinquent filers
in response to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of small business issuer's knowledge,
in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendments to this Form 10-KSB.
[ ]
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On April 7, 1997, the Registrant had 1,438,805 shares outstanding of
Common Stock, $0.01 par value, and 3,018,605 shares outstanding of Class A
Common Stock, $0.01 par value, each held by non-affiliates at $16.00 per share.
The combined market value of the Registrant's Common Stock and Class A Common
Stock held by non-affiliates at that date was $71,318,560.
Registrant's gross revenues for its fiscal year ended December 31, 1996
were $27,147,199.
On April 7, 1997 Registrant had 3,654,121 shares outstanding of Common
Stock, $0.01 par value and 4,253,794 shares outstanding of Class A Common Stock,
$0.01 par value (excluding 4,000 and 216,100 shares of Common Stock and Class A
Common Stock, respectively, that are held in treasury).
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DOCUMENTS INCORPORATED BY REFERENCE: None
The Registrant's proxy statement for its fiscal year ended December 31,
1996 will be filed in connection with the 1997 Annual Meeting of Stockholders.
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PREMIERE RADIO NETWORKS, INC.
DECEMBER 31, 1996
INDEX TO FORM 10-KSB
Part I Page Number
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1. Description of Business 4 - 8
2. Description of Property 8
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 9
Part II
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5. Market for the Registrant's Common Equity and
Related Stockholder Matters 10
6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 18
7. Financial Statements and Supplementary Data 18
8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 18
Part III
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9. Directors and Executive Officers of the Registrant 19 - 22
10. Executive Compensation 22 - 25
11. Security Ownership of Certain Beneficial Owners
and Management 25 - 27
12. Certain Relationships and Related Transactions 28 - 29
13. Exhibits 30 - 31
SIGNATURES 32 - 33
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PREMIERE RADIO NETWORKS, INC.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Based in Los Angeles, California, Premiere Radio Networks, Inc. (the
"Company") is a leading independent creator, producer and distributor of
innovative comedy, entertainment and music-related programs and a supplier of
research, production music libraries and other services to the radio industry.
The Company offers programs and services to radio stations in exchange for
commercial broadcast time which the Company then sells to more than 350 national
advertisers. The Company has grown from three programs and 250 radio station
affiliates at its inception in 1987 to 52 programs and services and
approximately 6,000 radio station affiliates today. The Company's radio station
affiliates broadcast in markets that reach more than 99% of the population of
the U.S. Management believes that, based on advertising revenues generated by
its programs and services, the Company is the fourth largest producer and
distributor of network radio programming and services to the radio industry in
the U.S. behind Westwood One Entertainment, ABC Radio Networks, and CBS Radio
Networks. See "Industry Overview" and "Competition."
The Company was incorporated in California in January 1987 and
reincorporated in Delaware in July 1995. The Company's principal executive
offices are located at 15260 Ventura Boulevard, Fifth Floor, Los Angeles,
California 91403-5339, and its telephone number is (818) 377-5300.
In July 1995, Archon Communications, Inc. ("Archon") made a significant
investment in the Company. The Company has been advised that Archon is currently
50% owned by each of Archon Communications Partners, LLC ("ACP") and a
subsidiary of The News Corporation ("NewsCorp"). Archon's representatives on the
Company's Board of Directors include executives designated by ACP and NewsCorp.
On April 7, 1997, the Company announced that it had signed a definitive
merger agreement with Jacor Communications, Inc. ("Jacor") pursuant to which
Jacor will acquire 100% of the outstanding Common Stock, Class A Common Stock
and common Stock equivalents of the Company for cash and stock valued at
approximately $185 million or approximately $18 per share, consisting of $13.50
in cash with the balance in Jacor common stock. The acquisition price is
subject to adjustment in certain circumstances. Actual closing of the merger
transaction is subject to regulatory review, including the expiration of the
applicable Hart-Scott-Rodino waiting period, and other customary closing
considerations. See Note 17 to the Company's audited financial statements.
FORWARD-LOOKING STATEMENTS
This Form 10-KSB, particularly Item 1 and Item 6, contains certain forward-
looking statements and other statements that are not historical facts. There
can be no assurance that the Company has accurately identified and properly
weighed all of the factors which affect market conditions for the Company's
programs and services, that the public information regarding market conditions
and other factors upon which the Company has relied is accurate or complete, or
that the Company's analysis of the market and demand for its commercial
broadcast inventory, programs and services is correct and, as a result, the
strategy based upon such analysis will be successful. Factors which could
affect that market for the Company's commercial broadcast inventory, programs
and services include the competition for radio advertising revenues, competition
for advertising revenues with other media, listening preferences of radio
listeners and changes in the laws, rules and regulations affecting the broadcast
industry.
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PREMIERE RADIO NETWORKS, INC.
PART I
BUSINESS STRATEGY
The Company currently produces 33 network programs, which target the most
popular radio formats, including Adult Contemporary, Album Oriented Rock,
Contemporary Hit Radio, Country, News/Talk, Oldies and Urban. The Company
specializes in a form of "interactive" programming which provides radio station
affiliates with program elements that can be customized and integrated locally,
enabling local on-air personalities to actively participate by inserting their
own voice within Company-scripted dialogues and pre-recorded program elements.
The Company also produces mini-features, including LEEZA GIBBONS' ENTERTAINMENT
TONIGHT ON THE RADIO and THE MELROSE PLACE MINUTE and long-form programming,
including LEEZA GIBBONS' TOP 25 COUNTDOWN, THE MICHAEL REAGAN SHOW, THE JIM ROME
SHOW, and AFTER MIDNITE WITH BLAIR GARNER in addition to its comedy programs.
Management believes that the Company is the largest producer and distributor of
syndicated radio comedy in the U.S.
The Company has expanded the programs and services it offers through
internal development, and through the selective investment in and/or acquisition
of assets and businesses which complement the Company's operations.
In January 1997, the Company acquired After MidNite Entertainment, Inc.
("AME"), a producer and distributor of five country western network radio
programs and a production music library. Through its acquisition of AME, the
Company intends to expand its slate of country music programming. In November
1996, the Company completed its $4.0 million minority investment in and
strategic alliance with AudioNet, Inc. ("AudioNet"), a leading aggregator and
broadcaster of audio content on the Internet and World Wide Web. As part of the
AudioNet investment, the Company became AudioNet's exclusive network radio sales
representative and will act as a strategic partner with AudioNet to expand its
base of radio station affiliates and advertisers on AudioNet's and the
Company's Web sites.
In September 1996, the Company completed its acquisition of Cutler
Productions, Inc. and SJM Productions, Inc. (collectively, "Cutler"), the second
largest producer and distributor of syndicated comedy radio programming.
Through the acquisition of Cutler, the Company acquired six comedy and music
programs broadcast on more than 700 radio station affiliates and further
solidified its position as the largest producer and distributor of syndicated
comedy radio programming in the U.S. Also in September 1996, the Company
acquired Philadelphia Music Works, Inc. ("PMW"). Through its acquisition of
PMW, the Company began producing and distributing jingle services directly to
advertisers for cash and to affiliated radio stations in exchange for commercial
broadcast inventory. In August 1995, the Company acquired Broadcast Results
Group ("BRG"), through which it provides production music libraries to its radio
station affiliates.
Through its acquisition of Mediabase Research Services ("Mediabase") in
1993, the Company began providing a comprehensive radio research service. During
1995, the Company debuted its Newstrack service, which provides, among other
things, comprehensive weekly call-out research services for News/Talk radio
formats. The Company believes that its research services provide information
that helps its radio station affiliates increase their audience share and
ratings in an increasingly competitive market. The Company's strategy is to
provide its services, which are typically available from the Company's
competitors on a cash basis, in exchange for commercial broadcast inventory from
its radio station affiliates. Compared to cash basis distribution, the Company's
method of distribution makes its services more attractive to radio stations
which have limited cash resources and/or excess commercial broadcast inventory.
Since the Company generally offers such services to radio stations on a
non-exclusive basis, the Company is able to sell its services to more than one
radio station affiliate in each market.
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PREMIERE RADIO NETWORKS, INC.
PART I
The Company has a national, in-house sales force and infrastructure which
sells commercial broadcast inventory to more than 350 national advertisers. The
Company has been able to leverage its sales force and generate additional
revenues without significant additional overhead costs by providing network
advertising sales representation services, on a commission basis, to third-party
radio networks and independent programming and service suppliers that do not
have their own sales force. The Company believes that it is presently the second
largest network radio advertising sales representative in the U.S. in terms of
its gross billings. Currently, the Company represents 9 independent radio
networks, including WOR Radio Networks, One-on-One Sports Radio Network, and
Accuweather.
The Company's growth strategy involves a continuing commitment to both
internal development and expansion through acquisitions. The Company's principal
objective is to maximize the value and quantity of its commercial broadcast
inventory and other revenue sources. The principal strategies employed by
management to achieve this objective are to: (i) develop, produce and distribute
high quality radio programming; (ii) offer a broad array of services, including
research, music libraries and jingle packages; (iii) acquire assets or
businesses complementary to the Company's operations; and (iv) leverage its
advertising sales force through third-party sales representation services. The
Company's strategies are set forth below.
PROVIDE HIGH QUALITY RADIO PROGRAMMING. One of the Company's principal
operating strategies is to provide high quality radio programs targeted to the
most popular radio station formats in order to obtain commercial broadcast
inventory that the Company then resells to national advertisers. The Company
specializes in a form of "interactive" programming which enables local on-air
personalities to participate by inserting their own voice within Company-
scripted dialogues and pre-recorded programs. As evidence of its success in
creating innovative and entertaining programming, the Company has attracted
radio station affiliates in each of the top 50 U.S. radio markets. The Company
intends to develop additional programming by using its internal creative staff,
contracting with outside on-air talent and acquiring other programming
companies. The Company presently has a total of 33 long-form and short-form
network radio programs, including several of the most popular, nationally
renowned radio personalities such as Leeza Gibbons, Jim Rome, Michael Reagan,
Ken Hamblin, and Blair Garner.
OFFER BROAD ARRAY OF SERVICES. The Company provides a variety of services
to the radio industry. The Company offers radio station affiliates music and
News/Talk research through Mediabase and Newstrack, which the Company believes
provides information that helps its radio station affiliates increase their
audience share and ratings in an increasingly competitive market. In addition,
the Company offers production music libraries and jingle packages through BRG
and PMW. The Company's strategy is to provide its services, which are typically
available from others on a cash basis, in exchange for commercial broadcast
inventory from its radio station affiliates. The research services are offered
on a non-exclusive basis, enabling the Company to sell these services to more
than one radio station affiliate in each market. The Company plans to increase
its services through internal development and the acquisition of complementary
radio-related businesses.
ACQUIRE COMPLEMENTARY ASSETS OR BUSINESSES. The Company's business
strategy includes the expansion of the Company through the acquisition of
complementary strategic assets or businesses. The Company has made several
strategic acquisitions since its founding, including three corporate
acquisitions and one strategic investment during 1996 and early 1997.
Management believes that the Company's potential acquisition targets include
competitors of the Company which produce, distribute and sell radio programming;
radio research companies; and other companies that provide complementary
services to the
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PREMIERE RADIO NETWORKS, INC.
PART I
radio and related industries. The Company has and would consider acquisitions of
varying sizes, including businesses which are larger than the Company.
MAINTAIN AND LEVERAGE NATIONAL ADVERTISING SALES FORCE. The Company has a
full-service, national advertising sales force, which management believes
provides it with a key competitive advantage over many other independent network
radio program syndicators. The Company's sales force has relationships with
approximately 150 advertising agencies that represent over 350 national
advertisers. To enhance its cash flow, the Company makes its advertising sales
force available to third party network radio programmers and independent radio
programming and service suppliers that do not employ their own sales force. Such
sales representative service enables the Company to leverage its sales force,
thereby generating increased revenue with only incremental associated costs. The
Company intends to continue to leverage its sales force by pursuing additional,
profitable sales representation opportunities in the future.
INDUSTRY OVERVIEW
According to the National Association of Broadcasters ("NAB"), there are
more than 10,000 commercial radio stations in the U.S. Given radio's wide reach
and relatively low advertising costs in comparison to print and television
media, radio is one of the most efficient and cost-effective means for
advertisers to reach targeted demographic groups. Radio is a popular form of
advertising due to the very short lead time between commercial production and
broadcast, the relative ease and low cost of producing radio commercials, the
relatively small seasonal variation in radio listening patterns, and the fact
that more than half of all radio listening occurs away from the home, closer to
the point of purchase. Estimates of total 1996 radio advertising revenues were
in excess of $11.5 billion, which included estimates of total network radio
advertising in excess of $600 million.
Radio stations develop formats, such as music, news/talk or various types
of entertainment programming, intended to appeal to a target listening audience
with demographic characteristics that will attract national, regional and local
commercial advertisers. However, limited financial and creative resources, among
other things, prevent most radio stations from producing national quality
programming, or developing their own research or related services. Accordingly,
radio stations rely on network programming, research and other services from
independent producers or "syndicators," such as the Company, to enhance their
existing local programming and research. A network programmer licenses
programming, research or related services to radio stations in exchange for a
contractual amount of commercial broadcast time which is then resold to
advertisers requiring national coverage. Research and other services are
generally acquired by stations for commercial broadcast time, cash or a
combination thereof.
By placing a program or service with radio stations throughout the U.S.,
the syndicator creates a "network" of radio stations that have agreed to carry
its programming or receive its services in exchange for commercial broadcast
time. The commercial broadcast time for such programs may vary from market to
market within a specified time period, depending upon the requirements of the
particular radio station affiliate. Rates for the sale of advertising time are
generally established on the basis of audience ratings for the specific
demographic group targeted by the advertiser. Audience levels and demographics
are measured and rated by the Arbitron Research Company Nationwide Service
("Arbitron"), which periodically measures the percentage of the radio audience
in a market area listening to a particular radio station during specified
dayparts or by Statistical Research, Inc.'s RADAR Service ("RADAR"), which
measures the listening audience at the specific time a commercial is actually
broadcast.
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PREMIERE RADIO NETWORKS, INC.
PART I
Network programming may be pre-recorded and distributed to radio station
affiliates in advance via compact discs, audiotapes or satellite, enabling an
affiliate to broadcast the program within any prescribed time period established
by agreement between the affiliate and the program syndicator, or may be
distributed live via satellite, aired either simultaneously throughout the U.S.
or at the same hour of the day in each time zone.
SEASONALITY
As is standard in the network radio industry, the Company's revenues have
historically been highest in the second and third quarters and lowest in the
first and fourth quarters. Other than sales commissions paid to the Company's
sales personnel, costs do not vary significantly with respect to the seasonal
fluctuation of revenues. As a result, the Company's net income historically has
typically been highest in the second and third quarters and lowest in the first
and fourth quarters. See "Industry Overview."
COMPETITION
Competition for radio advertising revenues and audience share is intense.
The Company competes with approximately ten other major network radio companies
in the U.S., some of which have greater financial resources than the Company, as
well as with smaller independent producers and distributors. In addition,
several of the Company's competitors are affiliated with major radio station
group owners, have recognized brand names and have large networks which include
affiliates to which such competitors pay compensation to broadcast the network's
commercials. The Company's largest direct competitors include ABC Radio
Networks, Westwood One Radio Networks and CBS Radio Networks, which the Company
estimates accounted for an aggregate of approximately 70% of total network radio
advertising revenues. The principal competitive factors in the radio industry
are the quality and creativity of programming and the ability to provide
advertisers with a cost-effective method of delivering commercial
advertisements. In addition, the radio industry competes for advertising
revenues with television, print, outdoor and other media. Management believes
that the quality and creativity of the Company's programming and the capability
of its affiliate relations and advertising sales force have enabled the Company
to become a significant competitor in network radio. Furthermore, research is
provided by many other companies, many of which may have greater financial
resources than the Company.
EMPLOYEES AND OTHERS
As of April 7, 1997, the Company had 142 full-time employees. In addition,
the Company maintains continuing relationships with more than 50 independent
writers, program hosts, technical personnel and producers. The Company is not a
party to any collective bargaining agreement. The Company believes its relations
with its employees and independent contractors are good.
ITEM 2. DESCRIPTION OF PROPERTY
PROPERTIES
The Company leases approximately 28,600 square feet of office space in Los
Angeles, California in which its corporate headquarters, and programming and
research facilities are located. The lease expires December 31, 2000, and the
annual base rent for such facilities is approximately $464,400. The Company
also leases sales and marketing and/or programming facilities in New York, New
York; Chicago, Illinois; St. Louis, Missouri; Garner, North Carolina; Troy,
Michigan; Denver, Colorado and Wayne, Pennsylvania
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PREMIERE RADIO NETWORKS, INC.
PART I
for an aggregate annual base rent of approximately $366,000. The Company
believes that its properties are in good condition and are adequate for its
operations in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company may be a party to various legal actions and
complaints arising in the ordinary course of business. At the present time, the
Company is not a party to any such legal actions or complaints which if
adversely determined would have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PREMIERE RADIO NETWORKS, INC.
PART II
ITEM 5. MARKET INFORMATION FOR SMALL BUSINESS ISSUER'S COMMON STOCK AND CLASS A
COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The following table sets forth, for the periods indicated, the range of low
and high bid quotations for the Common Stock and Class A Common Stock as
reported by the Nasdaq National Market ("NNM"). The prices reflect inter-dealer
quotations without retail mark-ups, mark-downs or commissions and may not
represent actual transactions. The Company's Class A Common Stock began trading
on the NNM on January 26, 1996 in conjunction with the Offering, as hereinafter
defined. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations."
Low High
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Common Stock, $.01 Par Value:
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YEAR ENDED DECEMBER 31, 1995*
First Quarter . . . . . . . . . . . . . . . . . . . . . . $4.50 $7.17
Second Quarter. . . . . . . . . . . . . . . . . . . . . . $5.67 $8.00
Third Quarter . . . . . . . . . . . . . . . . . . . . . . $7.17 $19.33
Fourth Quarter. . . . . . . . . . . . . . . . . . . . . . $10.33 $14.67
YEAR ENDED DECEMBER 31, 1996*
First Quarter . . . . . . . . . . . . . . . . . . . . . . $10.67 $14.33
Second Quarter. . . . . . . . . . . . . . . . . . . . . . $11.25 $16.00
Third Quarter . . . . . . . . . . . . . . . . . . . . . . $9.88 $14.25
Fourth Quarter. . . . . . . . . . . . . . . . . . . . . . $10.00 $13.00
Class A Common Stock, $.01 Par Value:
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YEAR ENDED DECEMBER 31, 1996*
First Quarter (since January 26, 1996). . . . . . . . . . $10.17 $13.17
Second Quarter. . . . . . . . . . . . . . . . . . . . . . $10.75 $15.63
Third Quarter . . . . . . . . . . . . . . . . . . . . . . $10.00 $12.88
Fourth Quarter. . . . . . . . . . . . . . . . . . . . . . $9.75 $12.75
* - As adjusted, where applicable, to give effect to a one-for-two stock
dividend. See "Dividends."
On April 7 1997, the last sale price of the Common Stock and the Class A
Common Stock was $16.00 per share. The Company estimates that as of April 6
1997, there were approximately 68 holders of record of the Common Stock and 60
holders of record of the Class A Common Stock, and an aggregate of 2,850
beneficial holders of the Common Stock and Class A Common Stock.
DIVIDENDS
The Company has never declared or paid a cash dividend on its Common Stock.
The Company currently intends to retain all earnings to finance the continued
growth of the Company's business and does not anticipate paying any cash
dividends in the foreseeable future on its Common Stock or Class A Common Stock.
The Company declared a one-for-two stock dividend, effected in the form of
a three-for-two stock split, of Class A Common Stock payable on March 25, 1996
to all holders of Common Stock and Class A Common Stock on the April 1, 1996
record date for such dividend. The Company may declare other stock
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PREMIERE RADIO NETWORKS, INC.
PART II
dividends from time to time in the future. All dividends will treat the Class A
Common Stock on the same basis as the Common Stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 12 of
Notes to Consolidated Financial Statements.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INDUSTRY OVERVIEW
The Company is a leading independent creator, producer and distributor of
innovative comedy, entertainment and music related programs and a supplier of
research and other services to the radio industry.
The U.S. radio industry consists of over 10,000 commercial radio stations.
Radio stations rely on network radio programmers and distributors, such as the
Company, to provide national quality programming and research and other services
to enhance their existing programming and ratings. Limited financial and
creative resources, among other matters, typically prevent most radio stations
from producing their own national quality programming, research or related
services. The group of radio stations or "affiliates" which contract with a
distributor to broadcast a particular program or utilize one of its services
constitute a "radio network."
Network radio advertising, in general, involves the sale of commercial
broadcast time within specific time periods of the day or "dayparts" on a given
network programmer's station affiliates throughout the U.S. Network program
providers obtain a station's commercial broadcast time in exchange for programs
or services. In certain cases, network programmers pay compensation to radio
stations for "clearing" commercial time, whether or not the station broadcasts
the network's programming. The Company does not currently pay compensation to
radio station affiliates for "clearing" its commercial time. As the Company
grows and increases the number of long-form programs it offers to radio
stations, the Company may elect to pay compensation if it concludes that to do
so would enhance the penetration and ratings for its radio networks.
The creation of a "radio network" enables the Company to sell the acquired
commercial broadcast inventory to advertisers desiring national coverage. Rates
for the sale of network advertising are established on the basis of audience
delivery or ratings and the demographic composition of the listening audience.
The Company sells commercial broadcast time by "guaranteeing" certain ratings
and demographics. There can be no assurance that the guarantee will be achieved.
If the radio network on which the commercial broadcast time is sold does not
achieve the guarantee, the Company may be obligated to offer the advertiser
additional advertising time (I.E., "make goods" or "bonus spots") on the same
radio network or on an alternate radio network. "Make goods" or "bonus spots"
are the predominant means whereby the Company satisfies such obligations to
advertisers. Alternatively, the Company could be obligated to refund or credit a
portion of the advertising revenue derived from such sales. Historically, the
Company has not had to rebate cash.
Advertisers which purchase commercial broadcast time from the Company
include nine of the top ten network radio advertisers in the U.S., and in total
include more than 350 national advertisers. National advertisers that regularly
purchase advertising time on the Company's networks include AT&T, Hershey,
McDonalds, Nabisco, Sears, Roebuck & Co. and Warner-Lambert.
In certain circumstances, the Company accepts barter arrangements with
advertisers, exchanging excess Company inventory of perishable commercial
broadcast time for goods and services. Such arrangements are common in the radio
and television broadcasting industry. The Company's revenues from
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PREMIERE RADIO NETWORKS, INC.
PART II
barter arrangements, based upon the fair market value of the goods and services
received for advertising time, were approximately 6.4%, 7.3%, and 7.5% of net
operating revenues in 1996, 1995, and 1994, respectively. Although the Company
historically has been able to use the goods and services received under its
barter arrangements to lower its cash outlays, there can be no assurance that
the Company will be able to continue to do so in the future. See Note 8 of Notes
to Consolidated Financial Statements.
As a result of the Company's growth in sales representation services for
third-party program producers, its acquisitions of AME, PMW, BRG, Mediabase, and
Olympia Broadcasting Networks ("Olympia") and its acquisition and divestiture of
the Company's Denver, Colorado radio station KZDG-FM ("KZDG"), period-to-period
results of operations may not be comparable, and the results of operations for
the fiscal year ended December 31, 1996 may not be indicative of results for any
future period.
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995
OPERATING REVENUES. Gross revenues for the fiscal years ended December 31,
1996 and 1995 were $27.1 and $20.8 million, respectively, representing an
increase of $6.3 million, or 30.8%. Net operating revenues increased $5.5
million, or 30.1% from $18.3 million for the fiscal year ended December 31,
1995, to $23.8 million for the fiscal year ended December 31, 1996. These
increases were principally due to increased gross advertising revenues that
resulted from acquisitions of other independent network radio programmers and
service providers, the continued growth in research services and the launch of
new programs and services all of which were offset, in part, by lower overall
revenues on certain syndicated comedy programs.
PRODUCTION, PROGRAMMING AND PROMOTIONS EXPENSES. Production, programming
and promotions expenses for the fiscal years ended December 31, 1996 and 1995
were $7.5 million and $5.5 million, respectively, representing an increase of
$2.0 million, or 37.0%. As a percentage of net operating revenues, production,
programming and promotions expenses were 31.5% and 29.9% for the fiscal years
ended December 31, 1996 and 1995, respectively, representing an increase as a
percentage of net operating revenues of 1.6%. The increase in production,
programming and promotions expenses in absolute dollars resulted from production
and programming costs associated with acquisitions completed during the later
half of 1995 and during 1996, and costs associated with the production of new
programs and services. From September 1995 through fiscal year ended December
31, 1996, the Company completed the acquisitions of BRG, Cutler and PMW; and
also during that time acquired the distribution rights to or launched four new
long-form programs, a new mini-feature and a new research service. All of the
acquisitions and new programs and services are included in the Company's results
of operations from their date of acquisition or introduction, except that
programming costs incurred with respect to the development of new programs and
services are expensed as incurred. The increase in production, programming and
promotions expenses as a percentage of net operating revenues was principally
due to acquisitions completed during the fourth quarter of fiscal year ended
December 31, 1996 and the acquisition of distribution rights to three long-form,
talk programs during that year. As the Company completes acquisitions or
introduces new programs, production and programming costs may temporarily be
higher as a percentage of net operating revenues as the Company assimilates the
acquisitions within its operations and/or builds the revenue base of acquired or
newly introduced programs and services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the fiscal years ended December 31, 1996 and 1995
were $9.0 million and $7.8 million, respectively, representing an increase of
$1.2 million or 15.5%. The increase in selling, general and administrative
expenses in terms of absolute dollars was due to the incremental overhead costs
associated with acquired
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companies such as BRG, Cutler and PMW, and increased salaries, sales and related
costs associated with the Company's growth in programming and services. As a
percentage of net operating revenues, selling, general and administrative
expenses were 37.9% and 42.7% during the fiscal years ended December 31, 1996
and 1995, respectively, representing a decrease as a percentage of net operating
revenues of 4.8%. The decrease in selling, general and administrative expenses
as a percentage of net operating revenues was principally due to the effects of
higher overall levels of gross operating revenues and the nature of fixed and
variable components of selling, general and administrative expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$1.9 million and $1.3 million for the fiscal years ended December 31, 1996 and
1995, respectively, representing an increase of $0.6 million, or 50.8%. This
increase was principally due to increased amortization expenses associated with
acquisitions of the intellectual properties of BRG, Cutler and PMW.
OTHER CHARGES. In connection with attempted business acquisitions and the
assimilation of completed business acquisitions during the year ended December
31, 1996, the Company incurred professional fees, severance, transition and
other costs. The costs which aggregated $417,045 were charged to expense in the
1996 statement of income.
OPERATING INCOME. Operating income for the fiscal year ended December 31,
1996 was $5.0 million, an increase of $1.2 million, or 32.3% over the same
period in 1995. The increased operating income was principally due to increased
net advertising revenues resulting from the acquisitions of other independent
network radio programmers and service providers and the continued growth in
Mediabase research services. In addition, lower overall operating expenses
relative to total operating revenues contributed to higher operating income.
OTHER INCOME AND (EXPENSES). Other income and (expenses) for the fiscal
year ended December 31, 1996 was $(0.8) million, a decrease of $1.3 million
versus the same period in 1995. Other income and (expenses) for the fiscal year
ended December 31, 1996 principally included a one-time write-off of debt
issuance costs which was offset by interest income on investments in short-term
marketable securities. The Company had recorded debt issuance costs in
connection with the Debentures, as hereinafter defined. Because the Company did
not exercise its call on Archon to purchase the Debentures by October 28, 1996,
the Company wrote-off the then remaining unamortized debt issuance costs
resulting in a one-time earnings charge during the fourth quarter of 1996 of
$1.9 million. See "Liquidity and Capital Resources" and Note 11 to the
Company's audited financial statements. Interest income resulted from the
Company's investment of proceeds received from the sale of Class A Common Stock
in January 1996 (the "Offering"). See "Liquidity and Capital Resources." Other
income for the fiscal year ended December 31, 1995 included a one-time gain on
the Company's sale of KZDG in February 1995 ("KZDG Sale") of $0.5 million.
INCOME TAXES. The provision for income taxes for each of the fiscal years
ended December 31, 1996 and 1995 was $1.7 million. The estimated effective tax
rate utilized by the Company for the fiscal year ended December 31, 1996 was
41.1%, while the estimated effective tax rate for the fiscal year ended December
31, 1995 was 40.2%.
NET INCOME AND EARNINGS PER SHARE. Net income for the fiscal years ended
December 31, 1996 and 1995 was $2.4 million, or $0.28 per share and $2.6
million, or $0.46 per share, respectively. The decreased net income for the
fiscal year ended December 31, 1996 was principally due to the effects of the
one-time write-off of debt issuance costs and Other Charges aggregating $2.4
million, all of which was offset, in part, by higher overall operating income
and increased interest income. Earnings per share, which includes the
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PREMIERE RADIO NETWORKS, INC.
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dilutive effects of options and warrants to purchase Common Stock, are based
upon 8,929,954 and 6,105,494 shares for the fiscal years ended December 31, 1996
and 1995, respectively.
The Company declared a one-for-two stock dividend in March 1996, effected
in the form of a three-for-two stock split, of Class A Common Stock payable to
all holders of Common Stock and Class A Common Stock on the April 1, 1996 record
date for such dividend (the "Stock Dividend"). Per share earnings for the year
ended December 31, 1995 has been adjusted to reflect the Stock Dividend. See
"Dividends."
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1994
OPERATING REVENUES. Gross revenues for the fiscal years ended December 31,
1995 and 1994 were $20.8 and $18.0 million, respectively, representing an
increase of $2.8 million, or 15.2%. Net operating revenues increased
$2.3 million, or 14.6% from $16.0 million for the fiscal year ended December 31,
1994, to $18.3 million for the fiscal year ended December 31, 1995. These
increases are principally due to increased gross advertising revenues related to
network programs and services of $2.5 million ($2.1 million net revenues) and
increased revenues from sales representation and other operating revenues of
$1.5 million, which were offset by a decrease in revenues from the operation of
KZDG of $1.2 million. The increased advertising revenues resulted from the
growth in established programming, continued growth in Mediabase research
services, and expansion in sales representation and marketing and promotional
services. The decrease in KZDG revenues resulted from the KZDG Sale.
PRODUCTION, PROGRAMMING AND PROMOTIONS EXPENSES. Production, programming
and promotions expenses for the fiscal years ended December 31, 1995 and 1994
were $5.5 million and $5.3 million, respectively, representing an increase of
$0.2 million or 3.6%. In absolute dollars, production, programming and
promotions expenses remained relatively flat, while as a percentage of net
operating revenues, production, programming and promotions expenses were 29.9%
and 33.1% for the fiscal years ended December 31, 1995 and 1994, respectively,
representing a decrease as a percentage of net operating revenues of 3.2%. This
decrease as a percentage of net operating revenue was principally due to the
discontinuance of operations of KZDG resulting in an expense reduction of
$0.4 million (2.6% of net operating revenues for the fiscal year ended December
31, 1995) and the discontinuance of the Gerry House Show resulting in an expense
reduction of $0.2 million (1.3% of net operating revenues for the fiscal year
ended December 31, 1995), both of which had a substantially higher cost
structure than other Company operations, offset, in part, by increased costs
associated with new radio programming and services and other costs. There were
no significant additional production, programming and promotions expenses
associated with the expansion in sales representation service revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the fiscal years ended December 31, 1995 and 1994
were $7.8 and $7.7 million, respectively, representing an increase of
$0.1 million or 2.1%. In absolute dollars, selling, general and administrative
expenses remained relatively flat while as a percentage of net operating
revenues, selling, general and administrative expenses were 42.7% and 48.0%
during the fiscal years ended December 31, 1995 and 1994, respectively,
representing a decrease as a percentage of net operating revenues of 5.3%. The
decrease in selling, general and administrative expenses as a percentage of net
operating revenues was principally due to the effects of the KZDG Sale, which
had a substantially higher cost structure than other Company operations, and the
effects of higher overall levels of gross operating revenues and the nature of
fixed and variable components of selling, general and administrative expenses.
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PREMIERE RADIO NETWORKS, INC.
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DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
$1.3 million and $0.9 million for the fiscal years ended December 31, 1995 and
1994, respectively, representing an increase of $0.4 million, or 35%. This
increase is principally due to increased amortization expenses associated with
acquisitions of intellectual properties and an acquired program network.
OPERATING INCOME. Operating income for the fiscal year ended December 31,
1995 was $3.8 million, an increase of $1.7 million, or 79.4% over the same
period in 1994. The increased operating income was principally due to increased
net advertising revenues resulting from the growth in established programming,
continued growth in Mediabase research services, and expansion in sales
representative services. In addition, lower overall operating expenses relative
to total operating revenues, resulting principally from the KZDG Sale and the
discontinuance of the Gerry House Show, contributed to higher operating income.
OTHER INCOME. Other income for the fiscal year ended December 31, 1995 was
$0.5 million, a decrease of $0.8 million versus the same period in 1994. Other
income for the fiscal year ended December 31, 1995 included a one-time gain on
the KZDG Sale of $0.5 million, while other income for the fiscal year ended
December 31, 1994 included a one-time gain on sale of program networks of
$1.7 million. The decrease in other income was offset, in part, by higher
interest income on investments in short-term marketable securities and lower
interest expense resulting from lower overall outstanding indebtedness. See
"Liquidity and Capital Resources."
INCOME TAXES. The provision for income taxes for the fiscal years ended
December 31, 1995 and 1994 was $1.7 million and $1.4 million, respectively. The
estimated effective tax rate utilized by the Company for the fiscal year ended
December 31, 1995 was 40.2%, while the estimated effective tax rate for the
fiscal year ended December 31, 1994 was 40.8%.
NET INCOME AND EARNINGS PER SHARE. Net income for the fiscal years ended
December 31, 1995 and 1994 was $2.6 million, or $0.46 per share and
$2.0 million, or $0.43 per share, respectively. The increased net income for the
fiscal year ended December 31, 1995 was principally due to increased operating
income which was offset by lower other income attributable to the difference in
one-time gains on sale during the first quarter of each of the respective fiscal
years. Earnings per share, which includes the dilutive effects of options and
warrants to purchase Common Stock, are based upon 6,105,494 and 4,664,921 shares
for the fiscal years ended December 31, 1995 and 1994, respectively.
The Company declared a one-for-two stock dividend in March 1996, effected
in the form of a three-for-two stock split, of Class A Common Stock payable to
all holders of Common Stock and Class A Common Stock on the April 1, 1996 record
date for such dividend. Per share earnings for the years ended December 31,
1995 and 1994 have been adjusted to reflect the Stock Dividend.
SEASONALITY
As is standard in the network radio industry, the Company's revenues have
historically been highest in the second and third quarters and lowest in the
first and fourth quarters. Other than sales commissions paid to the Company's
sales personnel, costs do not vary significantly with respect to the seasonal
fluctuation of revenues. As a result, the Company's net income historically has
typically been highest in the second and third quarters and lowest in the first
and fourth quarters.
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PREMIERE RADIO NETWORKS, INC.
PART II
As the Company expands its programming and services, the Company's income
may from time to time be adversely affected because the initial expenses
associated with such new programming and services are typically expensed in the
quarter in which incurred.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its cash flow requirements through
cash flows generated from operations and financing activities.
Net cash (used in) provided by operating activities for the three years
ended December 31, 1996, 1995 and 1994 were $4.9 million, $(0.8) million, and
$0.6 million, respectively. The increased cash flows from operations in 1996 was
principally due to changes in operating assets and liabilities, including
increased deferred income and the impact of non-cash expenses such as
depreciation and amortization and the write-off of debt issuance costs, all of
which were offset, in part, by increased account receivables. The decreased
cash flows from operations in 1995 was principally due to increased accounts
receivable and other assets, increased prepaid expenses associated with deferred
stock offering costs incurred in connection with the Offering and lower deferred
income.
Net cash (used in) provided by investing activities for the three years
ended December 31, 1996, 1995, and 1994 was $(14.9) million, $2.7 million, and
$(1.2) million, respectively. The increase in net cash (used in) investing
activities was principally due to increased acquisitions of intangible assets
and the investment in Audionet. The increase in net cash provided by investing
activities during 1995 resulted from the KZDG Sale, which was offset, in part,
by the acquisition of BRG.
Net cash provided by financing activities for the years ended December 31,
1996, 1995, and 1994 were $19.4 million, $1.1 million, and $2.3 million,
respectively. Net cash provided by financing activities during 1996 increased
principally due to the Company's sale of Class A Common Stock during January
1996. Net cash provided by financing activities during 1995 decreased
principally due to repayments of borrowings and note payable to officer; offset
in part by proceeds from sales of Common Stock and warrants, and exercise of
stock options. During the third quarter of 1995, the Company sold 500,000 and
250,000 shares (as adjusted for the Stock Dividend) of Common Stock and and
Class A Common Stock, respectively, and warrants (the "Class B Warrants") to
purchase up to 814,500 and 407,250 shares (as adjusted for the Stock Dividend)
of Common Stock and Class A Common Stock, respectively, to Archon for net
proceeds of $3.9 million. See "Certain Relationships and Related Transactions"
and Note 10 to the "Notes to Consolidated Financial Statements" of the Company.
Cash used in financing activities during the fiscal year ended December 31, 1995
was principally utilized for payment of the Company's term loan in the amount of
$2.9 million and payment of a note payable to a Company officer in the amount of
$800,000.
The Company's working capital at December 31, 1996 was $20.9 million as
compared to $8.8 million at December 31, 1995. This increase in working capital
was primarily attributable to an increase in cash and cash equivalents resulting
from the proceeds received in connection with the sale of Class A Common Stock.
See Note 12 to the Company's audited financial statements.
In connection with the BRG acquisition, the Company issued a non-interest
bearing note in the face amount of $412,500 which was paid in full in January
1997. In connection with the PMW acquisition, the Company issued a 6.5% interest
note payable in the face amount of $200,000 due in eight equal quarterly
installments principal plus accrued interest. In addition, the Company amended
and restated an August 29, 1995 agreement pursuant to which it had entered into
future commitments to acquire licenses to three (3) production music libraries
from Canary Productions, Inc. ("Canary"). Under the amended and restated
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PREMIERE RADIO NETWORKS, INC.
PART II
agreement, the Company has entered into future commitments to acquire one (1)
additional production music library, four (4) production music libraries in
total, from Canary. During 1997, the Company paid Canary a nominal amount for
the first such library. See Note 2 of Notes to Consolidated Financial
Statements.
On January 25, 1996, the Company completed the sale of 1,500,000 shares (of
which 1,360,000 shares were sold by the Company and 140,000 shares by certain
management shareholders of the Company) of its Class A Common Stock at $18.25
per share (after giving effect to the Stock Dividend, holders received 2,250,000
shares of Class A Common Stock from the sale) pursuant to a public offering, and
received net proceeds (net of underwriting discounts, commissions and expenses)
of approximately $22.0 million (the "Offering").
On July 28, 1995, the Company, Archon and certain management stockholders
entered into a Commitment Agreement pursuant to which Archon agreed to purchase
up to $10.8 million principal amount of debentures (the "Debentures") and
1,080,000 and 540,000 Class A Warrants (as adjusted for the Stock Dividend) for
Common Stock and Class A Common Stock, respectively, upon the Company's call at
any time until October 28, 1996, including 707,000 Class A Warrants which are
issuable to Archon whether or not the Company exercises its call rights with
respect to the Debentures. The Company had recorded as debt issuance costs, the
value of the 707,000 and 353,500 Class A Warrants (as adjusted for the Stock
Dividend), for Common Stock and Class A Common Stock, respectively, issuable to
Archon whether or not the Company exercised its call of all or a portion of
$10.8 million of the Debentures as well as certain legal, professional and other
costs directly related to the Debentures. Because the Company did not call on
Archon to purchase the Debentures by October 28, 1996, the Company wrote-off any
unamortized debt issuance costs related to the 707,000 and 353,500 Class A
Warrants and other unamortized debt issuance costs, which resulted in a one-time
earnings charge during the fourth quarter of 1996 of $1.9 million.
In connection with Archon's commitment to purchase the Debentures, Archon
had charged the Company a facility fee payable to Archon of 0.3% of the unused
commitment for each quarter during which the commitment is outstanding ($32,400
per quarter, assuming none of the commitment is called). The Company had not
paid this commitment fee since January 1996. Effective July 1, 1996, Archon
agreed to waive the commitment fees (including any accrued, but unpaid
commitment fees). Accordingly, included in results of operations for the year
ended December 31, 1996 is a reduction in interest expense of $64,800 relating
to commitment fees waived by Archon effective January 1, 1996.
During January 1997 a wholly-owned merger subsidiary of the Company
acquired 100% of the outstanding shares of AME for consideration consisting of
$3,900,000 cash and 400,000 shares of the Company's Class A Common Stock. Under
the terms of the merger agreement with AME, the Company has agreed to pay
additional consideration either in cash or additional shares of Class A Common
Stock, at its option, if the market value of the Class A Common Stock is less
than $16.00 per share one year from the closing date of the transaction.
Management believes that its available cash together with operating
revenues will be sufficient to fund the Company's working capital requirements
through December 31, 1997. The Company's management further believes it has
sufficient liquidity to implement its expansion and acquisition strategies.
LEGAL PROCEEDINGS
From time to time, the Company may be a party to various legal actions and
complaints arising in the ordinary course of business. At the present time, the
Company is not a party to any legal actions or
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PREMIERE RADIO NETWORKS, INC.
PART II
complaints, which, in the event of unfavorable disposition, will have a material
impact on the Company's financial position or results of operations.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and the report of independent auditors listed in
Item 13, "Exhibits", are included herein beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
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PREMIERE RADIO NETWORKS, INC.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information concerning each person who served as
an executive officer during the year ended December 31, 1996 or is presently a
director of the Company. All officers and directors hold office until their
respective successors are elected and qualified, or until their earlier
resignation or removal.
NAME POSITION AGE
Stephen C. Lehman . . . . . President, Chief Executive Officer
and Chairman of the Board (1) 44
Kraig T. Kitchin. . . . . . Executive Vice President/Sales and Director 35
Timothy M. Kelly. . . . . . Executive Vice President/Programming 49
Harold S. Wrobel. . . . . . Senior Vice President/Business and
Legal Affairs (4) 37
Daniel M. Yukelson. . . . . Vice President/Finance and Chief Financial
Officer, and Secretary 34
David J. Evans. . . . . . . Director (2) 56
Robert M. Fell. . . . . . . Director (2) 54
Andrew Schuon . . . . . . . Director (3) 32
David E. Salzman. . . . . . Director (2),(3) 53
Kenin M. Spivak . . . . . . Director (1),(2) 39
Eric R. Weiss . . . . . . . Director 39
___________
(1) Member of the Executive Committee, one member of which is designated by
Archon and one member of which is designated by Stephen C. Lehman.
(2) Member of the Compensation and Stock Option Committee.
(3) Member of the Audit Committee.
(4) Mr. Wrobel resigned his positions with the Company as Senior Vice President
and Director effective December 31, 1996.
The directors have been elected pursuant to a Stockholders Agreement,
pursuant to which the Management Stockholders , as defined in the Stockholders
Agreement, have designated Stephen C. Lehman, Kraig T. Kitchin and Eric R.
Weiss; Archon has designated David J. Evans, Robert M. Fell and Kenin M.
Spivak; and David E. Salzman and Andrew Schuon were elected as independent
directors. Any replacement independent directors shall be designated by Archon
with the reasonable approval of Stephen C. Lehman. In the event that Archon and
Mr. Lehman cannot agree on a replacement independent director, Archon may, in
its sole discretion, terminate various provisions of the Stockholders Agreement.
Both the Management Stockholders and Archon may replace their respective
directors, subject to the reasonable approval of the other party.
STEPHEN C. LEHMAN, age 44, has been President, Chief Executive Officer and
Chairman of the Board of the Company since its formation in January 1987. From
1984 to 1987, Mr. Lehman was President of Stephen Lehman Productions, a
syndicated radio program company, while also serving as an on-air personality at
KIIS-AM and FM/Los Angeles. From 1982 to 1984, he specialized in building radio
networks for independent radio syndicators. From 1980 to 1981, Mr. Lehman was
National Sales Manager for Innerview Radio Networks. From 1976 to 1980,
Mr. Lehman was president of a promotion advertising
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PREMIERE RADIO NETWORKS, INC.
PART III
agency. Mr. Lehman has more than 20 years' experience in the radio industry. In
1975, he graduated magna cum laude from the University of Nevada/Las Vegas, with
a degree in communications.
KRAIG T. KITCHIN, age 35, has been Executive Vice President/Sales since
1994 and a Director of the Company since February 1992. From February 1992 to
January 1994 he was Senior Vice President/Sales of the Company. From October
1987 to January 1992, he was Vice President/Sales of the Company. From June 1985
to October 1987, he managed Katz Media Group Inc.'s West Coast network radio
operations, and from April 1984 to June 1985 he was an account executive at Katz
Media Group, Inc. From April 1983 to April 1984, he was General Manager of
KTYD-FM/Santa Barbara. Mr. Kitchin graduated from Michigan State University with
a B.A. in communications in 1983 and was operations manager for WFMK-FM/Lansing,
Michigan from January 1982 to April 1983 while in college.
TIMOTHY M. KELLY, age 49, has served as Executive Vice President of the
Company since January 1987 and served as a Director of the Company from
January 1987 to December 1994. From 1973 to 1986, he served as an on-air
personality or program manager for radio stations in major markets including
WCFL-AM/Chicago, WPGC-AM/FM/Washington DC and WRKO-AM/Boston. From 1983 to 1988,
he was an on-air personality at KIIS-FM/Los Angeles. Mr. Kelly conceived the
Plain-Wrap Countdown concept and co-founded Plain-Wrap Countdown, Inc.
HAROLD S. WROBEL, ESQ., age 37, served as Senior Vice President/Business
and Legal Affairs from February 1994 until December 1996 and as General Counsel
for the Company from January 1987 until February 1994. From 1991 to
February 1994, Mr. Wrobel also served as Vice President and served as Secretary
from 1989 until August 1996. From 1987 to 1988, he practiced entertainment and
corporate law with the Los Angeles firm of Denton, Hall, Burgin & Warrens.
Mr. Wrobel earned a B.A. in economics and political science from Yale University
in 1982 and a J.D. from the University of Southern California Law School in
1985.
DANIEL M. YUKELSON, age 34, has served as the Vice President/Finance and
Chief Financial Officer of the Company since June 1995 and as Secretary since
August 1996. From 1993 until June 1995, Mr. Yukelson served as an Assistant Vice
President and Controller of Wherehouse Entertainment, Inc., a specialty retailer
of pre-recorded music and home entertainment products. During 1993, Mr. Yukelson
served as Vice President/Finance and Chief Financial Officer of Standard Brands
Paint Company, Inc., and from 1985 until 1993, he was employed with Ernst &
Young LLP, the Company's independent auditors, last serving as a Senior Manager.
Mr. Yukelson earned a B.S. degree in business administration from California
State University at Northridge in 1985. He is a Certified Public Accountant and
is a member of the American Institute of Certified Public Accountants and the
California Society of CPA's.
DAVID J. EVANS, age 56, has served as a Director of the Company since July
1995. Mr. Evans has been an Executive Vice President of News Corporation and
President and Chief Executive Officer of Sky Entertainment Services Latin
America since July 1995. From August 1994 until July 1995, Mr. Evans served as
President and Chief Operating Officer of Fox Television. In such capacity, he
oversaw the business activities at Fox Broadcasting Company, Fox Television
Stations, Inc., Twentieth Television's domestic syndication unit and the Fox
cable television channel, fX. From May 1993 until August 1994, Mr. Evans was
President of Fox Circle Productions, overseeing development and production of
certain programming for Fox's television program services. From 1992 to May
1993, Mr. Evans was President of International for British Sky Broadcasting,
after serving for 18 months as the Executive Director of Marketing and
Distribution. Prior thereto, Mr. Evans was President and Chief Executive Officer
of Qintex
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PREMIERE RADIO NETWORKS, INC.
PART III
Entertainment, Inc., a television production and distribution company, which
filed a petition under Chapter 11 of the United States Bankruptcy Code.
ROBERT M. FELL, age 54, has been a Director of the Company since July 1995.
Mr. Fell has served as the Chairman, President and Chief Executive Officer of
the corporate general partner of Archon Capital Partners, L.P. ("Archon
Capital") since February 1994 and has served as Chairman and Co-Chief Executive
Officer of Archon since its formation in January 1995. Since 1993, Mr. Fell has
also served as a founding General Partner of InterActive Partners L.P., a
venture capital-backed firm specializing in creating interactive media
companies. Since 1978, Mr. Fell has served as President and Chief Executive
Officer of Fell & Company, Inc. and, since 1984, as General Partner of Fell &
Nicholson Technology Resources, both of which are management consulting firms
specializing in entertainment/communications and high technology. Mr. Fell is a
Director of Silicon Gaming Inc., a distributor of state-of-the-art gaming
machines. Mr. Fell received a B.A. from Dartmouth College and an M.B.A. from The
Wharton School of The University of Pennsylvania.
DAVID E. SALZMAN, age 53, has been a Director of the Company since July
1995. Mr. Salzman has served as Co-Chief Executive Officer of Quincy Jones-David
Salzman Entertainment ("QDE") since its formation in 1993. QDE, a television,
motion picture, music and interactive content joint venture with Time-Warner
Entertainment, produces the network series "In the House," "Mad TV," "Lost on
Earth" and "Jenny Jones," a nationally syndicated talk series. Mr. Salzman and
his spouse own a significant interest in three WB Network affiliated television
stations in Atlanta, Georgia, New Orleans, Louisanna, and Kansas City, Missouri.
He is also a co-owner of Vibe Magazine. Mr. Salzman holds a B.A. from Brooklyn
College and an M.A. from Wayne State University.
ANDREW SCHUON, age 32, has been a director of the Company since August
1996. Mr. Schuon has served as Executive Vice President/Programming for MTV
Music Television, a unit of Viacom, Inc. ("MTV"), since November 1995. In such
capacity, Mr. Schuon oversees MTV's music, talent and programming departments.
From May 1992 to November 1995, Mr. Schuon served in various capacities at MTV
starting as Vice President/Music, Programming and Promotion. From 1989 to 1992,
Mr. Schuon served as the program director of radio station KROQ-FM in Los
Angeles. Mr. Schuon attended the University of Nevada.
KENIN M. SPIVAK, age 39, has been a Director of the Company since July
1995. Mr. Spivak has served as President and Co-Chief Executive Officer of
Archon since its formation in January 1995. Since January 1995, Mr. Spivak has
also served as Chairman of Knowledge Exchange, LLC, a multi-media publishing
company. Since 1993, he has been a director and since 1996, Vice Chairman, of
John Paul Mitchell Systems, a leading hair products company. From 1991 until
June 1994, Mr. Spivak was Managing Director of Island World B.V. and President
of its operating company, the Island World Group, a company engaged in the
production and international distribution of feature films and television
programming. From 1988 until November 1990, Mr. Spivak served as Executive Vice
President and functioned as chief operating officer of MGM/UA Communications
Co., a leading motion picture and television studio. From 1985 through 1988,
Mr. Spivak was an investment banker with Merrill Lynch & Co., where he
specialized in the media and entertainment industries, and an officer and
director of ML Media Partners L.P., which owns and operates radio and television
stations and cable operating systems. From 1991 until February 1995, Mr. Spivak
was Vice Chairman of the Board of Diversified Industries Inc., which
successfully reorganized under Chapter 11 of the United States Bankruptcy Code.
From 1991 until 1993, Mr. Spivak was a Special Director of Westfed
Holdings, Inc., elected by the preferred shareholders
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PREMIERE RADIO NETWORKS, INC.
PART III
following a default caused by Westfed's subsidiary, a thrift seized by banking
regulators. Mr. Spivak holds an A.B., M.B.A and J.D. from Columbia University.
ERIC R. WEISS, age 39, has served as a Director of the Company since
January 1997, when he was appointed by the Board of Directors to fill a vacancy
created by Mr. Wrobel's resignation. During 1996, Mr. Weiss served as Chairman
and Chief Executive Officer of AME. From 1986 to 1995, Mr. Weiss was an
executive officer of Westwood One, Inc., holding the positions of Executive Vice
President, and Vice President/Business and Legal Affairs, overseeing the
company's International and New Business Development Divisions. Mr. Weiss
earned a B.A. in Economics from Rutgers College and a J.D. from George
Washington University's National Law Center.
ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION
The following table sets forth all cash compensation, including bonuses and
deferred compensation, paid for the years ended December 31, 1996, 1995 and 1994
by the Company to (i) its Chief Executive Officer and (ii) each of the four
highest compensated executive officers of the Company other than the Chief
Executive Officer (collectively, the "Named Executives").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(3)
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- --------------------------- ---- ------ ----- ---------------
<S> <C> <C> <C> <C>
Stephen C. Lehman 1996 $300,900 $100,000 $36,000
President, Chief Executive Officer and 1995 $283,595 $75,000 $2,652
Chairman of the Board 1994 $234,036 $45,000 $4,286
Kraig T. Kitchin 1996 $239,682 $62,500 $9,100
Executive Vice President/Sales and 1995 $203,540 $50,000 $2,652
Director 1994 $157,063 $32,500 $4,286
Timothy M. Kelly 1996 $184,583 $-0- $-0-
Executive Vice President/Programming 1995 $168,067 $20,000 $2,652
1994 $155,442 $10,000 $4,286
Harold S. Wrobel 1996 $185,000 $47,500 $12,900
Senior Vice President/Business and 1995 $173,333 $37,500 $2,335
Legal Affairs and Director 1994 $115,629 $27,500 $3,697
Daniel M. Yukelson 1996 $104,333 $30,000 $960
Vice President/Finance and 1995 $48,910(2) $10,000 $-0-
Chief Financial Officer, and
Secretary
</TABLE>
_________
(1) The amounts listed were specifically allocated to each respective Named
Executive under the Company's Profit Sharing Plan or the Company's 401(k)
Plan (as these plans are hereinafter defined), and/or the fair market value
of goods and services provided to each Named Executive by the Company. The
table does not include
22
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PREMIERE RADIO NETWORKS, INC.
PART III
certain other benefits received by the foregoing executive officers of the
Company, the value of which benefits did not exceed ten percent of their
cash compensation.
(2) Compensation for fiscal 1995 reflects Mr. Yukelson's service in his current
position from June 21, 1995 through December 31, 1995. Mr. Yukelson's base
compensation in 1995 was $100,000 per annum.
(3) Portions of the fiscal 1996 and 1995 salary and/or bonus earned by the
executive officer may be deferred pursuant to the Company's Supplemental
Executive Retirement Plan (the "SERP"), which was adopted by the Board of
Directors in 1995. Under the SERP, certain designated key members of
management may elect on an annual basis to defer up to $100,000 of their
pre-tax compensation until retirement or termination of employment.
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table provides information on individual stock options
granted to named executive officers in the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
OPTIONS GRANTED TO
OPTIONS EMPLOYEES IN FISCAL EXERCISE OR BASE EXPIRATION
NAME GRANTED YEAR PRICE (PER SHARE) DATE
- ---- ------- ---- ----------------- ----
<S> <C> <C> <C> <C>
Stephen C. Lehman 90,000 14% $11.00 10/24/01
Kraig T. Kitchin 40,000 6% $10.00 10/24/01
Timothy M. Kelly 10,000 2% $10.00 10/24/01
Harold S. Wrobel 30,000 5% $10.00 10/24/01
Daniel M. Yukelson 25,000 4% $10.00 10/24/01
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
The following table contains information concerning stock options exercised
in the last fiscal year and stock options unexercised on December 31, 1996 with
respect to the Named Executive of the Company.
<TABLE>
<CAPTION>
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (1) REALIZED (2) COMMON CLASS A COMMON COMMON CLASS A COMMON
- ----- ------------ ------------ ------ -------------- ------ --------------
EXERCISABLE (E) EXERCISABLE (E)
UNEXERCISABLE (U) UNEXERCISABLE (U)
----------------- -----------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS
FISCAL YEAR END (1) AT FISCAL YEAR-END (1)(3)
------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen C. Lehman. . . -0- -0- 63,000(E) 61,500(E) $483,892(E) $290,696(E)
-0-(U) 60,000(U) -0-(U) $97,500(U)
Kraig T. Kitchin . . . -0- -0- 52,500(E) 39,583(E) $428,729(E) $249,365(E)
-0-(U) 26,667(U) -0-(U) $70,000(U)
Harold S. Wrobel . . . 25,500 $195,819 50,434(E) 35,217(E) $392,965(E) $222,732(E)
-0-(U) 20,000(U) -0-(U) $52,500(U)
Timothy M. Kelly . . . -0- -0- 49,166(E) 27,916(E) $380,955(E) $199,227(E)
-0-(U) 6,667(U) -0-(U) $17,500(U)
Daniel M. Yukelson . . -0- -0- 5,000(E) 10,833(E) $28,125(E) $35,938(E)
-0-(U) 16,667(U) -0-(U) $43,750(U)
</TABLE>
23
<PAGE>
PREMIERE RADIO NETWORKS, INC.
PART III
___________
(1) As adjusted to give retroactive effect to the Class A Dividend, a
one-for-two stock dividend which was effected in the form of a
three-for-two stock split during March 1996.
(2) The value realized is determined by subtracting the exercise price from the
sale price on the date of exercise and multiplying the resulting number by
the number of underlying shares of common stock.
(3) The value of "in the money" options is determined by subtracting the
exercise price from the fair market value (the closing price for the
Company's Common Stock and Class A Common Stock as reported By Nasdaq
National Market ("NNM") as of December 31, 1996 of $12.63 and $12.63 per
share, respectively, and multiplying the resulting number by the number of
underlying shares of Common Stock or Class A Common Stock, as the case may
be.
If recommended by the Company's Board of Directors, Archon and the
Management Stockholders have agreed to vote in favor of any increases in the
amount of shares of Class A Common Stock available for grant under the Company's
stock option plans required to make such shares available for grant equal to 15%
of the Company's outstanding Common Stock and Class A Common Stock.
EMPLOYMENT AGREEMENTS
Effective as of October 1, 1994, the Company entered into employment
agreements, as amended, with each of Stephen C. Lehman, Kraig T. Kitchin, and
Harold S. Wrobel. Mr. Lehman's agreement has a term of four years and may be
renewed at the Company's option for an additional term of two years.
Mr. Lehman's employment agreement provides for a base salary which shall be
increased after the initial two year term by not less than the consumer price
index for all urban consumers (Los Angeles consolidated statistical area) (the
"CPI") nor more than the CPI plus $25,000. As a result, effective October 1,
1996, the Company increased Mr. Lehman's base salary from $290,000 per annum to
$315,000 per annum. Mr. Lehman's employment agreement provides that in the
event he is terminated or resigns following a "change of control" (as defined)
of the Company, the Company will make a payment to Mr. Lehman equal to 2.99
times his base salary at the time of his termination or resignation. In
connection with Mr. Lehman's employment agreement, on November 10, 1995, the
Company made a non-recourse loan to Mr. Lehman, in the aggregate amount of
$800,000, secured by 170,000 shares of Common Stock and 85,000 shares of Class A
Common Stock. See "Certain Relationships and Related Transactions."
Mr. Kitchin's employment agreement was for an initial term of two years and
was subsequently renewed by the Company's for an additional two-year term. Mr.
Kitchin's employment agreement provides for a base salary which shall be
increased after the initial two year term by not less than the CPI nor increased
by more than the CPI plus $25,000. As a result, effective October 1, 1996 Mr.
Kitchin's annual base salary was increased to $225,000. Mr. Kitchin's employment
agreement provides that in the event he is terminated or resigns following a
"change of control" (as defined) of the Company, the Company will make a payment
to Mr. Kitchin equal to 2.99 times his base salary at the time of his
termination or resignation.
Mr. Wrobel's employment agreement was for an initial term of two years and
provided for a base salary of $185,000 during the fiscal year ended December 31,
1996. Mr. Wrobel resigned his position with the Company effective December 31,
1996 and has subsequently made himself available to the Company as a consultant.
24
<PAGE>
PREMIERE RADIO NETWORKS, INC.
PART III
Effective as of January 6, 1995, the Company entered into an employment
agreement with Timothy M. Kelly pursuant to which Mr. Kelly was compensated at
the annual rate of $185,000 for the year ended December 31, 1996. Effective as
of January 1, 1997, the Company entered into a new employment agreement with Mr.
Kelly. Mr. Kelly's new employment agreement provides for an initial term of one
year and provides for a base salary of $150,000, which salary shall be increased
to $170,000 per annum if the Company exercises its option to renew Mr. Kelly's
contract for a second year.
Effective June 21, 1996, the Company entered into an employment agreement
with Mr. Yukelson and subsequently entered into a new employment agreement with
Mr. Yukelson effective January 1, 1997. Mr. Yukelson's new employment agreement
is for a term of two years commencing on the effective date and provides for a
base annual salary of $140,000.
PROFIT SHARING PLAN AND 401(k) PLAN
The Company, until December 31, 1995, maintained a profit sharing plan (the
"Profit Sharing Plan"). The Profit Sharing Plan qualifies under Section 401(a)
of the Internal Revenue Code, as amended (the "Code"). The Company's Board of
Directors decides whether to make a contribution to the Profit Sharing Plan for
a given fiscal year and the amount thereof. The contribution for any
participant's account generally would not exceed fifteen percent (15%) of
participant compensation, up to a maximum amount consisting of a base figure and
certain incremental amounts calculated pursuant to applicable regulations under
the Code.
Effective January 1, 1996, the Company amended its profit sharing plan such
that its assets were transferred into a qualified 401(k) savings retirement plan
("401(k) Plan"). All employees who have completed one year of service or 1,000
hours of service in a year with the Company are eligible to join the 401(k) plan
on January 1 or July 1 of any given year. All eligible employees may contribute
from 1% to 15% of their annual compensation into the plan. Matching
contributions are made by the Company in an amount equal to 20% of the
employees' contributions of 1% to 10% of their annual compensation. Matching
contributions vest 20% per year beginning with the employee's first date of
eligibility and participation in the 401(k) plan.
EXECUTIVE BONUS POOL
The Company established an Executive Bonus Pool (the "Bonus Pool") for 1992
and subsequent years to provide incentive compensation to officers selected to
participate therein by the Compensation Committee of the Board of Directors. The
aggregate amount available under the Bonus Pool is determined annually based on
the achievement by the Company of certain levels of operating performance,
including operating revenues and pretax income. Pursuant to the terms of the
Bonus Pool, the available amount is to be allocated to participating officers at
the discretion of the Compensation Committee.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information with respect to
beneficial ownership of the Company's Common Stock and Class A Common Stock as
of March 28, 1997 by: (i) each person who is known by the Company to own
beneficially more than five percent of the Company's outstanding Common Stock
and/or Class A Common Stock; (ii) each of the Company's directors; (iii) each of
the Named Executives (as hereinafter defined); and (iv) all executive officers
and directors of the Company as a group.
25
<PAGE>
PREMIERE RADIO NETWORKS, INC.
PART III
TABLE I - COMMON STOCK BENEFICIALLY OWNED
<TABLE>
<CAPTION>
NAME AND ADDRESS (1) COMMON STOCK PERCENT OF
- -------------------- BENEFICIALLY COMMON STOCK
OWNED (2) BENEFICIALLY OWNED
--------- ------------------
<S> <C> <C>
Archon Communications Inc.
15260 Ventura Blvd., Third Floor
Los Angeles, California 91403-5339. . . . . . . . . . . . . . . . . . . . . . . 2,321,500 44.9%
Liberty Investment Management
2502 Rocky Point Drive, Ste. 500
Tampa, Florida 33607. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,800 1.9%
Stephen C. Lehman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733,420 19.8%
Kraig T. Kitchin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,160 4.3%
Harold S. Wrobel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221,910 6.0%
Timothy M. Kelly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,346 5.7%
Daniel M. Yukelson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,241 *
Louise G. Palanker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,180 8.1%
David J. Evans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _ *
Robert M. Fell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _ *
Andrew Schuon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _ *
David E. Salzman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,500 1.0%
Kenin M. Spivak. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _ *
Eric R. Weiss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _ *
All Executive Officers and Directors as a Group (12 persons) . . . . . . . . . . 1,670,757 42.4%
TABLE II - CLASS A COMMON STOCK BENEFICIALLY OWNED
NAME AND ADDRESS (1) CLASS A PERCENT OF CLASS A
- -------------------- COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY OWNED
OWNED (3) ------------------
---------
Archon Communications Inc.
15260 Ventura Blvd., Third Floor
Los Angeles, California 91403-5339. . . . . . . . . . . . . . . . . . . . . . . 1,180,750 23.4%
Liberty Investment Management
2502 Rocky Point Drive, Ste. 500
Tampa, Florida 33607. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313,400 7.4%
Stephen C. Lehman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396,710 9.2%
Kraig T. Kitchin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,413 2.2%
Harold S. Wrobel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,136 2.9%
Timothy M. Kelly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,006 2.5%
Daniel M. Yukelson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,443 *
Louise G. Palanker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,423 3.6%
David E. Evans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,500 1.2%
Robert M. Fell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,500 1.2%
David E. Salzman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,250 1.7%
Andrew Schuon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,333 *
Kenin M. Spivak. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,500 1.2%
Eric R. Weiss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416,667 9.7%
All Executive Officers and Directors as a Group (12 persons) . . . . . . . . . . 1,547,882 32.9%
</TABLE>
___________
26
<PAGE>
PREMIERE RADIO NETWORKS, INC.
PART III
* Less than 1%
(1) The address of each person other than Archon and Liberty Investment
Management is c/o the Company at 15260 Ventura Boulevard, Fifth Floor, Los
Angeles, California 91403-5339.
(2) For Archon, includes 1,521,500 shares of Common Stock issuable upon the
exercise of warrants exercisable within 60 days, and excludes 394,312
shares of Common Stock owned by the Management Stockholders which are
subject to proxies granted to Archon by the Management Stockholders, as to
which Archon disclaims beneficial ownership, and excludes 894,312 shares of
Common Stock owned by the Management Stockholders which are subject to the
Voting Trust Agreement as to which Archon may acquire shared voting power
under certain circumstances. For Mr. Lehman, includes 63,000 shares of
Common Stock issuable upon exercise of options exercisable within 60 days.
For Mr. Kitchin, includes 52,500 shares of Common Stock issuable upon
exercise of options exercisable within 60 days. For Mr. Kelly, includes
49,166 shares of Common Stock issuable upon exercise of options exercisable
within 60 days. For Mr. Wrobel, includes 50,434 shares of Common Stock
issuable upon exercise of options exercisable within 60 days. For Mr.
Yukelson, includes 6,241 shares of Common Stock issuable upon exercise of
options and warrants exercisable within 60 days. For Ms. Palanker,
includes 32,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days. For Mr. Salzman includes 37,500 shares of
Common Stock issuable upon the exercise of warrants exercisable within
60 days.
(3) For Archon, includes 780,750 shares of Class A Common Stock issuable upon
the exercise of options and warrants exercisable within 60 days, and
excludes 197,156 shares of Class A Common Stock owned by the Management
Stockholders which are subject to proxies granted to Archon by the
Management Stockholders, as to which Archon disclaims beneficial ownership
and, excludes 447,156 shares of Class A Common Stock owned by the
Management Stockholders which are subject to the Voting Trust Agreement as
to which Archon may acquire shared voting power under certain
circumstances. For Mr. Lehman, includes 61,500 shares of Class A Common
Stock issuable upon exercise of options exercisable within 60 days. For
Mr. Kitchin, includes 39,583 shares of Class A Common Stock issuable upon
exercise of options exercisable within 60 days. For Mr. Wrobel, includes
35,217 shares of Class A Common Stock issuable upon exercise of options
exercisable within 60 days. For Mr. Kelly, includes 27,916 shares of
Class A Common Stock issuable upon exercise of options exercisable within
60 days. For Mr. Yukelson, includes 11,443 shares of Class A Common Stock
issuable upon exercise of options and warrants exercisable within 60 days.
For Ms. Palanker, includes 16,000 shares of Class A Common Stock issuable
upon exercise of options exercisable within 60 days. For Mr. Schuon,
includes 13,333 shares of Class A Common Stock issuable upon the exercise
of options and warrants exercisable within 60 days. For Mr. Salzman
includes 71,250 shares of Class A Common Stock issuable upon the exercise
of options and warrants exercisable within 60 days. For each of
Messrs. Evans, Fell, and Spivak includes 52,500 shares each of Class A
Common Stock issuable upon the exercise of options and warrants exercisable
within 60 days. For Mr. Weiss includes 272,000 shares of Class A Common
Stock that have been issued and 6,667 shares of Class A Common Stock
issuable upon exercise of options within 60 days held by other former
shareholders of AME to which Mr. Weiss disclaims beneficial ownership, and
includes 10,000 shares of Class A Common Stock issuable upon exercise of
options within 60 days.
27
<PAGE>
PREMIERE RADIO NETWORKS, INC.
PART III
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 14, 1994, the Company acquired a collection of sports radio
broadcasts (the "Sports Library") from Z.T.F. Consulting Group, Inc., which was
owned by Stephen Bunyard, then a Senior Vice President/Marketing of the Company.
The Sports Library was acquired for $1,500,000 (exclusive of acquisition costs
of $19,286), $750,000 of which was paid at closing and $750,000 of which was
paid on April 1, 1995. The Sports Library is being used by the Company in its
Plain-Wrap Sports Library Service.
In December 1994, the Company issued warrants to purchase 37,500 shares of
Common Stock and 18,750 shares of Class A Common Stock to a company controlled
by Mr. Salzman at an exercise price of $5.17 per share, which became exercisable
in quarterly installments of 3,100 and 1,550 or 3,200 and 1,600 warrants to
purchase shares of Common Stock and Class A Common Stock, respectively. The
Company also granted 30,000 stock options with respect to shares of the Class A
Common Stock under its 1995 Stock Option Plan and 30,000 stock appreciation
rights with respect to shares of the Class A Common Stock to Messrs. Evans,
Fell, Salzman and Spivak. The stock appreciation rights were exchanged in
August 1995 for warrants to acquire Class A Common Stock at an exercise price of
$8.67 per share. The options and warrants vest in equal quarterly installments
over two years.
The Company had entered into a three-year consulting agreement, dated
January 1, 1995, with Bernard Hoberman ("Consulting Agreement"), a former
director of the Company, pursuant to which the Company agreed to pay
Mr. Hoberman an annual consulting fee of $40,000 for 1995, 1996 and 1997 and
issued stock appreciation rights with respect to 30,000 shares of Common Stock
and 15,000 shares of Class A Common Stock, and options to acquire 30,000 shares
of Common Stock and 15,000 shares of Class A Common Stock under the Company's
1992 Stock Option Plan, at an exercise price of $5.17 per share. The stock
appreciation rights were exchanged in August 1995 for warrants to acquire 30,000
shares of Common Stock and 15,000 shares of Class A Common Stock at an exercise
price of $5.17 per share. The options and warrants vest in equal annual
installments over three years. Effective June 30, 1996, the Company terminated
the Consulting Agreement at which time all unvested options granted in
connection with the Consulting Agreement were terminated.
The Company, Archon and the Management Stockholders had entered into
various agreements with Archon in July 1995, pursuant to which Archon and the
Management Stockholders received certain registration rights. In connection
with the Archon Agreements, the Company paid $204,000 directly to or on behalf
of Archon for legal and professional fees and expenses incurred by Archon. In
addition, pursuant to the Archon Agreements, the Company had agreed to pay
Archon an aggregate commitment fee equal to $308,000, of which a total of
$148,000 was paid in total. Archon was also entitled to receive a facility fee
of 0.3% of any unissued Debentures for each quarter until October 28, 1996
($32,400 per quarter, assuming none of the Debentures are called.) Effective
January 1, 1996 Archon waived the facility fee. See Note 10 to the "Notes to
Consolidated Financial Statements" of the Company.
As contemplated in his employment agreement, on November 10, 1995, the
Company loaned Stephen Lehman $800,000, which is secured by 170,000 shares of
the Company's Common Stock (and, upon distribution of Class A Common Stock
pursuant to the Class A Dividend, 85,000 shares of Class A Common Stock). The
loan, which is non-recourse except as to the collateral, bears interest, payable
quarterly, at the Bank's reference rate, as announced as of the first day of
each quarter. The loan is payable on the earlier of July 28, 1999 or such date
as Mr. Lehman ceases full time employment with the Company (or, if the Company
terminates such employment without cause, one year thereafter). Not less than
70% of the net
28
<PAGE>
PREMIERE RADIO NETWORKS, INC.
PART III
proceeds of the sale by Mr. Lehman of any pledged shares of Common Stock or
Class A Common Stock and 25% of the net proceeds of any sale by Mr. Lehman of
any other shares of Common Stock or Class A Common Stock shall be applied to
repayment of the loan. The number of pledged shares will be reduced
proportionately in the event of partial principal payments on the loan, provided
that no collateral would be released to the extent the fair market value of the
collateral remaining as security is less than 200% of the outstanding principal
amount. In connection with the Offering, Mr. Lehman repaid $197,664 on his loan.
In connection with the Offering in January 1996, the Company paid Archon a
fee of $200,000. In connection with the Company's acquisition of Cutler in
September 1996, the Company paid Archon a fee of $100,000. In October 1996, the
Company granted 60,000 options to purchase Class A Common Stock to an affiliate
of Archon under its 1995 Stock Option Plan at an exercise price of $11.00 per
share. The options vested one-third upon the grant date and the remaining
options shall vest in equal annual installments on the next two anniversary
dates of such grant, subject to acceleration in the event of a "change-in-
control" of the Company.
Any future transactions between the Company and any affiliate thereof will
be on terms no less favorable to the Company than those which are generally
available from unaffiliated third parties and must be ratified by a majority of
independent members of the Company's Board of Directors who do not have an
interest in such transaction.
29
<PAGE>
PREMIERE RADIO NETWORKS, INC.
PART III
ITEM 13. EXHIBITS
EXHIBIT
NO. DESCRIPTION
3.1 Certificate of Incorporation (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form SB-2
No. 33-99808 (the "Form SB-2")).
3.2 Bylaws (incorporated by reference to Exhibit 3.2 to the
Form SB-2).
4 Form of Indenture dated August 1, 1995 between Premiere and U.S.
Trust Company of California, N.A., as Trustee (incorporated by
reference to Exhibit 4 to the Form SB-2).
9 Voting Trust Agreement, dated as of July 28, 1995, by and among
U.S Trust Company of California, N.A., as Voting Trustee, Archon
and the Management Stockholder (incorporated by reference to
Exhibit 6 to the Schedule 13D, dated August 7, 1995, of Archon
with respect to the Company (the "Archon 13-D")).
10.1.1 1992 Stock Option Plan (incorporated by reference to Exhibit 10.1
to Registration Statement No. 33-46153-LA (the "1992 Registration
Statement").
10.1.2 1995 Stock Option Plan (incorporated by reference to Exhibit E to
the Company's Proxy Statement, dated July 7, 1995 (the "Proxy
Statement")).
10.2 Form of Indemnity Agreement between the Company and each of its
Officers and Directors (incorporated by reference to Exhibit 10.2
to the 1992 Registration Statement).
10.3 Lease between the Company and MacNeil Group, dated September 1,
1994 (incorporated by reference to Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994 (the "1994 10-K")).
10.4 Profit Sharing Plan and Trust (incorporated by reference to
Exhibit 10.4 to the 1992 Registration Statement).
10.5 Credit Agreement between the Company and Bank of America N.T. &
S.A., dated July 15, 1994, as amended (incorporated by reference
to Exhibit 10.5 to the 1994 10-K).
10.6.1 Employment Agreement between the Company and Stephen C. Lehman,
dated October 1, 1994 (incorporated by reference to Exhibit
10.6.1 to the 1994 10-K).
10.6.2 Employment Agreement between the Company and Kraig T. Kitchin,
dated October 1, 1994 (incorporated by reference to Exhibit
10.6.2 to the 1994 10-K).
10.6.3 Employment Agreement between the Company and Timothy M. Kelly,
dated January 6, 1995 (incorporated by reference to Exhibit
10.6.3 to the 1994 10-K).
10.7 Securities Purchase Agreement, dated as of January 17, 1995
(incorporated by reference to Exhibit 2 to the Archon 13D).
10.8 Stockholders Agreement, dated as of July 28, 1995, by and among
the Company, Archon and the Management Stockholders (incorporated
by reference to Exhibit 5 to the Archon 13-D).
10.9 Escrow Agreement, dated as of July 28, 1995, by and between the
Company, Archon and U.S. Trust Company of California, N.A., as
Escrow Agent (incorporated by reference to Exhibit 3 to the
Archon 13-D).
10.10 Commitment Agreement, dated as of July 28, 1995, by and between
the Company and Archon (incorporated by reference to Exhibit 4 to
the Archon 13-D).
10.11 Registration Rights Agreement (Debentures), dated as of July 28,
1995, by and between the Company and Archon (incorporated by
reference to Exhibit 9 to the Archon 13-D).
30
<PAGE>
PREMIERE RADIO NETWORKS, INC.
PART III
EXHIBIT
NO. DESCRIPTION
10.12 Registration Rights Agreement (Warrants), dated as of July 28,
1995, by and between the Company and Archon (incorporated by
reference to Exhibit 10 to the Archon 13-D).
10.13 Warrant Agreement, dated as of July 28, 1995, by and between the
Company and U.S. Trust Company of California N.A., as Warrant
Agent (incorporated by reference to Exhibit 10.13 to the
Form SB-2).
10.15 Letter Agreement, dated as of August 29, 1995, by and between the
Company and Philadelphia Music Works, Inc. and Canary
Productions, Inc. (incorporated by reference to Exhibit C(2) to
the Company's Form 8-K dated September 11, 1995).
10.16 Promissory Note, dated November 10, 1995, by Stephen Lehman in
favor of the Company (incorporated by reference to Exhibit 10.16
to the Form SB-2).
10.17 Pledge and Security Agreement, dated as of November 1, 1995,
between the Company and Stephen C. Lehman (incorporated by
reference to Exhibit 10.17 to the Form SB-2).
10.18 Agreement re: Purchase of Interest in Newstrack Joint Venture
and Revision of Prior Call-out Research Agreements for Newstrack
and Mediabase dated September 3, 1996 (incorporated
by reference to Exhibit 10.19 to the Company's Form 8-K dated
October 11, 1996).
10.19 Purchase and Sale Agreement By and Between Premiere Radio
Networks, Inc., as Buyer, and Philadelphia Music Works, Inc., as
Seller, as of September 27, 1996 (incorporated by reference to
Exhibit 10.20 to the Company's Form 8-K dated October 11, 1996).
10.20 Amended and Restated Agreement re: Acquisition of Licenses of
the Four Music Libraries from Canary Productions, Inc. Dated
September 27, 1997 (incorporated by reference to Exhibit 10.21 to
the Company's Form 8-K dated October 11, 1996).
10.21 Purchase and Sale Agreement By and Between Premiere Radio
Networks, Inc., as Buyer, and Cutler Productions, Inc. and SJM
Productions, Inc., as Sellers, as of September 30, 1996
(incorporated by reference to Exhibit 10.22 to the Company's Form
8-K dated October 11, 1996).
10.22* Agreement and Plan of Merger By and Among Premiere Radio
Networks, Inc., After MidNite Entertainment, Inc. and the
Shareholders of After MidNite Entertainment, Inc. as of January
1, 1997.
10.23* Consulting Agreement Dated as of January 7, 1997 By and Between
Premiere Radio Networks, Inc. and Eric R. Weiss.
10.24* Transaction Agreement By and Between Premiere Radio Radio
Networks, Inc. and Eric R. Weiss.
10.25* Employment Agreement between the Company and Daniel M. Yukelson,
dated January 1, 1997.
10.26* Employment Agreement between the Company and Timothy M. Kelly,
dated January 1, 1997.
11* Computation of Primary and Fully Diluted Earnings Per Share.
23.1* Consent of Ernst & Young LLP.
_____________
*Filed herewith
31
<PAGE>
PREMIERE RADIO NETWORKS, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 30th day of
March, 1997.
PREMIERE RADIO NETWORKS, INC.
/s/ Stephen C. Lehman
- ----------------------------------------
Stephen C. Lehman, Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below on behalf of the Registrant and in
the capacities and the dates indicated. Each person whose signature appears
below hereby authorizes by the following persons in the capacities and on the
dates indicated. Each person whose signature appears below hereby authorizes
Stephen C. Lehman to sign and file on his behalf, in each capacity stated below,
any and all amendments to this report.
SIGNATURES
Signature Title Date
- --------- ----- -----
/s/ Stephen C. Lehman Chairman of the Board, President 4/7/97
- ---------------------------- and Chief Executive Officer
Stephen C. Lehman
/s/ Kraig T. Kitchin Executive Vice President/Sales 4/7/97
- ---------------------------- and Director
Kraig T. Kitchin
/s/ Daniel M. Yukelson Vice President/Finance and Chief 4/7/97
- ---------------------------- Financial Officer and Secretary
Daniel M. Yukelson (Principal Financial and Accounting
Officer)
Director 4/_/97
- ----------------------------
David J. Evans
/s/ Robert M. Fell Director 4/7/97
- ----------------------------
Robert M. Fell
32
<PAGE>
PREMIERE RADIO NETWORKS, INC.
SIGNATURES (CONTINUED)
Signature Title Date
- --------- ----- ----
Director 4/_/97
- ----------------------------
Andrew Schuon
Director 4/_/97
- ----------------------------
David E. Salzman
/s/ Kenin M. Spivak Director 4/7/97
- ----------------------------
Kenin M. Spivak
/s/ Eric R. Weiss Director 4/7/97
- ----------------------------
Eric R. Weiss
<PAGE>
Index to Consolidated Financial Statements
Page
Reference
---------
Report of Independent Auditors............................................F-2
Consolidated Balance Sheets at December 31, 1996 and 1995.................F-3
Consolidated Statements of Income for each of the three years
in the period ended December 31, 1996.................................F-5
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended December 31, 1996.................F-6
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1996...........................F-7
Notes to Consolidated Financial Statements................................F-9
F-1
<PAGE>
Report of Independent Auditors
Stockholders and Board of Directors
Premiere Radio Networks, Inc.
We have audited the accompanying consolidated balance sheets of Premiere Radio
Networks, Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. 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 consolidated financial position of Premiere Radio
Networks, Inc. at December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Los Angeles, California
February 21, 1997
F-2
<PAGE>
Premiere Radio Networks, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-----------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,776,436 $ 5,432,088
Accounts receivable, less allowance for doubtful accounts
of $144,000 (1996) and $214,000 (1995) 7,165,928 4,086,623
Notes receivable from officer/employees 98,172 282,279
Recoverable income taxes (NOTE 7) 213,828 250,952
Deferred income taxes (NOTE 7) 1,000,993 549,000
Prepaid expenses and other assets 739,208 1,375,805
----------------------------------
Total current assets 23,994,565 11,976,747
Notes receivable from officer/employees (NOTE 9) 668,356 845,000
Investments (NOTE 15) 4,215,268 -
Deferred income taxes 99,000 -
Property and equipment, at cost, less accumulated
depreciation and amortization (NOTE 4) 2,318,939 1,797,337
Acquired program library and program networks, net of
accumulated amortization of $699,217 (1996) and
$367,469 (1995) (NOTE 2) 1,368,223 1,699,971
Intellectual property, net of accumulated amortization of
$1,376,893 (1996) and $550,200 (1995) (NOTE 2) 14,002,048 4,858,749
Debt issuance costs, net of accumulated amortization of
$27,300 (1995) (NOTES 10 AND 11) - 2,143,729
Other assets (NOTE 9) 899,558 711,968
---------------------------------
Total assets $ 47,565,957 $ 24,033,501
---------------------------------
---------------------------------
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-----------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses and other
liabilities (NOTES 8 AND 10) $ 1,535,429 $ 1,722,205
Accrued payroll, bonuses, deferred compensation
and profit sharing contribution (NOTE 9) 830,788 905,468
Income taxes payable (NOTE 7) 15,920 25,022
Deferred revenue (NOTES 2 AND 15) 250,000 83,326
Current portion of notes payable, net of discount of
$6,568 (1996) (NOTE 5) 505,932 400,000
------------------------------------
Total current liabilities 3,138,069 3,136,021
Notes payable, net of discount of $45,045 (1995), less
current portion (NOTES 2 AND 5) 75,125 1,467,455
Deferred revenue 1,516,800 -
Due to related party (NOTE 10) - 120,000
Other liabilities (NOTE 9) 258,482 7,714
Commitments and contingencies (NOTE 6)
Stockholders' equity (NOTES 10 AND 12):
Preferred stock, par value $.01 per share, 5,000,000
shares authorized - -
Common stock, par value $.01 per share, 14,000,000
shares authorized, 3,592,675 and 3,641,650 shares
issued at December 31, 1996 and 1995, respectively 35,927 36,417
Class A common stock, par value $.01 per share,
20,000,000 shares authorized, 4,041,420 shares
issued at December 31, 1996 40,414 -
Additional paid-in capital 34,617,213 11,752,595
Retained earnings 9,834,325 7,513,299
Less cost of common stock held in treasury, 1,000 shares
of common stock and 186,600 shares of Class A
common stock at December 31, 1996 (1,950,398) -
------------------------------------
Total stockholders' equity 42,577,481 19,302,311
------------------------------------
Total liabilities and stockholders' equity $ 47,565,957 $ 24,033,501
------------------------------------
------------------------------------
SEE ACCOMPANYING NOTES.
</TABLE>
F-4
<PAGE>
Premiere Radio Networks, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C>
Revenue:
Gross revenue $ 27,147,199 $ 20,756,932 $ 18,015,998
Less agency commissions (3,321,637) (2,437,973) (2,036,600)
---------------------------------------------------
Net operating revenue 23,825,562 18,318,959 15,979,398
Operating expenses:
Production, programming and
promotions 7,495,131 5,472,346 5,284,036
Selling, general and administrative 9,038,141 7,827,153 7,664,557
Depreciation and amortization 1,908,035 1,265,358 937,649
Other charges (NOTE 11) 417,045 - -
---------------------------------------------------
Total operating expenses 18,858,352 14,564,857 13,886,242
---------------------------------------------------
Operating income 4,967,210 3,754,102 2,093,156
Other income and expenses:
Interest income 1,217,885 262,046 88,989
Interest expense (101,807) (244,503) (266,289)
Gain on sale of networks - - 1,659,642
Gain on sale of radio station assets - 452,919 -
Gain (loss) on sale of marketable
securities and other - 18,445 (221,112)
Write-off of debt issuance costs (NOTE 11) (1,949,120) - -
--------------------------------------------------
(833,042) 488,907 1,261,230
--------------------------------------------------
Income before minority interest and income
taxes 4,134,168 4,243,009 3,354,386
Minority interest in loss of joint venture - 34,121 -
--------------------------------------------------
Income before income taxes 4,134,168 4,277,130 3,354,386
Provision for income taxes (NOTE 7) 1,698,000 1,721,000 1,369,000
--------------------------------------------------
Net income $ 2,436,168 $ 2,556,130 $ 1,985,386
--------------------------------------------------
--------------------------------------------------
Earnings per share $ 0.28 $ 0.46 $ 0.43
--------------------------------------------------
--------------------------------------------------
Weighted average common and common
equivalent shares outstanding 8,929,954 6,105,494 4,664,921
--------------------------------------------------
--------------------------------------------------
SEE ACCOMPANYING NOTES.
</TABLE>
F-5
<PAGE>
Premiere Radio Networks, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
common stock Class A common stock Treasury Stock
-----------------------------------------------------------------
Additional
Paid-In Retained
Shares Amount Shares Amount Shares Amount Capital Earnings Total
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 3,000,000 $ 30,000 - $ - - $ - $ 5,057,234 $ 2,971,783 $ 8,059,017
Net income for 1994 - - - - - - - 1,985,386 1,985,386
Exercise of options 10,832 108 - - - - 77,176 - 77,284
----------------------------------------------------------------------------------------------------------
Balance at
December 31, 1994 3,010,832 30,108 - - - - 5,134,410 4,957,169 10,121,687
Net income - - - - - - - 2,556,130 2,556,130
Sale of common stock
and Class B warrants 500,000 5,000 - - - - 3,855,877 - 3,860,877
Issuance of
Class A warrants - - - - - - 1,378,650 - 1,378,650
Income tax benefit
from stock options
exercised - - - - - - 400,000 - 400,000
Exercise of options
and warrants 130,818 1,309 - - - - 983,658 - 984,967
----------------------------------------------------------------------------------------------------------
Balance at
December 31, 1995 3,641,650 36,417 - - - - 11,752,595 7,513,299 19,302,311
Net income - - - - - - - 2,436,168 2,436,168
Exchange of common
stock for Class A
common stock (140,000) (1,400) 140,000 1,400 - - - - -
Issuance of Class A
common stock - - 1,360,000 13,600 - - 22,035,167 - 22,048,767
Income tax benefit
from stock options
exercised - - - - - - 262,000 - 262,000
Stock dividend - - 2,502,988 25,030 - - - (25,030) -
Exercise of options
and warrants 91,025 910 38,432 384 - - 567,451 - 568,745
Unrealized loss on
securities
available for sale - - - - - - - (90,112) (90,112)
Purchase of
treasury stock - - - - 187,600 (1,950,398) - - (1,950,398)
----------------------------------------------------------------------------------------------------------
Balance at
December 31, 1996 3,592,675 $ 35,927 4,041,420 $ 40,414 187,600 $(1,950,398) $ 34,617,213 $ 9,834,325 $ 42,577,481
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES.
</TABLE>
F-6
<PAGE>
Premiere Radio Networks, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,436,168 $ 2,556,130 $ 1,985,386
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,908,035 1,265,358 937,649
Loss on sale of marketable securities - - 221,114
Write-off of debt issuance costs 1,949,120 - -
Gain on sale of networks - - (1,659,642)
Gain on sale of radio station assets - (452,919) -
Gain on sale of fixed assets (1,216) (12,636) -
Deferred compensation - - 106,939
Deferred operating costs of radio station - (260,071) (431,667)
(Decrease) increase in allowance for
doubtful accounts (70,000) 8,000 53,000
Changes in deferred income taxes (551,000) (290,000) (353,000)
Changes in operating assets and liabilities:
Accounts receivable (3,009,305) (948,679) (602,494)
Income taxes 28,029 (404,249) 447,319
Prepaid expenses and other current assets 566,432 (1,060,751) (308,795)
Notes receivable from officer/employees 110,751 (797,612) (339,767)
Investments (6,825) - -
Other assets (187,590) 25,082 (327,818)
Accounts payable and accrued liabilities (227,326) 232,344 342,631
Deferred income 1,683,474 (521,129) 549,840
Other liabilities 242,357 (99,225) -
--------------------------------------------
Net cash provided by (used in)
operating activities 4,871,726 (760,357) 620,695
--------------------------------------------
INVESTING ACTIVITIES
Acquisition of property and equipment (1,250,046) (631,084) (469,579)
Acquisition of intangible assets (9,713,176) (2,320,935) (3,986,199)
Purchase of common stock of Audio Net (4,000,028) - -
Net proceeds from sale of radio station assets - 5,565,496 -
Net proceeds from sale of equipment 35,000 80,000 -
Sale of program networks - - 2,136,339
Sale of marketable securities, net - - 1,095,896
--------------------------------------------
Net cash (used in) provided by investing
activities (14,928,250) 2,693,477 (1,223,543)
</TABLE>
F-7
<PAGE>
Premiere Radio Networks, Inc.
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
--------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from borrowings $ - $ - $ 2,500,000
Repayment of note payable to officer - (750,000) -
Repayment of borrowings (1,528,242) (2,962,500) (237,500)
Proceeds from issuance of common stock
and Class B warrants - 3,860,877 -
Proceeds from issuance of Class A common
stock 22,048,767 - -
Exercise of stock options and warrants,
including related tax benefit 830,745 1,384,967 77,284
Increase in debt issuance costs - (405,690) -
Purchase of treasury stock (1,950,398) - -
-------------------------------------------------
Net cash provided by financing activities 19,400,872 1,127,654 2,339,784
-------------------------------------------------
Increase in cash and cash equivalents 9,344,348 3,060,774 1,736,936
Cash and cash equivalents at beginning
of year 5,432,088 2,371,314 634,378
-------------------------------------------------
Cash and cash equivalents at end of year $ 14,776,436 $ 5,432,088 $ 2,371,314
-------------------------------------------------
-------------------------------------------------
Cash paid for:
Interest $ 11,034 $ 198,058 $ 250,135
-------------------------------------------------
-------------------------------------------------
Income taxes $ 1,929,612 $ 1,998,871 $ 1,271,700
-------------------------------------------------
-------------------------------------------------
SEE ACCOMPANYING NOTES.
</TABLE>
F-8
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Premiere Radio Networks, Inc. (the Company) is an independent creator, producer
and distributor of comedy, entertainment and music-related network radio
programming, and research and other services. The Company derives a substantial
portion of its revenues from the sale of commercial radio broadcast time to
advertisers. The Company obtains commercial radio broadcast time from third
party radio station affiliates in exchange for its network radio programs and
services. The Company also derives a portion of its revenues from commissions on
sales of commercial broadcast time which it sells on behalf of third party
network radio programmers pursuant to exclusive sales representation agreements.
Substantially all of the Company's accounts receivable are from advertising
agencies that purchase commercial broadcast time from the Company on behalf of
national advertisers. The Company generally does not require collateral from its
customers.
The Company also owned a radio station in Denver, Colorado (see Note 2). Radio
station revenues were generally derived from the sale of commercial broadcast
time to advertisers and from the leasing of the radio station to a buyer (from
October 1, 1994 through February 28, 1995).
PRINCIPLES OF CONSOLIDATION
The consolidated 1995 financial statements include the accounts of the Company's
75% owned joint venture (see Note 3). All material intercompany transactions and
accounts have been eliminated. Effective on September 3, 1996, the Company
acquired the other partner's interest in the joint venture and merged the joint
venture entity into the Company as part of one of its divisions.
REVENUE RECOGNITION
Revenue from the sale to advertisers of commercial broadcast time obtained in
exchange for produced radio programs or research and other services is
recognized when the commercials are broadcast. Sales representation commission
revenue is recognized when the commercials are broadcast. Promotional fees are
recognized as services are rendered. Amounts received prior to the rendering of
promotional related services are recorded as deferred revenue.
F-9
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Radio station revenue was recognized in the period in which commercials were
broadcast or in the case of the Local Programming and Marketing Agreement (LMA)
(see Note 2) in the period during which the LMA pertains.
Barter revenues, representing commercial broadcast time exchanged for products
or services, are recognized when the commercials are broadcast and are recorded
at the lesser of the estimated fair value of the commercial broadcast time or
the estimated fair value of products or services received, whichever is more
readily determinable.
PRODUCTION AND PROGRAMMING COSTS
Production and programming costs are expensed in the period in which they occur.
Costs related to programs not broadcast as of the balance sheet date are
insignificant. The Company does not capitalize costs associated with production
and distribution of internally developed programming, as the estimated future
revenues from this programming is considered immaterial.
ADVERTISING COSTS
Advertising costs are expensed in the period in which they occur. The
accompanying statements of income include advertising costs of $105,000 in 1996,
$160,000 in 1995 and $153,000 in 1994.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less, when purchased, to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization is
computed by the straight-line method over the estimated useful lives of the
related assets as follows:
Office furniture and equipment 5 years
Production and programming equipment 5 - 7 years
Leasehold improvements Remaining life of lease
F-10
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES
The Company determines the appropriate classification of debt and equity
securities at the time of purchase and reevaluates their classification at each
balance sheet date. Securities are classified as held-to-maturity when the
Company has the intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at cost and investment income is included
in earnings. The Company classifies certain highly liquid securities as trading
securities. Trading securities are stated at fair value and unrealized holding
gains and losses are included in income. Securities that are not classified as
held-to-maturity or trading are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
holding gains and losses, net of tax, reported in stockholders' equity.
FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to various
market data and other valuation techniques as appropriate. Unless otherwise
described, the fair values of financial instruments approximate their recorded
values.
DEBT ISSUANCE COSTS
Debt issuance costs include the value of certain of the Class A warrants and
commitment fees, legal and other professional costs directly related to the
subordinated debentures. Debt issuance costs related to commitment fees incurred
in connection with the subordinated debentures were being amortized over a
seven-year period using the straight-line method. During the fourth quarter of
1996, the Company wrote-off the then remaining unamortized balance of debt
issuance costs (Notes 10 and 11).
INTANGIBLE ASSETS
Intangible assets are stated at cost and consist of program networks, an
acquired program library, production music libraries and other intellectual
properties. The carrying value of intangible assets are reviewed if the facts
and circumstances suggest they may be impaired. If this review indicates that
the intangible assets will not be recoverable based on the undiscounted cash
flows over the remaining amortization period, the Company's carrying value of
the intangible assets will be reduced by the estimated short fall of the
discounted cash flows.
F-11
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS (CONTINUED)
PROGRAM NETWORKS: Program networks represent the value of contracts with various
radio stations to broadcast certain Company-produced programming and the
tradenames and contracts with talent, used in the production of programming. The
program networks are being amortized over a seven-year or ten-year period using
the straight-line method.
ACQUIRED PROGRAM LIBRARY: The acquired program library represents the value of a
compilation of sports radio broadcasts purchased by the Company to produce
sports-oriented programming. The library is being amortized over a seven-year
period using the straight-line method.
INTELLECTUAL PROPERTY: Intellectual property consists of acquired software used
in radio broadcast research and the tradenames Mediabase and Newstrack, and
contracts with various third party radio station affiliates which subscribe to
the Mediabase and/or Newstrack research services. In addition, intellectual
property includes production music libraries consisting of copyrights or
exclusive licenses to production music and jingles libraries, including
short-form background music utilized in the production of radio programs,
commercials and jingles. Intellectual property is being amortized over a
seven-year or ten-year period using the straight-line method.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes, in
accordance with Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes."
EARNINGS PER SHARE
The computation of earnings per common and common equivalent shares is based
upon the weighted average number of common shares outstanding during the period
plus (in periods in which they have a dilutive effect) the effect of common
shares contingently issuable, primarily from the assumed exercise of stock
options and warrants to purchase common stock.
During 1996 and 1995, primary earnings per share and fully diluted earnings per
share were the same. During 1994, stock options and warrants to purchase common
stock were antidilutive for purposes of calculating fully diluted earnings per
share.
F-12
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings per share for the years ended December 31, 1996 and 1995, is computed
under the modified treasury stock method which assumes the exercise of all
outstanding stock options and warrants to purchase common stock, and the use of
the assumed proceeds thereof to purchase up to a maximum of 20% of the then
outstanding common stock of the Company. Excess proceeds derived from the
assumed purchase of such shares are assumed to be utilized to first reduce the
outstanding balances of notes payable and second for investment in short-term,
cash equivalent marketable securities. As a result, for purposes of determining
earnings per share, net income is adjusted for the hypothetical reduction in
interest expense ($16,000 and $108,000 for 1996 and 1995, respectively) and for
hypothetical interest income related to the assumed investment in marketable
securities ($48,000 and $140,000 for 1996 and 1995, respectively), such
adjustments being made net of income taxes.
Earnings per share for the year ended December 31, 1994 was computed under the
treasury stock method. Under the treasury stock method, the Company reduces the
assumed number of common shares issued from the exercise of stock options and
warrants to purchase common stock by the number of treasury shares assumed to be
purchased from the proceeds of such dilutive securities by utilizing the average
market price of the Company's common stock.
During March 1996 the Company's Board of Directors declared a 1-for-2 stock
dividend effected in the form of a 3-for-2 stock split. The stock dividend was
payable in shares of Class A common stock to holders of record of the Company's
common stock and Class A common stock (Stock Dividend). All references in the
financial statements to the number of shares and per share amounts prior to
March 1996, have been retroactively adjusted for the stock dividend.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 established a fair value-based method of
accounting for compensation cost related to stock options and other forms of
stock-based compensation plans. However, SFAS 123 allows an entity to continue
to measure compensation costs using the principles of APB 25 if certain pro
forma disclosures are made. The Company has elected to account for its stock
compensation arrangements under the provisions of APB 25, "Accounting for Stock
Issued to Employees." The Company adopted the provisions for pro forma
disclosure requirements of SFAS 123 in fiscal 1996.
F-13
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CHANGE IN BASIS OF PRESENTATION
Certain reclassifications have been made to the 1995 and 1994 financial
statements in order to conform to the 1996 presentation.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. ACQUISITIONS AND DISPOSITIONS
RADIO STATION
On March 12, 1993, the Company completed an acquisition of certain assets of
radio station KZDG-FM in Denver, Colorado (KZDG-FM), for $3,605,395, including
acquisition costs. On September 30, 1994, the Company entered into an agreement
with Shamrock Broadcasting Inc. (Shamrock), a Delaware corporation, pursuant to
which the Company sold the radio station and broadcast license. The sale was
completed on February 28, 1995. Under the terms of the agreement, Shamrock
acquired the assets of the radio station, exclusive of cash, accounts receivable
and certain identified assets for $5,500,000. In connection with the sale, the
Company deferred operating losses and disposition costs of $432,000 for the
period October 1, 1994 to December 31, 1994. For the year ended December 31,
1994 the radio station had revenues of $1,209,000 and losses from operations
before income taxes of $729,000.
The Company also entered into a LMA with Shamrock pursuant to which the Company
licensed its broadcast time to Shamrock, including advertising time, for $22,500
per month commencing October 1, 1994. The LMA terminated upon the consummation
of the sale of the radio station to Shamrock.
F-14
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
OLYMPIA PROGRAM NETWORKS
On November 29, 1993, the Company acquired nine radio program networks from
Olympia Networks of Missouri, Inc., including three comedy, one country music
and five sports program networks for $1,000,000.
On March 1, 1994, the Company completed the sale of the five sports program
networks for $2,700,000. In connection with the sale, the Company issued
warrants to purchase 15,000 shares of the Company's common stock exercisable at
$8 per share through February 28, 1998.
In addition, the Company signed an agreement to provide certain future sales
representation services on an exclusive basis to the buyer of the networks for a
period of three years. In connection with the sales representation agreement,
the Company received a nonrefundable $1,000,000 advance which was recognized as
income in accordance with the terms of the agreement.
ACQUIRED SPORTS RADIO PROGRAM LIBRARY
On December 14, 1994, the Company acquired a collection of sports radio
broadcasts (the Library) from a corporation controlled by an officer of the
Company. The Library was acquired for $1,500,000 (exclusive of acquisition costs
of $19,286) payable, $750,000 at closing and $750,000 on April 1, 1995.
BROADCAST RESULTS GROUP (BRG)
On August 29, 1995, the Company acquired substantially all of the assets of BRG
for $2,337,500 cash and a noninterest bearing, 18-month note payable with a face
amount of $412,500. The assets of BRG acquired by the Company consist
principally of intellectual properties and other intangibles, including
production music libraries, third-party radio station affiliate broadcast
contracts, and copyrights. The Company did not assume any preacquisition
accounts payable or other obligations of BRG, except for certain commitments
under real property and equipment leases. The acquisition of BRG has been
accounted for using the purchase method of accounting. The former chief
executive officer and 39% stockholder of BRG has been employed by the Company
pursuant to a four-year employment agreement.
F-15
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
The results of operations of BRG have been included in the consolidated
statement of income from the date of acquisition.
The net purchase price was allocated as follows:
Property, plant and equipment $ 25,000
Intellectual property 2,543,000
Other assets 25,000
--------------
$ 2,593,000
--------------
--------------
PHILADELPHIA MUSIC WORKS (PMW)
On September 27, 1996 the Company acquired substantially all of the assets of
Philadelphia Music Works, Inc. (PMW) from an employee (the former chief
executive officer of BRG) of the Company, for total consideration of $635,000,
consisting of $435,000 in cash and $200,000 in a 6.5% interest, two-year
promissory note payable. Further, additional consideration of up to $700,000 may
be payable depending upon the audience levels delivered by PMW in the future.
The assets of PMW acquired by the Company consist principally of intellectual
properties and other intangible assets, including a library of over 6,000
jingles, third-party radio station affiliate broadcast contracts, and
copyrights. The Company did not assume any pre-acquisition accounts payable or
other obligations of PMW, except for certain commitments under real property and
equipment leases. The acquisition of PMW has been accounted for using the
purchase method of accounting.
On September 27, 1996 the Company amended and restated an August 29, 1995
agreement pursuant to which it had entered into future commitments to acquire
licenses to three (3) production music libraries from Canary Productions, Inc.
(Canary), which is wholly-owned by an employee of the Company. Under the amended
and restated agreement, the Company has entered into future commitments to
acquire a license to one (1) additional production music library, or four (4)
production music libraries in total, from Canary. The licenses to the production
music libraries will be acquired by the Company, one each year during the next
four years, for a purchase price that will be based upon a formula of a multiple
of earnings of each such library, payable in cash or shares of the Company's
Class A common stock. Subsequent to December 31, 1996, the Company acquired the
license to the first such library for a nominal amount.
F-16
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
The net purchase price of PMW was allocated as follows:
Property, plant and equipment $ 10,000
Intellectual property 676,000
Other assets 25,000
-----------
$ 711,000
-----------
-----------
The results of operations of PMW have been included in the consolidated
statement of income from the date of acquisition.
CUTLER PRODUCTIONS, INC. AND SJM PRODUCTIONS, INC. (CUTLER)
On October 1, 1996, the Company consummated an agreement pursuant to which it
acquired substantially all of the assets of Cutler Productions, Inc. and SJM
Productions, Inc. (collectively, Cutler) for consideration consisting of
$8,500,000 in cash.
The assets of Cutler acquired by the Company consist principally of intellectual
properties and other intangibles, including third-party radio station affiliate
broadcast contracts, a library of programs and program rights, and copyrights.
The Company did not assume any pre-acquisition accounts payable or other
obligations of Cutler, except for certain commitments under real property and
equipment leases. The acquisitions of Cutler has been accounted for using the
purchase method of accounting. Cutler's sole shareholder and Chief Executive
officer has been employed by the Company pursuant to a three year employment
agreement.
The net purchase price of Cutler was allocated as follows:
Property, plant and equipment $ 75,000
Intellectual property 8,736,000
Covenant not to compete 100,000
Other assets 180,000
-------------
$ 9,091,000
-------------
-------------
The results of operations of Cutler have been included in the consolidated
statement of income from the date of acquisition.
In connection with the acquisition of Cutler, the Company paid Archon
Communications Inc. (Archon) a fee of $100,000.
F-17
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
The following summarized, unaudited pro forma statements of operations give
effect to the acquisition of PMW and Cutler as if the acquisitions had occurred
at the beginning of each period presented and after giving effect to certain
adjustments, including the inclusion of PMW's and Cutler's operations during the
years ended December 31, 1996 and 1995. The summarized, unaudited pro forma
statements of income do not purport to be indicative of the results of
operations that actually would have resulted had the sale occurred on the date
indicated, and is not intended to be indicative of future results.
YEAR ENDED DECEMBER 31
1996 1995
-------------------------------
(UNAUDITED)
Net operating revenue $ 28,654,000 $ 22,689,000
Operating income 5,547,000 3,681,000
Net income 2,774,000 2,516,000
Primary earnings per share $0.32 $0.45
Weighted average common and common
equivalent shares outstanding 8,929,954 6,105,494
3. JOINT VENTURES
On May 28, 1993, the Company entered into an agreement with Mediabase, a
Michigan corporation, pursuant to which the Company and Mediabase formed a joint
venture to nationally syndicate the Monday Morning Replay research service to
radio stations principally throughout the United States and Canada. The joint
venture had commenced operations as Mediabase Premiere Radio Networks (MPRN) and
was 50% owned by each party, with profits and losses shared equally. During the
period May 28, 1993 through April 27, 1994, the Company accounted for this joint
venture using the consolidation method of accounting as it held a majority of
the seats on the Executive Committee and had management control of the joint
venture.
Effective April 27, 1994, the Company acquired the remaining 50% share of MPRN
for $3,216,915, including transaction costs. The purchase price was allocated to
tangible equipment of $230,000 and $2,720,559 to intellectual property (net of
the carrying value of the minority interest of $266,356).
F-18
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
3. JOINT VENTURES (CONTINUED)
On March 20, 1995, the Company entered into a joint venture agreement with
Marketing/Research Partners, Inc. (MRPI) to nationally syndicate Newstrack
(Newstrack Joint Venture), a research service jointly developed by the Company
and MRPI. The Newstrack Joint Venture commenced operations on or about
September 1, 1995.
In exchange for a 75% interest in the Newstrack Joint Venture, the Company
agreed to contribute $265,000 payable in four quarterly payments of $66,250
commencing on August 15, 1995, and advance certain commencement costs related to
the Newstrack Joint Venture. MRPI received a 25% interest in the Newstrack Joint
Venture for contributing computer systems and providing certain research
services for a one-year period.
The Company had the option to acquire MRPI's interest in the Newstrack Joint
Venture anytime after May 1, 1997 based upon a multiple of Newstrack's pre-tax
earnings, or at an earlier date based upon defined conditions. Effective
September 3, 1996, the Company acquired the remaining 25% minority interest from
MRPI for $303,188.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31
1996 1995
----------------------------
Office furniture and equipment $ 2,101,584 $ 1,758,283
Production and programming equipment 1,220,861 973,372
Leasehold improvements 799,449 445,417
----------------------------
4,121,894 3,177,072
Less accumulated depreciation and amortization 1,802,955 1,379,735
----------------------------
$ 2,318,939 $ 1,797,337
----------------------------
----------------------------
F-19
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
5. NOTES PAYABLE
On March 19, 1993, the Company entered into an agreement (as subsequently
amended) with Bank of America NT&SA (the Bank) whereby the Company obtained a
$2,200,000 term loan which was subsequently amended to $4,200,000 on July 15,
1994 and a $2,000,000 working capital line of credit which expired on May 15,
1996. Both loans were secured by substantially all the assets of the Company.
Outstanding borrowings were repaid in full in January 1996.
In connection with the acquisition of BRG, the Company issued a $412,500
non-interest bearing note payable, due in January 1997. In connection with the
acquisition of PMW the Company issued a $200,000, 6 1/2% interest note payable
due in equal quarterly installments of principal and accrued interest over two
years (see Note 2).
6. COMMITMENTS AND CONTINGENCIES
The Company leases space for its office and production facilities under
operating leases expiring at various dates through 2000. Renewal options are
available on certain of these leases. Future minimum lease payments under
noncancelable operating leases, including amounts payable under barter
arrangements, at December 31, 1996, are as follows:
1997 $ 899,000
1998 734,000
1999 494,000
2000 458,000
2001 -
--------------
$ 2,585,000
--------------
--------------
Rental expense under operating leases was $671,585 in 1996, $453,248 in 1995 and
$312,508 in 1994.
The Company is, from time to time, a party to various legal actions and
complaints arising in the ordinary course of business. In the opinion of the
Company's management, all such matters are without merit or involve amounts
which, in the event of unfavorable disposition, will not have a material impact
on the Company's financial position or results of operations.
F-20
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES
The components of the provision (benefit) for income taxes are as follows:
1996 1995 1994
-------------------------------------------
Current:
Federal $ 1,766,000 $ 1,577,000 $ 1,423,000
State 423,000 434,000 299,000
-------------------------------------------
2,189,000 2,011,000 1,722,000
Deferred:
Federal (384,000) (226,000) (287,000)
State (107,000) (64,000) (66,000)
-------------------------------------------
(491,000) (290,000) (353,000)
-------------------------------------------
$ 1,698,000 $ 1,721,000 $ 1,369,000
-------------------------------------------
-------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. Significant components of the
Company's current deferred tax assets as of December 31 are as follows:
1996 1995
-------------- ---------------
Accounts receivable allowance $ 121,000 $ 169,000
Deferred compensation 143,000 196,000
State income taxes 65,000 50,000
Unrealized losses on securities 78,000 18,000
Deferred revenue 706,000 33,000
Accrued expenses 17,000 110,000
Other 29,000 33,000
----------------------------
Total 1,159,000 609,000
Valuation allowance (60,000) (60,000)
----------------------------
Net deferred tax assets $ 1,099,000 $ 549,000
----------------------------
----------------------------
The effective tax rate varied from the statutory federal income tax rate as
follows:
1996 1995 1994
-----------------------------------
Statutory federal rate 34.0% 34.0% 34.0%
State and local taxes,
net of federal tax benefit 5.1 5.2 4.6
Other items 1.9 1.0 2.2
-----------------------------------
Effective income tax rate 41.0% 40.2% 40.8%
-----------------------------------
-----------------------------------
F-21
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
8. BARTER ARRANGEMENTS
The Company exchanges otherwise perishable, unsold commercial broadcast time for
products and services. Net operating revenue includes $1,517,210 in 1996,
$1,337,809 in 1995 and $1,194,427 in 1994, representing the fair value of
products or services exchanged for broadcast time. Selling and general and
administrative expenses include the fair value of products and services utilized
of $1,010,906 in 1996, $956,661 in 1995 and $1,003,222 in 1994. Additions to
property and equipment through such transactions were $70,350 in 1996, $425,936
in 1995 and $187,342 in 1994.
Included in accounts payable, accrued expenses and other liabilities at December
31, 1996 and 1995, is $159,686 and $193,729, respectively, representing the fair
value of goods and services owed by the Company to third parties under
noncancelable agreements for commercial time broadcast prior to December 31 of
the respective years.
9. RETIREMENT PLANS, EXECUTIVE BONUS POOL, EXECUTIVE LIFE INSURANCE
AND EXECUTIVE LOAN
The Company provides for retirement through a profit-sharing plan, as
subsequently amended into a qualified 401(k) savings retirement plan, and
through a non-qualified Supplemental Executive Retirement Plan (SERP).
The Company's 401(k) savings retirement plan covers all eligible employees.
Contributions were determined by the Board of Directors subject to maximum
limitations as provided in the Internal Revenue Code. Contributions by the
Company made under the plan and included in the accompanying statements of
income were $58,800 in 1996, $69,000 in 1995 and $80,000 in 1994.
Under the 401(k) savings retirement plan (401(k) Plan), all employees who have
completed one year of service or 1,000 hours of service in that year with the
Company are eligible to join the 401(k) Plan on January 1 or July 1 of any given
year. All eligible employees may contribute from 1% to 15% of their annual
compensation on a pre-tax basis subject to annual IRS limitations. The Company
makes matching contributions in an amount equal to 20% of the employee's
contributions up to 10% of their annual compensation. Matching contributions
made by the Company vest 20% per year beginning with the employee's first date
of eligibility and participation in the 401(k) Plan.
F-22
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
9. RETIREMENT PLANS, EXECUTIVE BONUS POOL, EXECUTIVE LIFE INSURANCE
AND EXECUTIVE LOAN (CONTINUED)
The Company has an Executive Bonus Pool under which bonuses are paid to
executives at the discretion of the Compensation Committee. Amounts recorded as
expense under the plan were $285,000 in 1996, $240,000 in 1995 and $170,000 in
1994.
Effective December 31, 1995, the Company adopted a SERP for 5% or more
stockholder/employees and certain designated executive officers of the Company.
Under the SERP, all eligible employees may defer up to 100% of their annual
compensation up to a maximum of $100,000 per year and earn interest on their
deferred amounts. The total participant deferrals, were $120,000 and $230,000
during the years ended December 31, 1996 and 1995, respectively.
During 1996, the Company entered into split-dollar life insurance agreements
with certain executives of the Company. Under the terms of the agreements, the
Company purchases life insurance policies on behalf of the executives that build
cash surrender value while also providing life insurance benefits for the
executives. The Company is entitled to a refund of all previously paid premiums
or the cash surrender value, whichever is lower. In the event of the death of
the executive, the Company will immediately be entitled to a refund of
previously paid premiums. The Company may terminate the agreements at any time
by giving written notice to the executive. At December 31, 1996, none of the
executive insurance policies had any cash surrender value in excess of
previously paid premiums.
As contemplated pursuant to the terms of an employment agreement, on November
10, 1995, the Company loaned its Chief Executive Officer (the Executive)
$800,000, which is secured by 170,000 and 85,000 shares of the Company's common
stock and Class A common stock, respectively, owned by the Executive. The loan
is non-recourse and bears interest, payable quarterly, at the Bank's Reference
Rate, as announced on the first day of each quarter. The loan is payable on the
earlier of July 28, 1999, or such date as the Executive ceases full-time
employment with the Company (or, if the Company terminates such employment
without cause, one year thereafter). Not less than 70% of the net proceeds of
the sale by the Executive of any pledged shares and 25% of the net proceeds of
sale of any other Company shares owned by the Executive shall be applied to
repayment of the loan. The number of pledged shares will be reduced
proportionately in the event of partial principal payments on the loan, provided
that no collateral would be released to the extent the fair market value or the
collateral remaining as security is less than 200% of the outstanding principal
amount. During 1996, the executive repaid $197,664 in principal.
F-23
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
10. DEBT AND EQUITY PLACEMENT
On July 26, 1995, the Company's stockholders approved, and on July 28, 1995
(Closing Date), the Company consummated, various agreements including the
Securities Purchase Agreement with Archon pursuant to which Archon provided to
the Company standby commitments (Commitment Agreements) to purchase up to
$10,800,000 of subordinated debentures (Debentures) and purchased from the
Company 750,000 shares of common stock and 1,221,750 Class B warrants (659,250
warrants were placed in escrow to be released to Archon pro rata if Debentures
were issued by the Company or upon termination of the commitments, whichever
came first) for aggregate cash consideration of $4,025,000. The Debentures were
issuable in units consisting of $1,000 principal amount of Debentures and 150
detachable Class A warrants exercisable at $7.00 per share (an aggregate or up
to 1,620,000 detachable Class A warrants were issuable). The Debentures were
issuable at the Company's call through October 28, 1996. In the event the
Company did not exercise its call rights with respect to the Debentures, Archon
was still entitled to receive 1,060,500 of the Class A warrants.
On the Closing Date, the Company paid Archon a commitment fee of $108,000 for
executing the Commitment Agreements and $40,000 representing the first of five
annual installments for providing standby commitments to purchase the
Debentures. The Company was also obligated to pay Archon a facility fee equal to
0.30% per quarter of the average principal amount of the unused subordinated
debentures which facility fee was waived by Archon effective January 1, 1996. In
addition, the Company paid $204,000 directly to or on behalf of Archon for legal
and professional fees and expenses incurred by Archon in connection with these
transactions.
All of the securities, including the Debentures, common stock and warrants, have
certain registration and piggyback rights.
Under the Securities Purchase Agreement, Archon and the Company's principal
stockholders and executive officers (the Insiders) have entered into a
Stockholders' Agreement. Under the Stockholders' Agreement, the Insiders and
Archon have entered into a Voting Trust Agreement pursuant to which Archon has
contributed 500,000 shares of common stock and 250,000 shares of Class A common
stock and the Insiders have contributed 1,288,624 shares of common stock, and
644,312 shares of Class A common stock. Through the Voting Trust Agreement,
Archon has received proxies which will enable it to effectuate 50% control of
the voting trust shares and 50% of the shares of Insiders not in the voting
trust. In addition, Archon received three seats on the eight-member board of
directors and the right to designate two outside directors.
F-24
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
10. DEBT AND EQUITY PLACEMENT (CONTINUED)
During January 1996, the Company completed the sale of 1,500,000 shares of Class
A common stock at $18.25 per share (after giving effect to the Stock Dividend,
holders received 2,250,000 shares of Class A common stock from this sale)
pursuant to a follow-on public offering and received net proceeds of $22,049,000
(net of underwriting discounts, commissions and expenses). Included in prepaid
expenses and other assets at December 31, 1995, is approximately $511,000
representing expenses incurred in connection with the public offering.
In connection with this offering, the Company paid Archon a fee of $200,000.
11. WRITE-OFF OF DEBT ISSUANCE COSTS AND OTHER CHARGES
The Company recorded, as debt issuance costs, the value of the 1,060,500 Class A
warrants which were issuable to Archon whether or not the Company exercised its
call rights with respect to the Debentures, commitment fees, legal, professional
and other costs directly related to the Debentures (Note 10). Because the
Company did not call on Archon to purchase the Debentures by October 28, 1996,
the Company wrote off the then remaining unamortized debt issuance costs which
resulted in a one-time earnings charge during the fourth quarter of 1996 of
$1,949,120.
In connection with attempted business acquisitions and the assimilation of
completed business acquisitions (Note 2) during the year ended December 31,
1996, the Company incurred professional fees, severance, transition and other
costs. The costs which aggregated $417,045 were charged to expense in the 1996
statement of income.
12. STOCKHOLDERS' EQUITY
In connection with the Company's initial public offering on May 5, 1992, the
Company issued warrants for 100,000 shares of common stock (and up to 50,000
shares of Class A common stock after giving effect to the Stock Dividend) (such
number of warrants are subject to adjustment under certain conditions) to the
underwriter that are exercisable through April 28, 1997. At December 31, 1996,
warrants for 52,667 and 27,334 shares of common stock and Class A common stock,
respectively, at an exercise price of $4.31 per share were outstanding.
The Company purchased 1,000 shares of common stock and 186,600 shares of Class
A common stock in 1996 at an aggregate cost of $1,950,398. At December 31, 1996
the Company had remaining authorization under its stock repurchase program to
acquire up to an aggregate value of $1,049,602 of either class of its common
stock.
F-25
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
12. STOCKHOLDERS' EQUITY (CONTINUED)
As a condition, among others, to the consummation of the Securities Purchase
Agreement (Note 10), the Company reincorporated from the State of California to
the State of Delaware. Upon completion of the reincorporation, each outstanding
share of the Company's common stock, no par value, was converted into one share
of common stock, $.01 par value of the Delaware corporation. In addition, the
authorized capital stock of the Delaware corporation was expanded to include
14,000,000 shares of Class A common stock, $.01 par value, and 5,000,000 shares
of "blank check" preferred stock, $.01 par value. The common stock and Class A
common stock are identical in all respects except that each share of common
stock will be entitled to one vote and Class A common stock will be entitled to
one-tenth vote on all matters submitted to stockholders.
In August 1996, the Company's stockholders approved an amendment to the
Certificate of Incorporation of the Company which provided that (a) each share
of common stock is entitled to ten votes per share and each share of Class A
common stock is entitled to one vote per share, (b) each share of common stock
is convertible into one share of Class A common stock at the option of the
holder thereof, (c) that the Company may not treat the common stock and Class A
common stock differently (except for voting rights) in any merger,
reorganization, recapitalization or similar transaction or support a tender
offer which attempts to do so, and (d) the authorized number of shares of common
stock and Class A common stock be increased to 14,000,000 and 20,000,000 shares,
respectively.
13. STOCK OPTION PLANS
On May 5, 1992, the Company established the 1992 Stock Option Plan (1992 Plan)
pursuant to which 547,207 and 221,029 shares of common stock and Class A common
stock, respectively, have been reserved for issuance under the 1992 Plan. All
options were granted at no less than the fair market value of the shares on the
date of grant (or 110% of fair market value, in the case of persons owning 10%
or more of the Company's stock on the date of grant). On July 26, 1995, the
Company's stockholders approved the Company's 1995 Stock Option Plan (1995 Plan)
pursuant to which additional options for 1,113,887 Class A common stock have
been reserved for future issuance.
The Company's 1992 Plan and 1995 Plan have certain anti-dilution provisions. As
a result of the Stock Dividend, options authorized, granted and outstanding on
the record date of the Stock Dividend were adjusted accordingly. At December 31,
1996, an aggregate of 1,722,438 options have been granted under the Company's
stock option plans and 898,115 options were vested and exercisable.
F-26
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
13. STOCK OPTION PLANS (CONTINUED)
The Company has elected to follow APB 25 (Note 1) in accounting for its employee
stock options because, as discussed below, the alternative fair value accounting
provided for under SFAS 123, requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of SFAS 123. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for each of
the years ended December 31, 1996 and 1995: risk-free interest rates ranging
from 5.5% to 6.5%; volatility factors of the expected market price of the
Company's common stock of 0.551; and a weighted-average expected life of the
options ranging from 1 to 5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Given this method of
amortization, the initial impact of applying SFAS 123 on pro forma net income
and pro forma earnings per share is not representative of the potential impact
on pro forma amounts in future years, when the effect of amortization from
multiple awards would be reflected. The Company's pro forma information follows:
1996 1995
------------------------------
Pro forma net income $1,221,832 $2,691,289
Pro forma earnings per share $0.13 $0.37
F-27
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
13. STOCK OPTION PLANS (CONTINUED)
The following is a summary of stock options granted, exercised and terminated
through December 31:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 910,873 $6.18 755,323 $4.64 727,601 $4.63
Granted 643,500 $10.50 264,375 $9.90 63,750 $4.73
Exercised (95,230) $4.32 (108,825) $4.52 (16,250) $4.76
Forfeited (39,653) $6.78 - - (19,778) $4.63
---------------------------------------------------------------------------------------
Outstanding at end of year 1,419,490 $8.24 910,873 $6.18 755,323 $4.64
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Exercisable at end of year 898,115 $6.83 806,370 $5.10 701,063 $4.72
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Weighted average fair value of
options granted during year $5.11 $3.76
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 ranged from
$3.83 to $20.00. The weighted average remaining contractual life of those
options is 3.6 years. Options vest over a period of two or five years from
respective grant dates.
At December 31, 1996, the Company had outstanding, other than the Class A
warrants and Class B warrants (Note 10), and the warrants issued to an
underwriter in connection with its initial public offering (Note 12), 52,500 and
26,250 warrants to purchase common stock and Class A common stock issued to a
company controlled by a director of the Company, respectively, at an exercise
price of $5.17 per share, and 135,000 warrants to purchase Class A common stock
at $8.67 per share issued to certain current and former directors of the
Company.
During October 1996 the Company granted 60,000 options to an affiliate of Archon
at an exercise price of $11.00 per share.
F-28
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
14. NOTE RECEIVABLE
On November 15, 1995, the Company loaned $500,000 to Major Networks, Inc.
(Major) secured by certain of Major's accounts receivable and five sports
programs. The loan does was noninterest bearing and was payable from proceeds of
accounts receivable collected by the Company under the terms of a sales
representation agreement. During 1996, the loan was repaid.
15. INVESTMENTS
During November 1996 the Company acquired 5% of the outstanding common shares of
Audionet, Inc. (Audionet) for $4,000,028 in cash. The investment which is
available for sale is being carried at fair value (approximates cost at December
31, 1996). Under separate agreements, Audionet has retained the Company as
Audionet's exclusive network radio sales representative, and has paid to the
Company an advance of $2,000,000 towards Audionet's commitment to purchase
network radio advertising from the Company over a two-year period. At
December 31, 1996 the Company has recorded $1,766,800 of deferred revenue
representing the unrecognized amount of the advance paid by Audionet.
Also, included in investments at December 31, 1996 is $215,240 representing the
estimated fair value of third-party common stock acquired in exchange for
commercial time broadcast prior to December 31, 1996. At December 31, 1996, an
unrealized loss of $150,112, which was offset by deferred income taxes of
$60,000, was charged to stockholders' equity.
16. SUBSEQUENT EVENT - ACQUISITION OF AFTER MIDNITE ENTERTAINMENT, INC.
Effective on January 7, 1997, pursuant to an Agreement and Plan of Merger By and
Among the Company, After MidNite Entertainment, Inc. (AME) and the Shareholders
of AME dated as of January 1, 1997 (Merger Agreement), a wholly-owned merger
subsidiary of the Company acquired 100% of the outstanding shares of AME for
consideration consisting of $3,900,000 cash and 400,000 shares of the Company's
Class A common stock. Under the terms of the Merger Agreement, the Company has
agreed to pay additional consideration either in cash or additional shares of
Class A common stock, at its option, if the market value of the Class A common
stock is less than $16.00 per share one year from the closing date of the
transaction.
F-29
<PAGE>
Premiere Radio Networks, Inc.
Notes to Consolidated Financial Statements (continued)
16. SUBSEQUENT EVENT - ACQUISITION OF AFTER MIDNITE ENTERTAINMENT, INC.
(CONTINUED)
Pursuant to the terms of the Merger Agreement, the sellers assumed
responsibility for all pre-acquisition accounts payable or other obligations of
AME, except for certain commitments under real property and equipment leases. In
addition, the sellers retained AME's pre-Closing accounts receivable and cash
balances as of the closing date of the transaction. The acquisition of AME will
be accounted for by the Company as a purchase.
In connection with the AME acquisition, the Company entered into various
agreements with a former shareholder of AME, whereby, among other things, the
Company paid the shareholder a transaction fee in the amount of $500,000. In
addition, the Company has agreed to retain the shareholder under a two-year
consulting agreement and the shareholder was nominated to the Company's Board of
Directors in January 1997.
1. SUBSEQUENT EVENT (UNAUDITED) - SALE OF 100% OF THE COMPANY'S COMMON STOCK
TO JACOR COMMUNICATIONS, INC.
On April 7, 1997, the Company announced that it had signed a definitive merger
agreement with Jacor Communications, Inc. (Jacor) pursuant to which Jacor will
acquire 100% of the outstanding common stock, Class A common stock and common
stock equivalents of the Company for cash and stock valued at approximately $185
million or approximately $18 per share, consisting of $13.50 in cash with the
balance in Jacor common stock. The acquisition price is subject to adjustment in
certain circumstances. Actual closing of the merger transaction is subject to
regulatory review, including the expiration of the applicable Hart-Scott-Rodino
waiting period, and other customary closing considerations.
F-30
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PREMIERE RADIO NETWORKS, INC.,
AFTER MIDNITE ENTERTAINMENT, INC.
AND THE
SHAREHOLDERS OF AFTER MIDNITE ENTERTAINMENT, INC.
AS OF JANUARY 1, 1997
- --------------------------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") dated as of January 1,
1997 is by and among Premiere Radio Networks, Inc., a Delaware corporation
("Premiere"), After Midnite Entertainment, Inc., a California corporation (the
"Company"), and the shareholders of the Company listed on the signature pages
hereto (the "Shareholders").
R E C I T A L S
WHEREAS, the Shareholders own all the outstanding capital stock of the
Company;
WHEREAS, Premiere desires to cause a merger of the Company with a wholly
owned subsidiary to be formed by Premiere under the laws of the State of
Delaware ("Merger Sub");
WHEREAS, In such merger, the Shareholders will receive cash and Class A
Common Stock of Premiere ("Premiere Class A Stock") in accordance with the terms
hereof;
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
ARTICLE 1
THE MERGER
1.1. FILING THE CERTIFICATE OF MERGER. An Agreement of Merger by and
among Merger Sub and the Company, meeting the requirements of the laws of the
State of Delaware shall be executed and delivered to the Secretary of State of
Delaware for filing in accordance with the General Corporation Law of the State
of Delaware (the "GCL") on the date of the Closing (as defined herein). The
merger of the Company into Merger Sub (the "Merger") shall be given effect upon
the filing of the Agreement of Merger, and any other documents necessary to
effect the Merger in accordance with the GCL.
1.2. THE MERGER. At the Effective Time:
(a) The Company shall be merged with and into Merger Sub, and the
separate existence of Company shall cease. Merger Sub shall be the surviving
corporation (the "Surviving Corporation").
(b) By virtue of the Merger, each issued and outstanding share of
common stock of the Company (the "Company Stock") shall be converted into the
right to receive any of cash,
1
<PAGE>
promissory notes of Premiere, or shares of Premiere Class A Stock, in each case
in such amounts as are indicated on Schedule 1.2(b) (such cash, notes and
Premiere Class A Stock, the "Merger Consideration"). The parties hereto agree
that all cash included in the Merger Consideration shall be paid by wire
transfer to an account designated to Premiere as the "Shareholders Account" in
writing by Eric Weiss on or before the Closing Date (the "Shareholders
Account"), and that all obligations of Merger Sub and Premiere to pay such cash
portion of the Merger Consideration, and all other amounts of cash to be paid to
any Shareholder hereunder, shall be completely satisfied upon transfer of such
amounts to the Shareholders Account.
(c) By virtue of the Merger, each issued and outstanding share of
common stock of Merger Sub shall be converted into one share of common stock of
the Surviving Corporation.
1.3. CHARTER DOCUMENTS; DIRECTORS AND OFFICERS AFTER THE MERGER.
(a) At the Effective Time, the articles of incorporation and bylaws
of Merger Sub, as in effect immediately prior to the Effective Time, shall be
the articles of incorporation and bylaws of the Surviving Corporation until duly
altered, amended or repealed thereafter; provided that the name of the Surviving
Corporation shall be "After Midnite Entertainment, Inc."
(b) From and after the Effective Time, the members of the Board of
Directors of the Surviving Corporation shall consist of the members of the Board
of Directors of Merger Sub immediately prior to the Effective Time, each of such
individuals to serve until such individual's successor is elected and qualified,
or until such individual's earlier death, resignation or removal.
(c) From and after the Effective Time, each officer of Merger Sub
immediately prior to the Effective Time shall be an initial officer of the
Surviving Corporation in the same capacity, until such officer's successor is
duly elected and qualified or until such officer's earlier death, resignation or
removal.
1.4. EXCHANGE OF CERTIFICATES. At the Closing (as defined herein)
each Shareholder shall present his Company Stock to Premiere and Premiere shall
deliver the Merger Consideration to each Shareholder. Following the Effective
Time each share of Company Stock shall represent solely the right to receive the
Merger Consideration as provided herein, and shall have no other rights.
1.5. CLOSING.
The closing of the transactions contemplated herein (the "Closing")
shall take place at 9:00 a.m., local time on January 7, 1997, or such other date
as to which the parties shall agree (the "Closing Date"), at the offices of
Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP, 2121 Avenue of
the Stars, 18th Floor, Los Angeles, California 90067 or at such other place and
on such other date as the parties shall agree.
2
<PAGE>
ARTICLE 2
REPRESENTATIONS, WARRANTIES AND COVENANTS OF PREMIERE
Premiere represents, warrants and covenants to the Company and the Shareholders
as follows:
2.1. ORGANIZATION AND STANDING. Premiere is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite authority to own its property and assets and to
conduct its business as presently conducted.
2.2. AUTHORIZATION AND BINDING OBLIGATION. Premiere has all necessary
power and authority to enter into and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby, and Premiere's
execution, delivery and performance of this Agreement have been duly and validly
authorized by all necessary action on its part. This Agreement has been duly
executed and delivered by Premiere and constitutes its valid and binding
obligation, enforceable in accordance with its terms, except as limited by laws
affecting creditors' rights or equitable principles generally.
2.3. ABSENCE OF CONFLICTING AGREEMENTS OR REQUIRED CONSENTS. The
execution, delivery and performance of this Agreement by Premiere: (a) do not
require the consent of any third party; (b) will not violate any provision of
Premiere's certificate of incorporation or by-laws; (c) will not violate any
applicable law, judgment, order, injunction, decree, rule, regulation or ruling
of any governmental authority to which Premiere is a party or is bound; and (d)
will not, either alone or with the giving of notice or the passage of time, or
both, conflict with, constitute grounds for termination of or result in a breach
of the terms, conditions or provisions of, or constitute a material default
under or accelerate or permit the acceleration of any performance required by
the terms of any agreement, instrument, license or permit to which Premiere is
now subject.
2.4. LITIGATION. There is no claim, litigation, proceeding or
investigation pending or, to the best of Premiere's knowledge, threatened
against Premiere which seeks to enjoin or prohibit, or otherwise questions the
validity of, any action taken or to be taken in connection with this Agreement.
2.5. PREMIERE CLASS A STOCK; FULLY PAID, ETC. The shares of Premiere
Class A Stock to be issued in the Merger will, upon issuance, be duly
authorized, validly issued, fully-paid and non-assessable, free of any pre-
emptive rights, free of any restrictions, except for restrictions on transfer
under applicable securities laws and will have been issued in compliance with
applicable securities laws.
2.6. DISCLOSURE. The Company has heretofore delivered to the
Shareholders its (i) Annual Report and any amendments thereto on Form 10-K for
the three most recent fiscal years as filed with the Commission, (ii) Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996, (iii) all proxy
statements relating to the Company's meetings of stockholders
3
<PAGE>
(whether annual or special) since December 31, 1995, and (iv) all other reports
or registration statements filed by the Company with the Commission since
December 31, 1995, 1995 (the "SEC Documents"). As of their respective dates,
the SEC Documents (including all exhibits and schedules thereto and documents
incorporated by reference therein) complied as to form in all material respects
with the Exchange Act and did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not false or misleading. Premiere has no actual knowledge that any
representation or warranty of the Company or any Shareholder hereunder contains
any untrue statement of material fact or omits any statement of material fact
necessary to make any statement contained herein or therein not misleading, it
being expressly understood that Premiere shall not be charged with any such
actual knowledge on account of any due diligence investigation it may have
conducted with respect to the transactions contemplated hereby.
ARTICLE 3
REPRESENTATION AND WARRANTIES AND COVENANTS OF
THE COMPANY AND THE SHAREHOLDERS
The Company and the Shareholders, jointly and severally, represent, warrant and
covenant to Premiere as follows:
3.1. ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and has all necessary corporate power and authority to own, lease and
operate the assets which it owns or leases and to carry on its business as now
being conducted and as proposed to be conducted. The Company is duly qualified
to do business and is in good standing in any state in which the ownership of
its assets or the nature of its business requires it to be so qualified, except
where the failure to be qualified and/or in good standing would not have a
material adverse effect on its business.
3.2. CAPITALIZATION; OWNERSHIP OF COMPANY STOCK.
(a) The authorized capital of the Company consists of ten thousand
(10,000) shares of Company Stock, of which ten thousand (10,000) shares are
issued and outstanding. There are no outstanding options, warrants or other
agreements providing for the issuance of Company Stock. None of the shares of
Company Stock has been issued in violation of any applicable securities laws or
in violation of any rights, pre-emptive or otherwise, of any present or past
shareholder of the Company. The Company does not have any subsidiaries.
(b) Each Shareholder is the sole record and beneficial owner of the
number of shares of Company Stock set forth opposite his name on SCHEDULE 3.2
hereto and has, good and marketable title to such Company Stock, free and clear
of all liens, pledges, encumbrances, options, purchase rights or otherwise.
4
<PAGE>
3.3. AUTHORIZATION AND BINDING OBLIGATION. The Company and the
Shareholders each has all necessary power and authority to enter into and
perform its or his obligations under this Agreement and to consummate the
transactions contemplated hereby, and the execution, delivery and performance of
this Agreement have been duly and validly authorized by all necessary action.
This Agreement has been duly executed and delivered by the Company and the
Shareholders and constitutes its or his respective binding obligation,
enforceable in accordance with its terms, except as limited by laws affecting
the enforcement of creditors' rights or equitable principles generally.
3.4. ABSENCE OF CONFLICTING AGREEMENT OR REQUIRED CONSENTS. The
execution, delivery and performance of this Agreement by the Company and the
Shareholders (a) do not require the consent of any third party, except as
otherwise detailed on one of the SCHEDULES hereto (which material consents shall
be obtained prior to the Closing); (b) will not violate any provisions of the
Company's articles of incorporation or by-laws; (c) will not violate any
applicable law, judgment, order, injunction, decree, rule, regulation or ruling
of any governmental authority to which the Company or the Shareholders are a
party or by which the Company, its assets or the Shareholders are bound; (d)
except as otherwise disclosed on Schedule 3.4 hereof, will not, either alone or
with the giving of notice or the passage of time, or both, conflict with,
constitute grounds for termination of or result in a breach of the terms,
conditions or provisions of, or constitute a material default under or
accelerate or permit the acceleration of any performance required by the terms
of any material agreement, instrument, license or permit to which the Company,
its assets or the Shareholders are now subject; PROVIDED that the Company shall
deliver waivers or consents of the appropriate counter-party to each such
agreement, instrument, license or permit prior to the Closing and (e) will not
result in the creation of any lien, charge or encumbrance on any of assets of
the Company.
3.5. INTELLECTUAL PROPERTY. The Company has good and marketable title
in or otherwise has the right to use all material copyrights, trademarks, trade
names, service marks, licenses, permits, jingles, privileges, and other similar
intangible property rights and interests which are used in the present conduct
of its business and operations ("Intellectual Property"). Attached hereto as
SCHEDULE 3.5(a) is a list of all such Intellectual Property rights. Such
schedule indicates which items are owned and which are used pursuant to licenses
or other rights to use the Intellectual Property. Except as disclosed in
SCHEDULE 3.5(b), there are no pending, or to the Knowledge of the Company and
the Shareholders, threatened proceedings or litigation affecting or relating to
any Intellectual Property. Neither the Company nor any Shareholder has received
notice alleging infringement of the rights of any third party to Intellectual
Property or alleging the unlawful use of such property. As used in this
Agreement, the term the "Knowledge of the Company and the Shareholders" shall
mean (i) to the best knowledge of the Company after reasonable enquiry and
investigation, and (ii) to the actual knowledge of any Shareholder. "The best
knowledge of the Company" shall include, without limitation, knowledge of any
Company officer (including any officer who is also a Shareholder) after
reasonable enquiry and investigation to be conducted within the scope of his
responsibilities as an officer.
5
<PAGE>
3.6. PERSONNEL INFORMATION.
(a) SCHEDULE 3.6(a) contains a true and complete list of all persons
employed by, and all consultants and outside talent engaged by or under contract
with, the Company as of December 15, 1996 and a description of all compensation
arrangements (including bonus arrangements) and employee benefit plans or
arrangements applicable to such employees, consultants and talent. To the
Knowledge of the Company and the Shareholders, no employee, consultant or talent
identified on SCHEDULE 3.6(a) currently plans to terminate such person's
employment, engagement or contract, whether by reason of the transactions
contemplated by this Agreement or otherwise.
(b) Except as disclosed in SCHEDULE 3.6(b), to the Knowledge of the
Company and the Shareholders, the Company has complied in all material respects
with all laws relating to the employment of labor, including, without
limitation, those laws relating to safety, health, wages, hours, unemployment
insurance, workers' compensation, and equal employment opportunity.
(c) Other than as set forth on SCHEDULE 3.6(c), the Company is not a
party to or bound by any employee pension benefit plan within the meaning of
Section 3(2)(a) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"),and covering or regarding the employees set forth on SCHEDULE
3.6(a) whether or not such plan is otherwise exempt from the provisions of
ERISA, and no employee or spouse of an employee identified on SCHEDULE 3.6(a) is
entitled to any benefits that would be payable pursuant to any employee pension
benefit plan. Except as provided on SCHEDULE 3.6(c), the Company does not have
any fixed or contingent liability or obligation to any person now or formerly
employed by it, including, without limitation, pension or thrift plans,
individual or supplemental pension or accrued compensation arrangements,
contributions to hospitalization or other health or life insurance programs,
incentive plans, bonus arrangements and vacation, sick leave, disability and
termination arrangements or policies, including workers compensation policies.
Premiere shall not assume or hereby become obligated to pay, and the
Shareholders shall indemnify Premiere for, any debt, obligation or liability
arising from the Company's employee benefit plans, or any other employment
arrangement; provided that employees of the Company shall receive credit for
years of service for purposes of vacation and participation in Premiere's health
insurance plan and 401(k) plan; provided further, that Premiere shall not be
obligated to deposit any additional funds into its 401(k) plan in order to
provide employees of the Company with credit for years of service.
(d) Except as disclosed on SCHEDULE 3.6(d), the Company is not a
party to, or negotiating, any collective bargaining agreement, nor are there to
the Knowledge of the Company and the Shareholders, any union organizational or
representation efforts underway.
(e) Each Shareholder hereby acknowledges and represents that such
Shareholder is aware that Eric Weiss shall or may enter into consulting and
employment contracts with the Company, Premiere or their affiliates, in form and
substance acceptable to such persons in their
6
<PAGE>
sole and complete discretion (including, without limitation, the Consulting
Agreement and Transaction Agreement, each between Premiere and Eric Weiss, in
form agreed by such parties prior to the date hereof, with such variations
therefrom as such parties may agree in their sole and complete discretion may
have agreed (the "Consulting Agreement" and the "Transaction Agreement",
respectively)), and hereby consents thereto.
3.7. LITIGATION. The Company is not subject to any judgment, award,
order, writ, injunction, arbitration decision or decree pertaining to the
operation of the Company, the ownership of its assets or the validity of this
Agreement EXCEPT (i) as set forth on SCHEDULE 3.7 and (ii) for any such
judgment, award, order, writ, injunction or decision issued in litigation
arising out of a claim (if any) by MediaAmerica, Inc. ("MAI") to be the
advertising sales representative for the Company in 1997 (the "MediaAmerica
Litigation"). Except as set forth on SCHEDULE 3.7 and except as issued in the
MediaAmerica Litigation (if any), the Shareholders are not subject to any
judgment, award, writ, injunction, arbitration decision or decree pertaining to
the validity of this Agreement. Except as set forth on SCHEDULE 3.7 and except
for the MediaAmerica Litigation (if any), there is no litigation, proceeding or
investigation pending or, to the Knowledge of the Company and the Shareholders,
threatened against any of them or relating to the Company or the Shareholders in
any federal, state or local court, or before any administrative agency, referee,
arbitrator or other tribunal authorized to resolve disputes, which seeks to
enjoin or prohibit, or otherwise questions the validity of, any action taken or
to be taken in connection with this Agreement. For the avoidance of doubt, the
parties hereto have agreed that there is no basis on which MediaAmerica
Litigation may be sustained, but have provided therefor in this Section 3.7 and
elsewhere in this Agreement solely as a precautionary measure.
3.8. COMPLIANCE WITH LAWS. To the Knowledge of the Company and the
Shareholders, the Company has operated and is operating in material compliance
with all laws, regulations and governmental orders pertaining to the operation
of the Company or the ownership of its assets, and the Company's present use of
its assets and conduct of its business does not violate any law, regulation or
order in any material respect. Neither the Company nor the Shareholders has
received any notice asserting any noncompliance with any applicable statute,
rule or regulation, in connection with the business or operations of the
Company.
3.9. BANKRUPTCY. No insolvency proceedings of any character,
including without limitation, bankruptcy, receivership, reorganization,
composition or arrangement with creditors, voluntary or involuntary, affecting
the Company, the Shareholders or any assets of the Company, are pending or, to
the Knowledge of the Company and the Shareholders, threatened, and neither the
Company nor the Shareholders has made and presently does not intend to make any
assignment for the benefit of creditors or file any petition in bankruptcy and
has not taken and presently does not intend to take any action which would
constitute the basis for the institution of such insolvency proceedings. To the
Knowledge of the Company and the Shareholders, there is no fact or circumstance
which would cause the Company, its assets or business or the Shareholders to
become subject to the jurisdiction of any bankruptcy court or proceeding within
90 days of the Closing Date.
7
<PAGE>
3.10. OPERATION OF THE COMPANY. Since October 31, 1996 the Company has
operated its business in the ordinary and normal course of business and in the
manner that has been customary during the period since the Shareholders acquired
the Company. Since October 31, 1996 the Company has used reasonable efforts to
preserve the business and organization of the Company, and to keep available
without entering into any binding agreement except as disclosed on SCHEDULE
3.10, the services of those employees, consultants and outside talent of the
Company the loss of which could reasonably be expected to have a material
adverse effect on the Company or its business, and to preserve the goodwill of
the Company's customers and others having business relationships with the
Company.
3.11. ABSENCE OF UNDISCLOSED LIABILITIES. The unaudited cash basis
balance sheets of the Company at October 31, 1996 and the related unaudited,
cash basis income statements (including footnotes thereto) for the periods then
ended present fairly in all material respects the cash basis financial position
and results of operations of the Company as of such date. The foregoing
financial statements, all of which have been attached as Schedule 3.11(a)
hereto, are sometimes referred to herein as the "Financials." The Company's
accrued and contingent liabilities as of October 31, 1996 which are not
reflected in the Financials are disclosed on Schedule 3.11(b), together with all
reserves taken by the Company for any thereof. Except as and to the extent
reflected or reserved against in the Financials, or disclosed in any Schedules
hereto (including, without limitation, Schedules 3.11(a) and (b)), the Company
had no liabilities or obligations which would be required to be disclosed in
financial statements prepared in accordance with Generally Accepted Accounting
Principles as of the date thereof (other than obligations of continued
performance under the Material Agreements and other commitments and arrangements
incident to the normal conduct of business which are terminable at will), known
or unknown, secured or unsecured (whether accrued, absolute, contingent or
otherwise), including, without limitation, tax liabilities due or to become due.
Since October 31, 1996, except as and to the extent reflected or reserved
against in the Financials or disclosed in any Schedule hereto (including,
without limitation, Schedule 3.11), the Company has incurred no material
liabilities or obligations other than (i) current liabilities incurred in the
ordinary course of business which in the aggregate do not have a material
adverse effect on the financial position or operations of the Company, or (ii)
in connection with the transactions contemplated hereby.
3.12. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since October 31, 1996,
except as described in SCHEDULE 3.12 hereto, there has not occurred any event or
condition which has a material adverse effect on the properties, assets,
liabilities (whether absolute, contingent, accrued or otherwise), financial
condition, results of operations, business, affairs of the Company concerning
the Company and, without limiting the generality of the foregoing, the Company
has not, except as disclosed on Schedule 3.12, (a) incurred any obligation or
liability, secured or unsecured (whether accrued, absolute, contingent or
otherwise), whether due or to become due, except current liabilities in the
ordinary course of business; (b) mortgaged, pledged, or subjected to lien,
charge, security interest or other encumbrance any of its assets; (c) sold,
transferred, licensed or otherwise disposed of any of its assets other than in
the ordinary course of business consistent with past practice; (d) increased the
compensation payable or to become payable by it
8
<PAGE>
to any of its directors, officers, employees or agents whose total compensation
for services rendered after any such increase is at an annual rate of more than
$30,000, or made any bonus, percentage of compensation or other like benefit
accruing to or for the credit of any such directors, officers, employees or
agents of the Company; (e) terminated or received any notice of termination of
any material contract, lease, trademark, patent, copyright or trade name
protection or other agreement; (f) suffered any damage, destruction or loss
(whether or not covered by insurance) adversely affecting its assets (other than
normal wear and tear); (g) suffered any taking or seizure of all or any part of
its assets by condemnation or eminent domain; (h) experienced any material
adverse change in its relations with its dealers, distributors, customers,
employees, agents or consultants; (i) acquired any capital stock or other
securities of any corporation or any interest in any business enterprise, or
otherwise made any loan or advance to or investment in any person, firm or
corporation; (j) made any capital expenditures or capital additions exceeding
$10,000 singularly or $50,000 in the aggregate; (k) instituted, settled or
agreed to settle any litigation, action or proceeding before any court or
governmental body affecting its financial condition, its property or its
business operations; (l) made any purchase commitment in excess of normal,
ordinary and usual requirements, or made any material change in its selling,
pricing, or personnel practices; (m) made any change in accounting principles or
methods, or in the manner of keeping books, accounts and records of the Company;
(n) declared, set aside or paid any dividends or distributions in respect of the
Company Stock or otherwise paid any amounts to the Shareholders except for
payment of salaries, benefits and other compensation and reimbursement of
expenses consistent with past policies; (o) repurchased any capital stock of the
Company; (p) waived or released any debts, claims, rights of value or suffered
any extraordinary loss or written down the value of any assets or written off
any receivables in excess of $5,000; (q) accelerated or deferred any items of
income or expense; (r) suffered any material adverse change in its income
business, financial condition, assets or results of operations or experienced
any occurrence or event which has had a material adverse effect upon the
revenues, business, financial condition or results of operations; (s) entered
into any agreement or made any commitment to do any of the things described in
the preceding subsections (a) through (r) of this Section 3.12.
3.13. EQUIPMENT LEASES AND CONTRACTS. Except as disclosed on SCHEDULE
3.13 hereto, the Company is not a party to, nor are its assets bound by, any
executory agreements (including dealer and distributor agreements), purchase
orders (other than purchase commitments for supplies in the ordinary course of
business), bailment agreements, equipment leases, commitments, contracts,
employment agreements, warranties, guarantees, understandings or other
agreements (a) which involve or may involve the annual payment of more than
$2,500, (b) which are of a duration in excess of twelve (12) months from the
date of execution thereof, (c) to which any stockholder, officer, director or
employee of the Company is a party in any capacity, which is not being
extinguished on or before the Closing Date, or (d) whose termination would
result in a liability of $5,000 or more (said agreements, together with the Real
Property Leases, being referred to herein collectively as the "Material
Agreements"). Each Material Agreement is listed on SCHEDULE 3.13 . True and
correct copies of each of the Material Agreements have been delivered to
Premiere and each Material Agreement is in full force and effect, has an
expiration
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date as set forth on SCHEDULE 3.13, has not been amended or modified except as
set forth on SCHEDULE 3.13, and constitutes the entire agreement between the
parties thereto with respect to the subject matter thereof. The Company is not,
and to the Knowledge of the Company and the Shareholders, no third party to any
Material Agreement is in material default thereunder, nor is the Company aware
of any fact or circumstances with respect to any Material Agreement which upon
notice or lapse of time could give rise to a material default thereunder.
3.14. REAL PROPERTY LEASES. The real property leases listed on
SCHEDULE 3.14 hereto (the "Real Property Leases") constitute all leases, whether
written or oral, to which the Company or any of its affiliates is a party and
which are necessary or required in connection with the Company's business
(including any real property owned by one or more of the Shareholders or any
affiliate of the Company); true and correct copies of each of the written Real
Property Leases have been delivered to Premiere. The Company has valid and
enforceable leasehold interests in such real property, free and clear of all
liens and encumbrances. To the Knowledge of the Company and the Shareholders
there exists no event of default or event, occurrence, condition or act
(including the transactions contemplated by this Agreement) which, with the
giving of notice, the lapse of time or the happening of any further event or
condition, would become a material default under such lease, give rise to a
right in the lessor to terminate the lease or render the lessee liable to incur
any expenditure under such lease. In the event any such lease requires the
lessee to exercise an option to renew in order to continue the term thereof, the
Company has properly exercised such option to renew. To the Knowledge of the
Company and the Shareholders each such real property and improvements thereon
may lawfully be used in connection with the business of the Company and is in
compliance with all applicable laws, rules, regulations and ordinances of all
federal, state, municipal and other governmental authorities including, but not
limited to, zoning, building, health, safety and environmental laws, and the
Company has not received any notices of violations with respect thereto.
3.15. MACHINERY AND EQUIPMENT. The machinery and equipment used in the
Company's business is in adequate operating condition, subject to normal wear
and tear, and in a state of repair sufficient for the conduct of normal
operations. The Company's assets and properties (including leased property) are
adequate to enable the Company to conduct its business as now being conducted.
Except as described in Schedule 3.15, the Company is not aware of any major
capital expenditure that will be required within one year from the date of this
Agreement that is not consistent with past practices.
3.16. LICENSES. The Company possesses all material patents,
franchises, permits, licenses, music library rights, certificates and consents
required from any governmental authority or any other person necessary to enable
the Company to carry on its business as now conducted and to own and operate its
properties (including leased property) as now owned and operated and all such
patents, franchises, permits, licenses, rights, certificates and consents will
remain in full force and effect following consummation of the transactions
contemplated by this Agreement. Attached hereto as SCHEDULE 3.16 is a true and
complete list of all such patents, franchises,
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permits, licenses, certificates and consents. All such patents, franchises,
permits, licenses, certificates and consents will remain in full force and
effect following the Merger.
3.17. TITLE TO ASSETS. Except as disclosed on SCHEDULE 3.17 hereto,
all of the Company's assets are owned free and clear of all mortgages, liens,
security interests, pledges, charges and other encumbrances whatsoever
(including, without limitation, profit and revenue sharing agreements). Except
as disclosed on SCHEDULE 3.17 hereto, immediately following the Merger the
Company's assets will be free and clear of all mortgages, liens, security
interests, pledges, charges and other encumbrances whatsoever.
3.18. TAXES The Company has at all times since its creation duly made
and maintained in effect an "S corporation" election under the Internal Revenue
Code of 1986, as amended (the "Code"), and, pursuant to such election, is and
has at all times since its creation been, an "S corporation". Without
limitation to the foregoing sentence, the Company has no "built in gain" (as
such term is used in Section 1374 of the Code). The Company (a) has filed all
federal, state and local tax returns required by law in the legally prescribed
time and manner, and paid all taxes, assessments and penalties due and payable;
(b) has made all payments required by any governmental program of workers'
social security or unemployment compensation; (c) has withheld and paid over to
the appropriate governmental authority all amounts required by law to be
withheld from the wages or salaries of employees; (d) is not liable for any
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing; and (e) has paid or will pay over to the appropriate governmental
authority all sales or use taxes referable to the Company's operations due as of
the Closing Date, and has made or will make provisions for payment of all such
taxes accrued as of such date, but not yet due. There are no claims pending or,
to the Knowledge of the Company and the Shareholders, threatened against the
Company for past due taxes, nor are there any outstanding waivers or agreements
by the Company for the extension of the time for the assessment of any tax. The
amounts reserved on the Financials, or disclosed on any Schedule hereto, for
accrued but unpaid taxes are sufficient to pay all accrued but unpaid taxes
through the Closing Date. The Company has never been audited by any federal,
state or local governmental taxing authority and has received no notice of any
future such audit, and, to the Knowledge of the Company and the Shareholders, no
such audit is pending, planned or threatened. The Company has withheld and paid
all amounts with respect to federal, state or local taxes which are required to
be made by applicable law.
3.19. INSURANCE. Attached hereto as SCHEDULE 3.19 is a true and
complete list of all insurance policies in force with respect to the Company's
business and assets and the annual premiums payable thereon. The Company is not
now, and on the Closing Date will not be, in default in any respect under any
such policy, and the Company shall continue such policies in force and effect
through the Closing Date.
3.20. ACCESS TO RECORDS. Prior to the execution of this Agreement, the
Company has made available to Premiere and its representatives for their
examination the books and records of the Company, including, without limitation,
computer data and records (the "Records"). No
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changes or additions to the Records have been made from the date the Records
were first made available to Premiere and its representatives and nothing which
should be set forth in the Records, if prepared in the ordinary course of
business, occurred from the date such Records were first made available to
Premiere or its representatives, except for such changes, additions or events
which have been made or have occurred, as the case may be, in the ordinary
course of the business of the Company consistent with the prior practice of the
Company or which have otherwise been disclosed in writing to the Company.
3.21. SOPHISTICATED INVESTORS; INVESTMENT INTENT. Each Shareholder who
is to receive Premiere Class A Stock under this Agreement, by reason of his
business and financial experience or together with his investment
representative, has sufficient knowledge and experience in financial and
business matters to enable him to evaluate the merits and risks of this
Agreement and the transactions contemplated by this Agreement and to protect his
own interests in connection with this Agreement and the transactions
contemplated hereby. Each such Shareholder acknowledges that the Premiere Class
A Stock to be received by him has not been registered under the Securities Act
of 1933, as amended (the "Securities Act"). Each such Shareholder (i) is taking
the shares of Premiere Class A Stock to be received by him for his own account
for investment and not with a view to engage in, or for sale in connection with,
any offering or distribution thereof and otherwise without a present intent of
transferring or otherwise disposing of such shares except in compliance with
applicable securities laws; (ii) prior to the execution of this Agreement, has
received all information requested concerning the business, operations and
financial condition of Premiere in connection with his making an investment
decision to acquire the Premiere Class A Stock; and (iii) is an "accredited
investor" as defined in Regulation D of the Securities Act.
3.22. DISCLOSURE. None of this Agreement or any certificate or other
document delivered in connection with the transactions contemplated by this
Agreement contains any untrue statement of material fact or omits any statement
of material fact necessary to make any statement contained herein or therein, as
the case may be, not misleading. Neither the Company nor any Shareholder has
actual knowledge that any representation or warranty of Premiere hereunder
contains any untrue statement of material fact or omits any statement of
material fact necessary to make any statement contained herein or therein not
misleading, it being expressly understood that neither the Company nor any
Shareholder shall charged with any such actual knowledge on account of any due
diligence investigation it or he may have conducted with respect to the
transactions contemplated hereby.
3.23. NO ACCRUED EMPLOYEE VACATION TIME. No present or former employee
of the Company has accrued any unused vacation time, and the Company is not
obligated to pay any amount to any such employee with respect thereto.
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3.24. MEDIAAMERICA ADVANCE AND OTHER ACCOUNTS PAYABLES; ACCOUNTS
RECEIVABLES.
(a) The amount of the MediaAmerica Advance (defined below) is as of
the date hereof $199,206. As used herein, "MediaAmerica Advance shall mean the
aggregate remaining amount owed from time to time (including principal and
interest) to MAI under that certain Revolving Promissory Note (the "MediaAmerica
Note"), dated April 21, 1995.
(b) The Shareholders shall satisfy in a manner consistent with the
Company's prior ordinary course of business all of the Company's accounts
payable and other liabilities (i) respecting obligations to which the Company
was contractually bound to pay prior to Closing, including, without limitation,
all employee payroll, bonus and other obligations to Company employees accrued
prior to the Closing Date, (ii) for services rendered to the Company prior to
Closing, or (iii) for goods purchased, ordered or received by the Company prior
to Closing; PROVIDED, HOWEVER, that with respect to the Company's obligation to
repay the MediaAmerica Advance, all amounts collected by Premiere from MAI after
the Closing with respect to the Sales Representation Agreement dated as of April
1, 1995, as amended, between the Company and MAI, whether in cash or by way of
offsets against amounts due by the company to MAI under the Company's Revolving
Promissory Note to MAI, dated April 21, 1995, as amended, shall be deemed to be
accounts receivable collected by Premier under Section 11.1(b), and to the
extent received by Premiere, shall be remitted to the Shareholders at the time
and in the manner provided in Section 11.1(b). Premiere shall, promptly upon
receipt of statements from MAI with respect to collected Adjusted Gross
Receipts, remit true copies thereof to the Shareholders. The Shareholders shall
retain the right at any time after the Closing to designate Premiere in writing
as the party to collect Gross Receipts derived from any contracts obtained by
MAI during the Term (as such term is used in section 7.2 of the Sales
Representation Agreement). In such case, all amounts collected by Premiere
(less such sums as are due MAI under said section 7.2) shall be treated as
collected accounts receivable under Section 11.1(b) and remitted to the
Shareholders as provided therein.
(c) The parties hereto understand and agree that ordinary items of
income and operating expenses of the Company for the year 1997 (each of which is
described in the Schedules hereto) which overlap the Closing Date, including
without limitation, payroll obligation for the Company's employees, rent
obligations accrued by the Company and pre-paid satellite expenses paid by the
Company, shall be prorated as of the Closing Date, with the burdens and benefits
attributable to period before the Closing Date being attributed to the
Shareholders, and the burdens and benefits attributable to period on and after
the Closing Date being attributed to Premiere, and the parties agree that such
prorated amounts shall be calculated on or before March 1, 1997 and settled by
appropriate cash payment on that date.
(d) Shareholders jointly and severally agree to promptly pay any
amounts payable with respect to severance of any Company employee listed on
Schedule 3.6 as a "Full Time Employee" whose employment is terminated within 60
days after the Closing Date.
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ARTICLE 4
CONDITIONS PRECEDENT TO PREMIERE'S OBLIGATION TO CLOSE
The obligation of Premiere to consummate the transactions contemplated herein
are subject to the satisfaction or waiver, at or prior to the Closing, of each
of the following conditions:
4.1. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) All representations and warranties of the Company and the
Shareholders shall be, and the Company and each Shareholder shall have executed
and delivered Certificates dated the Closing Date certifying that such
representations and warranties are, true and complete in all material respects
on and as of the Closing Date as if made on and as of that date.
(b) All of the terms, covenants and conditions to be complied with
and performed by the Company and the Shareholders on or prior to Closing Date
shall have been complied with or performed in all material respects.
(c) The Company shall have obtained all material consents and
material waivers described in this Agreement, including Schedules hereto,
required to be obtained prior to the Closing; PROVIDED, HOWEVER, that the
Shareholders shall continue to use their respective best efforts to obtain each
consent and waiver described in this Agreement, including Schedules hereto,
which have not been obtained prior to the Closing, and in all events the
Shareholders jointly and severally agree to obtain and deliver to Premiere each
such consent and waiver by no later than March 1, 1997.
4.2. ADVERSE PROCEEDINGS. No suit, action, claim or governmental
proceeding shall be pending against, and no order, decree or judgment of any
court, agency or other governmental authority shall have been rendered against,
any party hereto which Premiere in good faith believes would render it unlawful
to effect the transactions contemplated by this Agreement in accordance with its
terms EXCEPT any suit, action or claim of MediaAmerica Litigation.
4.3. NON-COMPETITION AGREEMENT. The Shareholders other than Eric
Weiss shall each have executed and delivered the Non-Competition Agreement
substantially in the form attached hereto as SCHEDULE 4.4. The Shareholders
shall be paid an aggregate of $800,000 for entering into the Non-Competition
Agreements. Such amount shall be allocated as follows:
William Lopatin $ 50,000.00
Leonard Makowka $ 50,000.00
Rod West $317,037.44
Blair Garner $382,962.56
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The Non-Competition Agreements of Rod West and Blair Garner shall provide, among
other things, that such Shareholders shall hold the titles of "President of the
AME Division" and "Chief Creative Officer of the AME Division", respectively,
and further provide for the issuance of certain options respecting Premiere
Class A Stock, in each case on the terms and conditions provided in such Non-
Competition Agreements.
ARTICLE 5
CONDITIONS PRECEDENT TO THE COMPANY'S AND SHAREHOLDERS'
OBLIGATION TO CLOSE
The obligations of the Company and the Shareholders to consummate the
transactions contemplated herein are subject to the satisfaction or waiver, at
or prior to the Closing, of each of the following conditions:
5.1. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) All representations and warranties of Premiere shall be, and
Premiere shall have executed and delivered a Certificate dated the Closing Date
certifying that such representations and warranties are, true and complete in
all material respects on and as of the Closing Date as if made on and as of that
date.
(b) All the terms, covenants and conditions to be complied with and
performed by Premiere on or prior to the Closing Date shall have been complied
with or performed in all material respects.
5.2. REGISTRATION RIGHTS AGREEMENT. Premiere and the Shareholders
shall have entered into a Registration Rights Agreement, the form of which is
attached hereto as SCHEDULE 5.3.
5.3. CONSIDERATION. Premiere and Merger Sub shall have tendered the
Merger Consideration, subject to the terms and conditions hereof.
ARTICLE 6
DOCUMENTS TO BE DELIVERED AT THE CLOSING
6.1. DOCUMENTS TO BE DELIVERED BY THE COMPANY AND THE SHAREHOLDERS.
At Closing, the Company and the Shareholders shall deliver to Premiere the
following:
(a) An Agreement of Merger duly executed on behalf of the Company;
(b) Stock certificates representing all the outstanding shares of
Company Stock;
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(c) Non-Competition Agreements executed by the Shareholders other
than Eric Weiss, and each of the Consulting Agreement and the Transaction
Agreement, executed by Eric Weiss;
(d) Copies of resolutions of the Board of Directors and shareholders
of the Company authorizing the execution and delivery of this Agreement, and the
performance by the Company of its obligations hereunder and a certificate of the
Secretary of the Company stating that such resolutions are in full force and
effect and have not been modified or rescinded as of the Closing Date;
(e) Uniform Commercial Code termination statements terminating any
recorded financing statement of Company respecting any factoring or credit
facility which Premiere shall have requested, other than the MediaAmerica Note,
each executed by the creditor which is beneficiary of such financing statement;
PROVIDED, HOWEVER, that the Shareholders shall continue to use their respective
best efforts to cooperate after the Closing with Premiere to obtain and file
Uniform Commercial Code termination statements terminating any recorded
financing statement of Company respecting the MediaAmerica Note;
(f) Termination agreements in form and substance satisfactory to
Premiere terminating as of the Closing Date any factoring or credit facility
which Premiere shall have requested, other than the MediaAmerica Note, each duly
executed and delivered by Company and each creditor thereunder, together with an
acknowledgement of each such creditor that amounts are outstanding thereunder;
PROVIDED, HOWEVER, that the Shareholders shall continue to use their respective
best efforts to cooperate after the Closing with Premiere to obtain and deliver
to Premiere an agreement terminating the MediaAmerica Note;
(g) A termination agreement in form and substance satisfactory to
Premiere terminating as of the Closing Date any shareholders' agreement among
the Shareholders or any of them, duly executed and delivered by each such
Shareholder and any other party thereto; and
(h) A certificate signed by the Shareholders stating the aggregate
amount, if any, of the MediaAmerica Advance as of the Closing Date;
(i) Agreements, in each case in form and substance reasonably
satisfactory to Premiere (A) duly executed and delivered by each of Blair Garner
and Rod West amending the employment agreements of each thereof with the Company
as of the Closing Date, and consenting to the assumption of such employment
agreement at any time on or after the Closing Date by Merger Sub or Premiere,
and (B) duly executed and delivered by Eric Weiss terminating any employment
agreement of Eric Weiss with the Company as of the Closing Date, and waiving any
and all benefits under such employment agreement;
(j) Duly executed letters of resignation of each officer and director
of the Company, each effective as of the Closing Date.
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6.2. DOCUMENTS TO BE DELIVERED BY PREMIERE. At the Closing, Premiere
shall deliver to the Shareholders the following:
(a) An Agreement of Merger duly executed on behalf of Merger Sub;
(b) An aggregate of Three Million Nine Hundred Thousand Dollars
($3,900,000) LESS an amount equal to the MediaAmerica Advance balance as of the
Closing date, in cash (which cash consideration includes $800,000 allocated to
the Non-Competition Agreements) and certificates representing 400,000 shares of
Premiere Class A Stock issued in the names of the Shareholders as provided in
Schedule 6.2; PROVIDED that the parties hereto agree that the withheld amount
equal to the MediaAmerica Advance balance shall be deemed delivered to the
Shareholders notwithstanding Premiere's retention thereof;
(c) The Registration Rights Agreement duly executed on behalf of
Premiere;
(d) Resolutions of the Board of Directors of Premiere (or the
Executive Committee thereof) authorizing the execution and delivery of this
Agreement and the performance by Premiere of its obligations hereunder and a
certificate of the Secretary or an Assistant Secretary of Premiere stating that
such resolutions are in full force and effect and have not been modified or
rescinded as of the Closing Date;
(e) Resolutions of the Board of Directors and Shareholder of Merger
Sub authorizing the Merger and a certificate of the Secretary or an Assistant
Secretary of Merger Sub stating that such resolutions are in full force and
effect and have not been modified or rescinded as of the Closing Date; and
(f) each of the Consulting Agreement and the Transaction Agreement,
executed by Premiere.
ARTICLE 7
FEES AND EXPENSES
7.1. EXPENSES. Each party hereto other than the Company shall be
solely responsible for all costs and expenses incurred by it in connection with
the negotiation, preparation and performance of and compliance with the terms of
this Agreement. All costs and expenses incurred by the Company in connection
with the negotiation, preparation and performance of and compliance with the
terms of this Agreement shall be paid by the Shareholders.
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ARTICLE 8
INDEMNIFICATION
8.1. INDEMNIFICATION BY THE SHAREHOLDERS. The Shareholders shall
jointly and severally indemnify, defend and hold Premiere harmless from and
against and with respect to, and shall reimburse Premiere for the following
(collectively, the "Shareholder Indemnified Liabilities"):
(a) any and all losses, liabilities, or damages resulting from any
misrepresentation, breach or failure of any warranty or the non-fulfillment of
any agreement, covenant or undertaking on the part of the Company or the
Shareholders appearing herein; PROVIDED, that nothing appearing in this Section
8.1(a) shall be construed to create any liability of any Shareholder for breach
of or misrepresentation in any agreement (including any agreement appearing as a
Exhibit hereto) other than this Agreement;
(b) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs, and expenses, including reasonable legal fees and
expenses incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity; and
(c) any losses, liabilities, or damages resulting from any claim or
cause of action brought by Jeff Svenninsen or JRS & Associates arising out of or
relating to facts occurring prior to the Closing Date (collectively, "JRS
Litigation");
PROVIDED, however, that, except for Unrestricted Liabilities (as defined in
Section 8.4 below), no Shareholder shall have any obligations under this Section
8.1 with respect to any Shareholder Indemnified Liabilities of which such
Shareholder shall not receive notice on or prior to July 31, 1998 specifying
with reasonable particularity the nature of such Shareholder Indemnified
Liabilities to the extent then known by Premiere. For the avoidance of doubt,
the parties hereto have agreed that there is no basis on which JRS Litigation
may be sustained, but have provided therefor in this Section 8.1 and elsewhere
in this Agreement solely as a precautionary measure.
8.2. INDEMNIFICATION BY PREMIERE. Premiere shall indemnify, defend
and hold the Shareholders harmless from and against and with respect to, and
shall reimburse the Shareholders for the following (collectively, the "Premiere
Indemnified Liabilities"):
(a) any and all losses, liabilities or damages resulting from (i) any
misrepresentation, breach or failure of any warranty or the non-fulfillment of
any agreement, covenant or undertaking on the part of Premiere appearing herein
or (ii) the MediaAmerica Litigation (if any);
(b) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including reasonable legal fees and
expenses, incident to any of
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the foregoing or incurred in investigating or attempting to avoid the same or to
oppose the imposition thereof, or in enforcing this indemnity; and
(c) amounts actually paid after the Closing Date by any Shareholder
under a guaranty made by such Shareholder of obligations of the Company
disclosed in Schedule 3.11 hereof as obligations guaranteed by such Shareholder;
PROVIDED, HOWEVER, that (i) Premiere shall not be required under Section 8.2(c)
or any other provision of this Agreement or law to indemnify or reimburse any
Shareholder for amounts paid or payable with respect to obligations or
guaranties not disclosed in Schedule 3.11; (ii) Premiere shall not be required
under any provision of this Agreement or law to indemnify or reimburse any
Shareholder for any losses, liabilities, damages or other amounts arising out of
or relating to the MediaAmerica Litigation (if any) if the information provided
to Premiere by the Company and the Shareholders respecting the Company's
relationship and dealings with MAI, taken as a whole, contains any untrue
statement of material fact or omits any statement of material fact necessary to
make any statement contained therein not misleading; and (iii) Premiere shall
have no obligations under this Section 8.2 with respect to any Premiere
Indemnified Liabilities of which Premiere shall not receive notice on or prior
to July 31, 1998 specifying with reasonable particularity the nature of such
Premiere Indemnified Liabilities to the extent then known by the Shareholders or
any of them.
8.3. RIGHT TO DEFEND, ETC. If the facts giving rise to any
indemnification under this Article 8 shall involve any claim or demand by any
person against any of the indemnified parties relating to the Shareholder
Indemnified Liabilities or the Premiere Indemnified Liabilities (an "Indemnified
Claim"), the indemnifying party shall be entitled to notice of such Indemnified
Claim. If the indemnified party shall fail to provide the indemnifying party
with notice of such Indemnified Claim prior to the time by which the interests
of the indemnifying party would be materially prejudiced as a result of its
failure to have received such notice, the amount of any indemnification to be
paid to such indemnified party with respect to such Indemnified Claim shall be
reduced by the amount of any loss actually sustained by the indemnifying party
as a result of such prejudice.
The indemnifying party shall be entitled (without prejudice to the right of
the indemnified party to participate at its own expense through counsel of its
own choosing in the defense or prosecution of such Indemnified Claim; PROVIDED
that such participation shall not affect the right of the indemnifying party to
control such defense or prosecution on behalf of the indemnified party) to
defend or prosecute such Indemnified Claim at its or their expense and through
counsel reasonably satisfactory to the indemnified party.
At any time following written notice from the indemnified party of an
Indemnified Claim, the indemnifying party may assume the defense or prosecution
of such Indemnified Claim by providing a written undertaking of their agreement
to assume the defense or prosecution of such Indemnified Claim at their sole
cost and expense in accordance with this Agreement; PROVIDED,
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HOWEVER, that any indemnified party may defend or prosecute such Indemnified
Claim with reputable attorneys of its own choosing until it shall have received
the foregoing notice from the indemnifying party; PROVIDED, FURTHER, that if the
defendants in any action shall include the indemnifying party and the
indemnified party, and any such indemnified party shall have reasonably
concluded that counsel selected by the indemnifying party has a conflict of
interest which under the Rules of Professional Conduct of the California Bar
Association would prohibit the representation because of the availability of
different or additional defenses to any such indemnified party, such indemnified
party shall have the right to select separate counsel reasonably acceptable to
the indemnifying party to participate in the defense of such Indemnified Claim
on its behalf, at the expense of the indemnifying party, it being understood,
however that the indemnifying party shall not, in connection with any one such
action or proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys at any time for such indemnified party. The indemnified party
shall cooperate fully in the defense of any Indemnified Claim hereunder and
shall make available to the party assuming such defense pertinent information
(as determined through consultation with attorneys for the indemnified party)
under such indemnified party's control relating thereto, but shall be entitled
to be reimbursed for all costs and expenses incurred by the indemnified party in
connection therewith.
8.4. LIMITATION ON LIABILITY OF THE SHAREHOLDERS. Notwithstanding
anything contained in this Agreement to the contrary, the Shareholders shall not
be obligated to Premiere for any Shareholders Indemnified Liabilities, or for
any other liability of any kind arising under this Agreement, whether by
indemnity or otherwise, (i) until such time as the total sum of all such
liabilities shall exceed $150,000 and only then to the extent of amounts in
excess of $75,000, and (i) the maximum amount which the Shareholders shall be
obligated to Premiere for any and all such liabilities shall not exceed
$1,500,000; PROVIDED, HOWEVER, that the limitations of this Section 8.4 shall
not apply to any Shareholder Indemnified Liabilities arising out of or relating
to any claim (I) by any former or present employee of the Company or
constituting JRS Litigation, (II) by any third party relating to any asserted
interest in the Company, any of its stock or any participation in the profits of
the Company or any of its programs or businesses, and (III) for repayment of the
MediaAmerica Advance or for ordinary payables and expenses of the Company
required to be paid pursuant to the terms of Article 11 hereof (such Shareholder
Indemnified Liabilities described under clauses (I), (II) and (III) being
referred to herein as the "Unrestricted Liabilities"). Following the Merger,
the Shareholders shall not be entitled to reimbursement or contribution from the
Company for any Shareholder Indemnified Liabilities or other amounts owed to
Premiere.
8.5. RIGHT TO SETTLE OR COMPROMISE CLAIMS. No indemnifying party
will, without the prior written consent of the indemnified party, settle or
compromise any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought under this Section 8, unless such
settlement or compromise includes a full and unconditional release of each such
indemnified party from all liability arising out of such claim, action, suit or
proceeding,
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reasonably satisfactory in form and substance to such indemnified party. No
indemnified party will, without the prior written consent of the indemnifying
party, settle or compromise any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought under this Section
8.
8.6. SUBROGATION. If any indemnified party receives payment or other
indemnification with respect to any claim or demand by any third person against
an indemnified party, the indemnifying party shall be subrogated to the extent
of such payment or indemnification to all rights in respect of the subject
matter of such claim to which the indemnified party may be entitled, to
institute appropriate action for the recovery thereof, and the indemnified party
agrees to provided reasonable levels of assistance and cooperation to such
subrogated party, in enforcing such rights.
ARTICLE 9
PREMIERE CLASS A STOCK PRICE GUARANTEE
9.1. PRICE GUARANTEE.
(a) Except as provided in Section 9.1(b), in the event that the fair
market value of the Premiere Class A Stock on the first anniversary of the
Closing Date shall be less than $16.00 per share Premiere shall pay the
Shareholders an amount per share of Premiere Class A Stock equal to the
difference between $16.00 and the fair market value of the Premiere Class A
Stock determined as of the first anniversary of the Closing. Such amount may,
at the option of Premiere, be paid in cash or in additional shares of Premiere
Class A Stock having aggregate fair market value equal to the amount required to
be paid by Premiere.
(b) In the event that prior to the first anniversary of the Closing
Date a person or group of persons shall acquire equity securities of Premiere
representing more than 50% of the voting power of Premiere and as a consequence
thereof, any Shareholder shall be obligated to and shall sell or exchange such
Shareholder's Premiere Class A Stock obtained as consideration hereunder (a
"Sale Event"), Premiere shall pay such Shareholder an amount per share of such
Premiere Class A Stock equal to the difference between the Target Price (as
defined herein) thereof and the value of the consideration obtained for such
Premiere Series A Stock on the date of the sale or exchange thereof. Following
such payment Premiere shall not be obligated to make any further payments to
such Shareholder pursuant to this Article 9 with respect to such Premiere Series
A Stock.
(c) For purposes of Section 9.1(b), the Target Price shall be an
amount equal to the sum of (i) the product of $1.00 times the number of calendar
days between the Closing Date and the date of the Sale Event divided by 365 plus
(ii) $15.00.
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(d) During each calendar month prior to the first anniversary of the
Closing Date, Premiere shall (i) reserve a number of shares of authorized and
unissued Premiere Class A Stock and (ii) maintain cash reserves or availability
under a credit facility, so that at all times during such month the sum of the
aggregate Adjusted Fair Market Value (defined below) of the Premiere Class A
Stock reserved under clause (i) and the cash reserves and credit availability
maintained under clause (ii) is at least equal to the amount which Premiere
would be required to pay under Section 9.1(a) and (b), as appropriate, hereof
assuming (A) payment were required pursuant to Section 9.1(a) and (b), as
appropriate, as of the first day of such month and (B) the fair market value of
the Premiere Class A Stock were then its Adjusted Fair Market Value. At any
time the election of and allocation between the alternatives described under
clauses (i) and (ii) above shall be made by Premiere in its sole discretion.
9.2. FAIR MARKET VALUE; ADJUSTED FAIR MARKET VALUE.
(a) For purposes of this Article 9, the fair market value of a share
of Premiere Class A Stock as of any date of determination (the "Valuation Date")
shall be equal to (i) the average of the last reported sale price of Premiere
Class A Stock as shown on NASDAQ National Market System for the 10 trading days
next preceding the Valuation Date, or (ii) if Premiere Series A Stock is not
then listed on NASDAQ National Market System, the average of the closing bid and
asked quotations on the NASDAQ Automated Quotation System for the 10 trading
days next preceding the Valuation Date, or (iii) if the Premiere Series A Stock
is not then listed on the NASDAQ Automated Quotation System or the NASDAQ
National Market System, such average of the bid and asked quotations or closing
price on the system or exchange on which the Premiere Series A Stock is then
listed for the 10 trading days next preceding the Valuation Date.
Notwithstanding the foregoing, if the fair market as determined in this Section
9.2 shall be less than $7.00 per share, the fair market value for purposes of
this Article shall be $7.00 per share.
(b) For purposes of this Article 9, "Adjusted Fair Market Value" of
any share of Premiere Class A Stock means, during any calendar month, the excess
over $4.00 of the following: (i) the last reported sale price of Premiere Class
A Stock as shown on the NASDAQ National Market System on or before the final
trading day in the calendar month immediately preceding such calendar month, or
(ii) if Premiere Series A Stock is not then listed on NASDAQ National Market
System, the average of the last closing bid and last asked quotation on the
NASDAQ Automated Quotation System on or before the final trading day in the
calendar month immediately preceding such calendar month, or (iii) if the
Premiere Series A Stock is not then listed on the NASDAQ Automated Quotation
System or the NASDAQ National Market System, such average of the last bid and
last asked quotations or last closing price on the system or exchange on which
the Premiere Series A Stock is then listed on or before the final trading day in
the calendar month immediately preceding such calendar month.
9.3. LIMITATIONS
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(a) Premiere shall not be required to pay any amounts pursuant to
this Article 9 with respect to any Premiere Class A Stock sold by any
Shareholder prior to the date amounts would be required to be paid under this
Article 9, including, without limitation, pursuant to the Registration Rights
Agreement EXCEPT any Premiere Class A Stock sold by any Shareholder to an
assignee permitted under Section 11.5(b)(ii).
(b) In no event shall Premiere be obligated to pay the Shareholders
pursuant to this Article 9 for any shares not issued as Merger Consideration
pursuant to Section 1.2 of this Agreement.
(c) In the event (i) the Premiere Class A Stock shall be changed into
or exchanged for other securities of Premiere, (ii) additional securities of
Premiere shall be issued in respect of the Premiere Class A Stock, or (iii)
Premiere shall pay dividends on the Premiere Class A Stock the amounts "$1.00",
$4.00", "$15.00" and "$16.00" appearing in this Article 9 above shall be
correspondingly and equitably adjusted.
9.4. SETOFF.
(a) Premiere shall have the option of setting off all or any part of
any amount which Premiere finds in good faith to be payable by any Shareholder
hereunder (by way of indemnification, damages or otherwise) against amounts
payable to such Shareholder by Premiere under this Article 9. Premiere shall
notify any such Shareholder at the time such setoff is effected as to such
setoff, and as to whether Premiere has elected to effect such setoff in cash or
Premiere Class A Stock.
(b) If such setoff is effected in cash, and at any time subsequent to
such setoff, the amount against which such setoff was taken is found not to have
been payable to Premiere by a court or referee in accordance with the terms
hereof, Premiere shall pay the amount withheld together with interest on such
amount at an annual rate of 7 per cent from the date such amount would otherwise
have been payable by Premiere, and Premiere shall have no further obligations or
liabilities with respect to such setoff.
(c) If such setoff is effected in Premiere Class A Stock, then, (i)
such setoff shall be deemed to be in an amount equal to the fair market value of
the Premiere Class A Stock determined under Section 9.2(a) as of the date such
Premiere Class A Stock would otherwise have been issuable to such Shareholder,
and (ii) until such time as a court or arbitrator shall have determined in
accordance with the terms hereof whether the amount against which such setoff
was taken was payable to Premiere, such Shareholder shall retain the rights of
registration and sale under paragraphs 3 and 4 of the Registration Rights
Agreement, with respect to the withheld Premiere Class A Stock as if it had been
issued to such Shareholder and constituted Registrable Stock; PROVIDED, HOWEVER,
that the proceeds of any sale of such Premiere Class A Stock shall be held by
Premiere for its own account, without any obligation of Premiere to segregate
such funds, subject to the provisions of Section 9.4(d) below.
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(d) If any Premiere Class A Stock with which any such setoff is
effected is sold in an offering as contemplated by Section 9.4(c) above, and at
any time subsequent to such sale the amount against which such setoff was taken
is found not to have been payable to Premiere by a court or arbitrator in
accordance with the terms hereof, Premiere shall pay to such Shareholder the
amount of proceeds received in such sale plus interest on the amount of such
proceeds at an annual rate of 7 per cent from the date of such sale, and
Premiere shall have no further obligations or liabilities with respect to such
setoff.
(e) If any Premiere Class A Stock with which any such setoff is
effected remains unsold at any time the amount against which such setoff was
taken is found not to have been payable to Premiere by a court or arbitrator in
accordance with the terms hereof, such Premiere Class A Stock shall be issued to
such Shareholder without interest, and Premiere shall have no further
obligations or liabilities with respect to such setoff, it being understood that
any appreciation in such Premiere Class A Stock shall be for the account of such
Shareholder.
ARTICLE 10
TERMINATION OF AGREEMENT
10.1. EVENTS OF TERMINATION. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned, at any time prior to the
Closing Date:
(i) by the mutual consent of the Shareholders, the Company and
Premiere;
(ii) by Premiere, if any Shareholder or the Company breaches in
any material respect any of their representations, warranties, covenants or
agreements contained in this Agreement;
(iii) by the Company and the Shareholders, if Premiere
breaches in any material respect any of its representations, warranties,
covenants or agreements contained in this Agreement;
(iv) by Premiere, any Shareholder or the Company, if any of the
conditions to Closing is not fulfilled (or waived by the party for whose
benefit the conditions exist) on or prior to the Closing Date; or
(v) by either Premiere or the Company, if the Closing has not
occurred on or prior to January 31, 1997.
10.2. EFFECT OF TERMINATION. In the event that this Agreement shall be
terminated pursuant to any provision contained herein expressly giving such
party the right to terminate this Agreement, this Agreement (including, without
limitation, Section 11.4) shall forthwith terminate
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and have no further effect, and neither party shall have any further obligation
or liability. Notwithstanding the foregoing, the termination of this Agreement
pursuant to any provision hereof shall not relieve any party of any liability
for a breach of any representation or warranty, or nonperformance of any
covenant or obligation hereunder, and any such termination shall not be deemed
to be a waiver of any available remedy for any such breach or nonperformance.
ARTICLE 11
OTHER PROVISIONS
11.1. PRE-CLOSING TRANSACTIONS.
(a) On or before the Closing, the Shareholders shall cause the
Company to satisfy its obligations to Messrs. Lopatin and Makowka for a
shareholder loan with an approximate balance of $1,314,000 as of the date
hereof.
(b) Immediately prior to the Closing the Company shall assign to the
Shareholders all accounts receivables relating to obligations of the Company
fully performed prior to the Closing Date, it being understood that receivables
relating to programs broadcast prior to the Closing Date shall be considered to
relate to fully performed obligations; provided, however, notwithstanding the
foregoing, the account debtors with respect to each such account receivable
shall continue to send payments to the Company (or its successor), and Premiere
shall on a monthly basis cause amounts received with respect to such receivables
to be forwarded to the Shareholders, by deposit into the Shareholders Account,
together with an accounting therefor; PROVIDED, HOWEVER, that at any time after
any such account receivable shall become more than 30 days past due, the
Shareholders may take such steps as they deem appropriate in their reasonable
discretion to collect such account receivable;
(c) Immediately prior to the Closing the Company may declare and pay
a dividend, or distribute to its Shareholders, an aggregate amount not to exceed
cash on hand on the Closing; PROVIDED, HOWEVER, that after giving effect to any
such dividend or distribution the Company shall in all events maintain cash on
hand at least equal to the amount of the MediaAmerica Advance outstanding as of
the Closing.
(d) All taxes payable by any Shareholder as a result of any of the
transactions described in (a) through (d) above or Section 3.24 shall be for the
sole account of such Shareholder; PROVIDED, HOWEVER, anything to the contrary
appearing in this Section 11.1 notwithstanding, the Shareholders shall jointly
and severally indemnify and hold harmless the Company and Premiere from and
against any liability to pay any such tax.
11.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the parties contained herein shall survive until July 31, 1998
and no claim may be made for any breach after such date. Notwithstanding the
foregoing, (i) in the event of any claim by the
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Shareholders against Premiere under this Agreement, Premiere may use as an
affirmative defense against such claims any claim against the Shareholders
specifically relating to the subject matter of the claim by the Shareholders
which would have been barred through the application of Section 8.1 or this
Section 11.2, (ii) in the event of any claim by Premiere against any Shareholder
under this Agreement, such Shareholder may use as an affirmative defense against
such claims any claim such Shareholder may have against Premiere specifically
relating to the subject matter of the claim by Premiere which would have been
barred by application of Section 8.2 or this Section 11.2, and (Iii) nothing
appearing in this Section 11.2 shall constitute or be construed as a defense to,
or otherwise limit any Shareholder's obligations or liability with respect to,
any Unrestricted Liabilities, regardless of whether such Unrestricted
Liabilities arise by way of any claim for breach of representation, indemnity,
damages or otherwise.
11.3. ACCESS TO INFORMATION. From the date hereof through the Closing
Date, the Company shall provide Premiere and its representatives with reasonable
access to all records and information relating to the Company and its business
and will permit such persons to have access to all of the properties and records
of the Company during reasonable business hours in order that Premiere may have
full opportunity to make such investigations as it shall desire of the affairs
of the Company.
11.4. NO SOLICITATION. Prior to the Closing, the Company and the
Shareholders will not authorize or permit any of their representatives to take,
directly or indirectly, any action to solicit, encourage, receive, negotiate,
assist or otherwise facilitate (including by furnishing confidential information
with respect to the Company or permitting access to the assets or properties and
books and records of the Company) any offer or inquiry from any person
concerning any business combination involving the Company or a purchase of
securities or assets of the Company. If the Company or a Shareholder (or any
person acting for or on their behalf) receives from any person any offer,
inquiry or informational request referred to above, the Company or the
Shareholder, as applicable, shall promptly advise such person, by written
notice, of the terms of this Section and will promptly, orally and in writing,
advise Premiere of such offer, inquiry or request and delivery of a copy of such
notice to Premiere.
11.5. BENEFITS AND ASSIGNMENT. This agreement shall be binding upon
and shall incur to the benefit of the parties hereto and their respective
successors and assigns. Neither Premiere, the Company nor the Shareholders may
assign this Agreement without the prior written consent of the other parties
hereto EXCEPT THAT (i) Premiere may assign its rights under this Agreement to
another entity under common control with Premiere (including Merger Sub) without
the consent of the Company and (ii) any Shareholder may assign all or a portion
of such Shareholder's rights (but not obligations) hereunder after the Closing
Date to such Shareholder's wife or children (or inter vivos trust for the
benefit thereof), heirs or legatees, PROVIDED, in each case, that such assignee
shall execute and deliver an assumption agreement jointly and severally assuming
the obligations of "Shareholders" under Article 8 hereof up to a maximum of the
fair market value of the rights and interests assigned, which assumption shall
not release such assigning Shareholder from any obligations under this
Agreement.
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11.6. ENTIRE AGREEMENT. This Agreement and the exhibits and schedules
hereto embody the entire agreement and understanding of the parties hereto and
supersede any and all prior agreements, arrangements and understandings relating
to the matters provided for herein. No amendment, waiver of compliance with any
provision or condition hereof, or consent pursuant to this Agreement shall be
effective unless evidenced by an instrument in writing signed by the party
against whom enforcement of any waiver, amendment, change, extension or
discharge is sought.
11.7. ADDITIONAL AGREEMENTS. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its best efforts to
take promptly, or cause to be taken, all actions and to do promptly, or cause to
be done promptly, all things necessary, proper or advisable under applicable
laws to consummate and make effective the transactions contemplated by the
Agreement, and to satisfy all of the conditions to the Closing to be satisfied
by such waivers, consents and approvals from all applicable governmental
entities and third parties, and effecting all necessary registrations and
filings. Each of the parties hereto agrees not to take any action or fail to
take any action that would be likely to cause any representation or warranty
contained in this Agreement to cease to be true or accurate or that would be
reasonably likely to prevent the performance of any covenant or the satisfaction
of an condition contained in this Agreement.
11.8. FURTHER ACTIONS. Each of the parties hereto agrees that he or it
will, at any time, and from time to time, either before or after the Closing
Date, upon the request of the appropriate party, do, execute, acknowledge and
deliver, or will cause to be done, executed, acknowledged and delivered, all
such further acts, deeds , assignments, transfers, conveyances, powers of
attorney and assurances as may be required to complete the transactions
contemplated by this Agreement.
11.9. CHOICE OF LAW. The construction and performance of this
Agreement shall be governed by the laws of the State of California, without
regard to its principles of conflict of law.
11.10. DISPUTE RESOLUTION. Any controversy or claim arising out of or
relating to this Agreement, or any breach thereof, shall be settled by the
appointment of a retired judge of the Superior or Appellate courts of California
who shall act pursuant to Section 638(1) of the California Code of Civil
Procedure "to try any and all of the issues in an action or proceeding, whether
of fact or of law, and to report a state of decision thereon." The parties
stipulate to the use of the reference procedure and agree that the Superior
Court of Los Angeles County of the State of California may issue such orders as
are necessary to implement the parties' intent that any such controversy or
claim shall be resolved through the use of the reference procedure. THE PARTIES
EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY CONTROVERSY
OR CLAIM ARISING OUT OF THIS AGREEMENT OR THE BREACH HEREOF.
(a) The parties shall be entitled to discovery as provided in the
California Code of Civil Procedure. However, the referee may regulate the
extent and scope of such
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discovery based upon the nature of the controversy, the amounts involved and the
expected benefits from any discovery.
(b) If the parties are unable to agree on the appointment of a
retired judge to serve as a referee, then the court shall appoint a retired
judge to act as the referee.
(c) The referee shall apply applicable substantive law and the rules
of evidence set forth in the California Evidence Code and applicable case
authority. The parties shall not be required to file formal pleadings and
shall take other steps as may be appropriate and necessary to assure that
any controversy be resolved as efficiently and expeditiously as possible.
(d) The decision reached by the referee shall be entered as a
judgment of the Superior Court appointing the referee and such decision
shall be fully appealable.
(e) All fees and expenses of the referee shall be initially borne on
a pro rata basis by the parties, but shall be recoverable by the prevailing
party. All fees and expenses of counsel to each party shall be initially
borne by such party, but the referee shall have the power to order that
reasonable fees and reasonable expenses of counsel be recovered by the
prevailing party.
11.11. NOTICES. Any notice, demand or request required or permitted to
be given under the provisions of this Agreement shall be in writing, addressed
to the following addresses, or to such other address as any party may request,
To Premiere:
Premiere Radio Networks, Inc.
15260 Ventura Boulevard
Fifth Floor
Sherman Oaks, CA 91403-5339
Attention: Stephen C. Lehman
Fax No.: 818-377-5333
Copy to:
Premiere Radio Networks, Inc.
15260 Ventura Boulevard
Fifth Floor
Sherman Oaks, CA 91403-5339
Attention: Harold Wrobel, Esq.
Fax No.: 818-377-5333
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and
Christensen, Miller, Fink, Jacobs,
Glaser, Weil & Shapiro, LLP
2121 Avenue of the Stars
Eighteenth Floor
Los Angeles, CA 90067-5110
Attention: Gary N. Jacobs, Esq.
Fax No.: 310-556-2920
To the Company:
AME Radio Networks, Inc.
3575 Cahuenga Boulevard West
Suite 500
Los Angeles, CA 90068
Attention: Eric Weiss, Esq.
Fax No.: 310-459-2489
To Rod West, Blair Garner or Eric Weiss:
c/o AME Radio Networks, Inc.
3575 Cahuenga Boulevard West
Suite 500
Los Angeles, CA 90068
Attention: Eric Weiss, Esq.
Fax No.: 310-459-2489
Copy to:
Carol Perrin, Esq.
6300 Wilshire Boulevard
Suite 1850
Los Angeles, California 90043
Fax No.: 213-651-1498
To William Lopatin:
511 Alpine Street
Beverly Hills, California 90069
To: Leonard Makowka:
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353 South Las Palmas Avenue
Los Angeles, California 90020
cc: Bloom, Hergott, Cook & Diemer
150 South Rodeo Drive
3rd Floor
Beverly Hills, California 90212
Lawrence Greaves, Esq.
and shall be deemed to have been duly delivered and received (i) on the date of
personal delivery, (ii) on the date of a signed receipt, if sent by an overnight
delivery service, but only if sent in the same manner to all persons entitled to
receive notice or a copy, or (iii) when sent, if sent by confirmed facsimile to
the facsimile number provided herein.
11.12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, including by facsimile, each of which will be deemed an original
and all of which together will constitute one and the same instrument.
11.13. SHAREHOLDER CONSENT. Each Shareholder, by virtue of their
execution hereof, hereby consents to the Merger. This Agreement shall
constitute the actions of the shareholders of the Company taken without a
meeting pursuant to Section 603 of the GCL and shall be filed in the minute book
of the Company.
11.14. TAX TREATMENT OF MERGER. Each of the parties hereto shall treat
the Merger as a reorganization governed by Section 368(a)(1)(A) of the Code.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first written above.
AFTER MIDNITE PREMIERE RADIO
ENTERTAINMENT, INC. NETWORKS, INC.
By: \s\ Rod West By: \s\ Stephen C. Lehman
-------------------------- -------------------------
Name: Rod West Stephen C. Lehman
Title: President
\s\ William Lopath
- -----------------------------
William Lopatin
\s\ Leonard Makowka
- -----------------------------
Leonard Makowka
\s\ Rod West
- -----------------------------
Rod West
\s\ Blair Garner
- -----------------------------
Blair Garner
\s\ Eric Weiss
- -----------------------------
Eric Weiss
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CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is made and entered into as of January 7, 1997 by
and between PREMIERE RADIO NETWORKS, INC. ("Company), a Delaware corporation,
and ERIC R. WEISS, an individual ("Consultant").
WITNESSETH
In consideration of their mutual covenants contained herein and certain
other good and valuable consideration, receipt of which is hereby acknowledged,
the parties hereto agree as follows:
1. DUTIES. During the Term (as defined below) of this Agreement,
Consultant agrees to render consulting services to Company on the following
terms and conditions:
(a) Consultant shall devote not less than 1,000 hours per year to the
following operations and business of Company, as reasonably requested from time-
to-time by Company: (i) Consultant shall oversee the integration of After
Midnight Entertainment, Inc. ("AME") into Company, (ii) search for and assist
with new acquisitions, (iii) develop new radio programming, (iv) assist with
existing Company network radio businesses (such existing Company network radio
businesses being radio program production, research for radio stations, services
for radio stations, sale of network radio inventory and clearance of radio
affiliates; collectively, the "Exclusive Businesses"), (v) upon reasonable
notice:
(X) consult with the Chief Executive Officer ("CEO) and other
officers of Company and with members of the Executive Committee of the
Board of Directors of Company (the "Executive Committee"); PROVIDED,
HOWEVER, notwithstanding the foregoing, (A) Consultant shall devote
time to such operations and business at a rate of 500 hours per year
from and after the withdrawal of his title "Vice Chairman" under
paragraph 3(b) below, (B) Consultant shall devote time to such
operations and business at a rate of 250 hours per year from and after
his resignation or removal from the Board for any reason other than as
a consequence of sale of the Company (a "Sale"), and (C) Consultant
shall devote time to such operations and business at a rate of 250
hours per year from and after his resignation or removal from the
Board as a consequence of a Sale, UNLESS, within 20 days following the
consummation of a Sale, Consultant shall have notified Company of
Consultant's election not to reduce his required rate of time per year
(such a notice provided within such 20 day period being referred to
herein as a "Non-reduction Notice"), in which event, Consultant shall
be given the title "Vice Chairman of Premiere Radio Networks",
notwithstanding that he does not occupy a position on the Board, but
subject to the provisions of paragraph 3 hereof; and
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(Y) attend meetings and/or travel at Company's request, at the
expense of Company, with travel arrangements and accommodations
equivalent to those afforded the senior management of Company.
Company may, in its sole and complete discretion: (i) elect to utilize
Consultant's services for some or all of the foregoing, or to not
utilize Consultant's services, and/or (ii) engage additional
consultants and hire employees to perform services which might be
otherwise performed by Consultant hereunder.
(b) Consultant shall report to the CEO, and any and all
responsibilities, rights or privileges exercised or held by Consultant shall be
subject to the approval by the CEO and/or the Executive Committee. Consultant
shall be subject to, and shall abide by, all of Company's regular policies and
practices.
(c) Except as described in this paragraph 1(c) Consultant shall not
be required, as a part of this Agreement, to perform legal services. Any legal
services that Company requests Consultant to perform shall be subject to
separate negotiations and fees, should Consultant agree to perform such
services. Notwithstanding the foregoing, Consultant may be required, as a part
of his duties under this Agreement, to review and comment on proposed contracts,
term sheets and deal memoranda and to draft term sheets and deal memoranda, but
Consultant shall not be required to draft contracts.
2. TERM. Consultant's services hereunder shall commence on January __,
1997, and shall continue for a period of two (2) years, unless terminated
earlier as set forth herein (the "Term"). January 7, 1999 is referred to herein
as the "End Date").
3. TITLE.
(a) Company does not object to the Designation Letter between
Consultant and Stephen Lehman of even date herewith (the "Designation Letter").
(b) At any time during the Term during which Consultant shall be a
member of the Board, Consultant shall be given the title "Vice Chairman of the
Board of Directors". At any time following Consultant's removal or resignation
from the Board as a consequence of a Sale with respect to which Consultant shall
have provided a Non-reduction Notice to Company, Consultant shall be given the
title "Vice Chairman of Premiere Radio Networks" (the title "Vice Chairman of
Premiere Radio Networks" and "Vice Chairman of the Board of Directors" being
referred to herein collectively as the title "Vice Chairman"). Notwithstanding
the foregoing, (i) during the initial six month period following the Closing
Date (as defined in that certain Agreement and Plan of Merger between Company
and AME), Company may withdraw the title of "Vice Chairman" if in the business
judgement of the Executive Committee it is necessary or appropriate to confer
such title in connection with the consummation of an acquisition and in the
business judgement of the Executive Committee it would interfere in Company's
ability to consummate such acquisition on the best economic
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terms if Consultant should continue also to have such title; (ii) at any time
following six months from the Closing Date, upon the determination of either
member of the Executive Committee, Company may, in its sole and complete
discretion, elect to withdraw the title of "Vice Chairman", (iii) such title
shall confer on Consultant no authorities, responsibilities, rights or
privileges which he would not possess without such title, (iv) such title shall
not be exclusive to Consultant, and Company may simultaneously confer such title
on one or more other persons at any time, in its sole and complete discretion,
(v) if at any time during the Term Consultant shall not hold the title "Vice
Chairman", he shall hold such title as is mutually agreeable to Consultant and
both members of the Executive Committee, (vi) Consultant shall at all times
during the Term be entitled to use such title as he may then hold on his Company
business cards and letterhead, and (vii) except as provided in the foregoing
clause (vi) or as required by law, Company may in its sole and complete
discretion, but shall not be obligated to, list or identify Consultant or any
title he shall hold from time to time in any Company advertisement, publicity,
filings with the Securities and Exchange Commission or other governmental
entity, press release or other Company materials.
4. COMPENSATION. In consideration for the services to be rendered by
Consultant during the Term, Company shall pay Consultant Eighty Nine Thousand
Dollars ($89,000.00), payable over the Term (the "Retainer") in equal monthly
installments commencing one month after the Closing Date. Except as provided in
this Agreement and the Transaction Agreement, Consultant shall not be entitled
to receive any fees, bonuses, benefits or other compensation from Company
(including fees payable with respect Board membership).
5. ADDITIONAL COMPENSATION.
(a) Company shall pay to Consultant a "Program Bonus" equal to 20% of
the annual pre-tax cash flow of any new programs and services created and
developed during the term of this Agreement ("New Programs") by Consultant;
provided that with respect to any New Programs created and developed by
Consultant jointly with a third party selected by Consultant during the Term,
Consultant shall agree in writing with such third party as to what portion (if
any) of such Program Bonus such third party is to share, a copy of which
agreement Consultant shall promptly provide to Company. Notwithstanding the
foregoing, (i) Consultant and such third party (if any) shall not be entitled to
receive a Program Bonus from any New Program after the fifth anniversary of the
date such New Program was first aired or the service first provided if
Consultant is not then employed by Company, and (ii) all amounts to be shared
with a third party shall be apportioned between Consultant and such third party
as they shall agree.
As used herein, pre-tax cash flow shall mean the aggregate non-refundable
gross revenues actually collected during such period from all New Programs less
agency commissions, refunds, rebates discounts and adjustments (the "Adjusted
Gross Revenues"), less (i) a sales representation and affiliate clearance fee
equal to 20% of Adjusted Gross Revenues, (ii) Actual New Program Costs (as
defined herein) and (iii) with respect to any
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New Program, any loss carryforwards from previous periods with respect to such
New Program. As used herein, Actual New Program Costs shall include all direct
out-of-pocket costs actually paid or payable to develop, produce or distribute
the New Programs, including, but not limited to: station compensation; internet
distribution and execution costs; broadcast liability insurance; advertising;
publicity; promotion; travel; messenger; courier; telephone specifically used in
connection with the broadcast of the New Programs (i.e., listener call-in lines
or program faxes); cost of satellite time; third-party or talent profit
participations and/or royalties, however denominated; salaries and benefits
payable to New Program talent and personnel; compact disc mastering, pressing
and distribution; affidavit printing; trafficking; third-party legal and
accounting; and collection costs (but not Company's internal, normal overhead,
sales and affiliate marketing costs). Program Bonuses payable under this
paragraph 5(a) shall be payable annually promptly following the completion of
Company's annual audit. All allocable costs shall be allocated by Company on a
reasonable good faith basis.
No payment shall be made to Consultant for any New Programs heretofore
or in the future developed for AME. Except as set forth above, no payments
shall be made to Consultant with respect to other New Programs.
(b) Company shall pay to Consultant an "Advertising/Promotion Bonus"
equal to: (i) Five Percent (5%) of "Adjusted Gross Revenues" for any new
advertising revenues Consultant obtains for Company; plus (ii) Five Percent (5%)
of "Adjusted Gross Revenues" for any new promotional revenues Consultant obtains
for Company. The foregoing amounts shall be payable solely with respect to
Adjusted Gross Revenues from or on account of new clients which (i) did not
advertise or incur promotional expenditures in network radio on or before the
date hereof, and (ii) Consultant contacted or approached only after obtaining
the prior approval of the CEO. As used herein, "Adjusted Gross Revenues" shall
mean non-refundable amounts actually received by Company, net of actual
advertising agency commissions and, with respect only to promotional revenues,
also all direct and allocable costs incurred by Company to generate such revenue
and service the account.
(c) Company shall pay Consultant an "Transaction Fee" equal to the
following amounts, for any acquisition Consultant obtains for Company,
determined by adding the following amounts:
(i) For the first One to Ten Million Dollars of Purchase
Price, the fee shall be Two and One Half Percent (2-1/2%) of such portion of the
Purchase Price;
(ii) For the next Ten Million to Twenty Million Dollars of
Purchase Price, the fee shall be Two Percent (2%) of such portion of the
Purchase Price;
(iii) For the next Twenty Million to Thirty Million Dollars of
Purchase Price, the fee shall be One and One Half Percent (1-1/2%) of such
portion of the Purchase Price;
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(iv) For the next Thirty Million to Forty Million Dollars of
Purchase Price, the fee shall be One Percent (1 %) of such portion of the
Purchase Price;
(v) For any portion of the Purchase Price in excess of Forty
Million Dollars, the fee shall be One Half of One Percent (1/2%) of such portion
of the Purchase Price.
For purposes of this paragraph 5(c), "Purchase Price" for any
such acquisition shall mean the aggregate of (i) the amount of any cash paid
PLUS (ii) the fair market value of securities paid, PLUS (iii) all amounts
payable under non-compete agreements entered into in connection therewith, PLUS
(iv) all amounts payable under consulting agreements entered into in connection
therewith other than such amounts payable for work justified by billing
statements and other justification therefor on an "actual work performed" basis
PLUS (v) the principal amount of any funded debt assumed in connection therewith
(including funded debt to which such acquisition is taken subject), subject to
adjustment to fair market value in the good faith judgment of the Company, MINUS
(vi) the value of any cash or cash equivalents acquired in such acquisition.
The fair market value of securities shall be determined in good faith by Company
taking into account any restrictions on the alienability thereof, any credit
risk associated therewith, and other characteristics thereof which are normally
utilized by investment banks in valuing securities and which Company in good
faith deems material for such purpose. The "Purchase Price" shall in no event
include any fees or costs incurred by Company in connection with an acquisition,
including without limitation investment banking fees, legal costs, transactional
expenses, consulting payments (except to the extent provided under clause (iv)
above), amounts to become due under employment agreements, or other similar
amounts, nor shall the Purchase Price include any liabilities assumed by Company
in connection with such transaction, other than debt assumed to the extent
provided under clause (v) above. Notwithstanding anything to the contrary in
this paragraph 5(c), no fee shall be paid under this paragraph 5(c) with respect
to any acquisition (i) from a person or entity approached or contacted by
Consultant without the prior written approval of the Executive Committee, or
(ii) which closes more than 120 days after the end of the Term. Consultant
shall endeavor in every case to secure the lowest possible Purchase Price and
overall acquisition cost for Company for each acquisition, notwithstanding the
fact that Consultant's compensation does or may increase if the Purchase Price
increases. For purposes of this paragraph 5(c), "funded debt" shall mean debt
which arises under a bond indenture, bank credit facility, loan agreement or any
facility similar to the foregoing, but in no event shall include obligations
arising under factoring facilities, lease obligations required to be capitalized
under Generally Accepted Accounting Principles, or obligations arising under
facilities similar to the foregoing.
(d) Company shall render monthly statements to Consultant, within 60
days after the end of each month, for any month in which bonuses or other
compensation would be due to Consultant pursuant to paragraphs 5(a), (b) or (c).
Each such statement shall indicate in reasonable detail the basis for the
computation. In connection with each such statement,
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Company shall be entitled to deduct and withhold reasonable reserves with
respect to anticipated costs relating to promotional revenues or services which
are deductible under paragraph 5(b), provided that such reserves will be
liquidated within one year after the creation thereof. Concurrent with each
such statement, Company shall remit to Consultant any amounts due with respect
to the computations made therein. Consultant shall have the right to cause an
annual audit to be conducted with respect to such statements and any bonuses or
other compensation due to Consultant pursuant to paragraphs 5(a), (b) or (c),
and, upon 15 days prior notice thereof to Company by Consultant, Company shall
at reasonable times, during normal business hours and in a manner which shall
not disturb or disrupt the operations of Company or its officers, employees or
accountants, permit Consultant or any accountants retained by him, to examine
and make copies of and abstracts from the Company's records and books of account
which pertain to the permitted matters of such audit.
(e) Notwithstanding anything to the contrary in this Agreement, (i)
Company shall not be obligated to proceed with any proposed acquisition,
transaction or project identified by Consultant, and (ii) neither Company nor
Consultant makes any representation or warranty as to the success of any such
acquisition, transaction or project, or the amounts, if any, which might become
payable to Consultant or Company, as appropriate, as a result of any thereof.
6. OPTIONS.
(a) Consultant shall enter into Company's standard stock option
agreement, except that if and to the extent any of the terms thereof shall
conflict with the terms hereof, the terms hereof shall control.
(b) In connection with Consultant's agreeing to serve on the Board of
Directors of Company, Company shall issue to Consultant options to purchase
30,000 shares of the Class A Common Stock of Company ("Class A Stock"), at a
price equal to $11.00 (the "Option Price"). Options to purchase 5,000 shares
shall vest, subject to the provisions of paragraphs 9 and 11 hereof, on the last
day of each of the six calendar quarters following the Closing Date. No options
issued pursuant this paragraph 6(b) shall vest at any time the Consultant shall
not be a member of the Board for any reason whatsoever, except that if
Consultant shall resign from the Board pursuant to a request by Lehman to do so
which is not based upon Consultant's breach of this Agreement, disability or
death, as provided in the Designation Letter, the options shall instead vest on
the following schedule: 50% if such resignation shall occur within six months
from Closing; 75% if such resignation shall occur subsequent to six months from
Closing but prior to one year from Closing; and 100% if such resignation shall
occur following one year from Closing. Notwithstanding the foregoing, if Lehman
shall request Consultant's resignation from the Board in connection with a sale
of Company, then paragraph 9 shall determine the vesting schedule of such
options.
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(c) Upon the Closing, Company shall grant Consultant an additional
option to purchase Forty Thousand (40,000) shares of Company's Class A Common
Stock at a price equal to the Option Price. Options to purchase 5,000 shares
shall vest, subject to the provisions of paragraphs 9 and 11 hereof, on the last
day of each of the eight calendar quarters following the Closing Date.
(d) Company shall use its commercially reasonable efforts to prepare
and file a Form S-8 respecting the options contemplated by this paragraph 6 and
the Class A Common Stock, and to maintain such filing current during the term of
this Agreement.
7. BENEFITS.
(a) Company shall provide Consultant with a furnished office at
Company's headquarters at 15260 Ventura Boulevard, Suite 500, Sherman Oaks,
California, or, if Company's headquarters shall be relocated to a location
within the greater Los Angeles area, at such location. In addition, Company
shall provide Consultant with a secretary who shall be available on a non-
exclusive basis to perform secretarial services for Consultant. Consultant
shall pay Company a fee of $2,500 per month for the services provided by Company
under this paragraph 7(a) for each month of the Term for which the Retainer is
paid, whether or not used by Consultant.
(b) Company shall reimburse Consultant in accordance with its usual
policies for all (i) reasonable and necessary meal expenses incurred in
connection with Company business, and (ii) other reasonable and necessary pre-
approved expenses, incurred by Consultant in connection with the business of
Company, including any reasonable entertainment expenses related to the business
of Company, all such expenditures described under (i) and (ii) to be paid
promptly after presentation by Consultant, from time to time, of itemized
accounts thereof.
(c) Consultant shall reimburse Company for costs incurred by Company
in connection with any business of Consultant other than Company's business.
8. NON-COMPETITION. Company and Consultant hereby acknowledge and agree
that except as set forth in paragraph 11(f), from the Closing Date until the End
Date, Consultant shall not, as owner, employee, associate, partner, officer,
director, shareholder, consultant, manager, or in any related capacity (whether
for consideration or not) engage in, carry on, or participate in Exclusive
Businesses as described in paragraph 1 hereto (including the business of
consulting in the matters of Exclusive Businesses). Nothing in this Agreement
shall prevent Consultant from engaging in any other business activities,
including other activities in radio, which are not included within the meaning
of Exclusive Businesses or from owning for investment purposes up to 2% of the
stock of any publicly traded company. In addition, nothing in this Agreement
shall prevent Consultant from performing legal services for any
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talent in the area of Exclusive Businesses provided such services are rendered
in connection with the preparation, negotiation and documentation of talent
agreements.
9. SALE OF COMPANY. In the event of any sale (including, without
limitation, pursuant to a tender offer) of Company during the Term Consultant's
options pursuant to paragraph 6 shall immediately vest.
10. INDEMNITY.
(a) Each party hereto hereby represents and warrants to the other
that such party is duly authorized to enter into this Agreement.
(b) Company hereby agrees to indemnify, defend and hold harmless
Consultant and each of Consultant's heirs, executors, administrators, attorneys,
agents, employees, representatives, successors and assigns ("Company Indemnified
Parties") from and against all loss, damage, liability, cost, expense or injury
suffered or sustained by him by reason of any acts or omissions from the date of
execution of this Agreement to the date of termination of this Agreement,
whether or not the event of loss occurs during or after such term arising out of
his activities as a shareholder, officer, Consultant and/or director of Company,
including but not limited to securities, law claims, (collectively designated as
"Consultant Events of Loss"), including but not limited to any judgment, award,
settlement, attorneys' fees and/or costs and expenses incurred in connection
with the defense of any actual or threatened action, proceeding or claim;
provided, however, that, notwithstanding the foregoing, the Consultant
Indemnified Parties shall not be indemnified against any Consultant Events of
Loss attributable to or in connection with any action or failure to act by the
Consultant or such Company Indemnified Party's constituting (1) a criminal act
under applicable federal or state laws, (2) intentional fraud under any
applicable statute or common law, and (3) Consultant's or such Company
Indemnified Party's own gross negligence or wilful misconduct.
(c) Consultant hereby agrees to indemnify, defend and hold harmless
Company and agents, employees, representatives, successors and assigns
("Consultant Indemnified Party", and together with Company Indemnified Parties,
the "Indemnified Parties") from and against all loss, damage, liability, cost,
expense or injury suffered or sustained by him by reason of Consultant's (1)
criminal act under applicable federal or state laws, (2) intentional fraud under
any applicable statute or common law, and (3) Consultant's gross negligence or
wilful misconduct (collectively designated as "Company Events of Loss", and,
together with the Consultant Events of Loss, the "Events of Loss), including but
not limited to any judgment, award, settlement, attorneys' fees and/or costs and
expenses incurred in connection with the defense of any actual or threatened
action, proceeding or claim; provided, however, that, notwithstanding the
foregoing, the Consultant Indemnified Parties shall not be indemnified against
any Events of Loss attributable to or in connection with any action or failure
to act by Company's or such Consultant Indemnified Party constituting (1) a
criminal act under applicable federal or state laws, (2) intentional fraud under
any applicable statute or
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common law, or (3) Company's or such Consultant Indemnified Party's own gross
negligence or wilful misconduct.
(d) The Indemnified Party shall give written notice to Company or
Consultant, as appropriate (the "Indemnifying Party"), of the nature, amount and
cause of any claims for indemnification or the commencement of such action or
proceeding in reasonable detail promptly after receipt by the such Indemnified
Party of notice of any claim or the commencement of any action or proceeding, if
a claim with respect thereto is to be made against such Indemnifying Party of
the nature described in this paragraph 10. Indemnifying Party shall, at its
option, compromise or defend, at its own expense and by its own counsel, any
such matter involving the asserted liability. The Indemnified Party agrees to
cooperate fully with Indemnifying Party and its counsel in the compromise of, or
defense against, any such asserted liability. The Indemnified Party shall have
the right at its own expense to participate in the defense of such asserted
liability, although Indemnifying Party shall not be liable to the Indemnified
Party hereunder for any legal or other expenses incurred by Indemnified Party
subsequent to the receipt of notice from Indemnifying Party of Indemnifying
Party's election to assume the defense of any Events of Loss if Indemnifying
Party is diligently undertaking such compromise or defense. Indemnifying Party
may settle or compromise any claim against an indemnified party only if such
compromise or settlement results in an unconditional release of the Indemnified
Party.
11. TERMINATION.
(a) Consultant may terminate this engagement without cause at any
time upon at least thirty (30) days prior written notice to Company. Upon such
termination, except as described in paragraph 11(f), Consultant and Company
shall have no further obligations to each other under this engagement. If
Consultant so terminates this engagement, Company may specify an earlier
termination date. In addition, at any time following Consultant's removal or
resignation from the Board as a consequence of a Sale with respect to which
Consultant shall not have provided a Non-reduction Notice to Company, Company
may terminate this engagement pursuant to this paragraph 11(a), and such
termination shall have the same effect a termination by Consultant under this
paragraph 11(a).
(b) Company may terminate this engagement "without cause" (that is,
other than for reasons described in paragraphs 11(c), (d) and (e)) at any time
upon written notice to Consultant. Upon such a termination, (i) Company shall
pay Consultant the Retainer through the End Date at the time such Retainer would
otherwise be payable, (ii) Company will pay all bonuses payable pursuant to
paragraph 5 above, if any, as though the Term had expired on the End Date, and
(iii) subject to the provisions of paragraph 9 if (and only if) Consultant
confirms that Consultant will be bound by paragraph 8 hereof as described below
and Consultant is not in breach of his material obligations hereunder,
including, without limitation, paragraph 8 hereof, all of the options described
under paragraph 6 above shall vest at the times provided herein as if Consultant
had remained engaged hereunder and on the Board through
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the End Date. Notwithstanding the foregoing, following a termination without
cause, except as described in paragraph 11(f), Company shall have no further
obligation to Consultant under this Agreement if Consultant shall (i) fail to
promptly, upon Company's request, execute and deliver a written agreement that
Consultant shall remain bound by paragraph 8 hereof through the End Date, or
(iii) Consultant shall breach any of his obligations under paragraph 11(f).
(c) Company may terminate this engagement upon written notice to
Consultant by reason of Consultant's Disability. For the purpose of this
Agreement, "Disability" shall be defined as inability by Consultant, due to
illness (other than use/abuse of illegal narcotics, alcohol or other
intoxicating substances which is covered below), accident, mental deficiency or
similar incapacity, to render his regular duties for Company required pursuant
to this Agreement for a period of 90 days in any twelve (12) month period. Any
termination pursuant to this paragraph 11(c) hereof shall not be deemed to be
for "Cause", but shall have the same financial consequences as a termination
under paragraph 11(d).
(d) This engagement shall be deemed to terminate upon the death of
Consultant. In the event of Consultant's death, Company shall pay to the
persons designated by Consultant or, in the event Consultant fails to designate
such persons, to Consultant's estate any accrued but unpaid Retainer to the date
of death and any amounts payable pursuant to paragraph 5 above, if any. Company
shall have no further obligation to Consultant and any options not vested as of
such date shall expire.
(e) Company may terminate this engagement for "cause" (as hereinafter
defined); provided that no termination for cause shall be made or take effect
unless such termination is approved by the Executive Committee. Upon a
termination for "cause," Company shall pay Consultant any accrued but unpaid
Retainer through the date of termination and accrued but unpaid bonuses and
other compensation under paragraph 5. Except as described in paragraph 11(f),
Company shall have no further obligation to Consultant and any options not
vested as of such date shall expire. Company may set-off against such payments
any damages it may have and no such termination or set-off is an election of
remedies. For purposes hereof the term "cause" shall mean any of the foregoing:
(1) The failure of Consultant to perform any of his material
obligations under this Agreement or Consultant's holding himself out to the
public as having authority inconsistent with this Agreement which failure or
fact shall remain uncured for twenty (20) business days following notice to
Consultant (provided that Consultant shall not be entitled to notice or an
opportunity to cure for any additional failures or facts relating to the same
facts and circumstances for which a notice was previously delivered and
occurring within six months of receipt of a notice);
(2) Consultant has committed intentional fraud, or committed
material acts of misappropriation, embezzlement, and insider trading;
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(3) Consultant is convicted of, or pleads guilty or nolo
contendere to, a felony.
(f) Notwithstanding anything to the contrary in paragraph 11 hereof,
paragraphs 8, 10, 12, 13, 14, 15, 16, 17, 18, 19 and 22 shall survive any
termination or expiration of the Term hereof, provided that paragraph 8 shall
expire: (i) upon the effectiveness of Consultant's termination under paragraph
11(a); (ii) upon the effectiveness of a termination without cause under
paragraph 11(b), if Consultant does not within 10 days after Consultant's
receipt of a termination notice from Company confirm in writing that paragraph 8
shall continue to bind Consultant through the End Date, or (iii) in any event,
on the End Date.
12. COOPERATION FOLLOWING TERMINATION. Following termination of this
Agreement, regardless of the reason for such termination, Consultant shall
cooperate in all reasonable respects with Company in the prosecution of any
claims, controversies, suits, arbitrations or proceedings involving events
occurring prior to the termination of this Agreement, PROVIDED, Company shall
reimburse Consultant for all reasonable out of pocket expenses incurred in
connection therewith promptly after presentation of invoices therefor.
Consultant acknowledges that he may be required to give testimony at trial or
deposition or give declarations. If Consultant shall be required to spend a
material amount of time, Company shall compensate Consultant at an hourly rate
equal to $250. Notwithstanding the foregoing, Company shall not be obligated
for Consultant's expenses arising out of, or hourly compensation for time
required in respect of, Consultant's compliance with any subpoenas issued by or
on behalf of any party other than Company, Company shall use its best efforts to
provide Consultant with reasonable prior notice of any actions required of him.
Following termination of Consultant's engagement, regardless of the reason for
such termination, Consultant shall immediately resign from the Board.
13. NOTICE. Any notice or other communication required or permitted to be
given to the parties hereto shall be deemed to have been given on the date of
service if served personally on the party to whom notice is to be given, or
seventy-two (72) hours after mailing if mailed to the party to whom notice is to
be given by depositing it in the United States mail, in a sealed envelope by
certified or registered mail, return receipt requested, first class postage
prepaid, addressed as follows:
If to Company:
Premiere Radio Networks, Inc.
15260 Ventura Boulevard, Suite 500
Sherman Oaks, CA 91403
Attention: Stephen C. Lehman
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If to Consultant:
Mr. Eric R. Weiss
245 Tranquillo Road
Pacific Palisades, CA 90272
With a copy to:
Carol Perrin, Esq.
6300 Wilshire Boulevard, Suite 1850
Los Angeles, CA 90048
14. SEVERABILITY. If any provision or any portion of any provision of
this Agreement or the application of any such provision or any portion thereof
to any person or circumstances, shall be held invalid or unenforceable, the
remaining portion of such provision and the remaining provisions of this
Agreement, or the application of such provision as is held invalid or
unenforceable to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby.
15. GOVERNING LAW; RESOLUTION OF DISPUTES.
(a) The validity, interpretation, performance and enforcement of this
Agreement shall be controlled by and construed in accordance with the laws of
the State of California without regard to conflicts of laws principles.
Notwithstanding the foregoing, any controversy or claim arising out of or
relating to this Agreement, or any breach thereof, shall be settled by the
appointment of a retired judge of the Superior or Appellate courts of California
who shall act pursuant to Section 638(1) of the California Code of Civil
Procedure "to try any and all of the issues in an action or proceeding, whether
of fact or of law, and to report a state of decision thereon." The parties
stipulate to the use of the reference procedure and agree that the Superior
Court of Los Angeles County of the State of California may issue such orders as
are necessary to implement the parties' intent that any such controversy or
claim shall be resolved through the use of the reference procedure. THE PARTIES
EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY CONTROVERSY
OR CLAIM ARISING OUT OF THIS AGREEMENT OR THE BREACH HEREOF.
(b) The parties shall be entitled to discovery as provided in the
California Code of Civil Procedure. However, the referee may regulate the
extent and scope of such discovery based upon the nature of the controversy, the
amounts involved and the expected benefits from any discovery.
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(c) If the parties are unable to agree on the appointment of a
retired judge to serve as a referee, then the court shall appoint a retired
judge to act as the referee.
(d) The referee shall apply applicable substantive law and the rules
of evidence set forth in the California Evidence Code and applicable case
authority. The parties shall not be required to file formal pleadings and shall
take other steps as may be appropriate and necessary to assure that any
controversy be resolved as efficiently and expeditiously as possible.
(e) The decision reached by the referee shall be entered as a
judgment of the Superior Court appointing the referee and such decision shall be
fully appealable.
(f) All fees and expenses of the referee shall be initially borne on
a pro rata basis by the parties, but shall be recoverable by the prevailing
party. All fees and expenses of counsel to each party shall be initially borne
by such party, but the referee shall have the power to order that reasonable
fees and reasonable expenses of counsel be recovered by the prevailing party.
16. ASSIGNMENTS. Neither party shall have any right to assign this
Agreement or to delegate any rights, duties or obligations hereunder.
Consultant hereby expressly agrees that this Agreement is personal to him and
that the rights and interests of Consultant hereunder may not be assigned, nor
may his obligations and duties hereunder be delegated, except upon Consultant's
death, any rights remaining shall pass to Consultant's estate, beneficiaries,
heirs, assigns, or transferee, as applicable.
17. INTELLECTUAL PROPERTY.
(a) Consultant shall disclose in writing to Company complete
information concerning all intellectual property pertaining, directly or
indirectly, to the Exclusive Business, including, but not limited to, such
original works of authorship, trademarks, service marks, and trade secrets,
(hereinafter sufficient to as "intellectual property") which are made,
developed, created, devised, conceived, perfected, reduced to practice or
discovered by Consultant, either solely or in collaboration with others, during
the period of his engagement by Company in connection with the Exclusive
Business, whether or not during regular working hours, relating either directly
or indirectly to the business, products, programs, practices or techniques of
Company or resulting from any work performed by Consultant for Company. Company
shall have complete control (artistic and otherwise) over any such intellectual
property.
(b) All copyrightable works with regard to paragraph 17(a) above,
will be deemed "specially commissioned works" as defined in Section 101 of the
Federal Copyright Act and such copyrightable works shall exclusively belong to
Company. In the event that Section 101 of the Copyright Act is found to be
inapplicable, Consultant will assign all right, title and interest in
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and to such copyrightable works to Company. In addition, Consultant will, upon
request and without further compensation therefore, but at no expense to
Consultant, assist Company in obtaining all registrations for such copyrights
pursuant to paragraph 17(c) below.
(c) Consultant will, at any time during his the term of this
Agreement, or thereafter, upon request and without further compensation
therefore, but at no expense to Consultant, do all lawful acts, including the
execution of papers and oaths and the giving of testimony, that in the opinion
of Company, its successors or assigns, may be necessary or desirable for
obtaining registrations for intellectual property, including, but not limited to
trademarks, service marks, and copyrights, in the United States and throughout
the world.
(d) For avoidance of doubt, all network radio programs and network
radio services developed by Consultant during the term of this Agreement
directly or indirectly related to the Exclusive Business shall be the property
of Company and as between Consultant and Company, Company shall have final
control over the development and distribution and all artistic and business
aspects of the programs and services.
18. CONFIDENTIALITY. Without the express prior consent of Company, and
except to the extent disclosure is required by a court or other governmental
agency of competent jurisdiction, Consultant shall not disclose to any person,
other than members of the Board, Company's management or its counsel, any
confidential information, material, document or other such confidential item
concerning Company, its affairs or business unless said information, material or
document has been made public by Company by a filing with the Securities and
Exchange Commission which has become effective, or has otherwise been disclosed
publicly by Company or a person other than Consultant/.
19. RELATIONSHIP. Nothing contained herein shall be construed as creating
an employer-employee relationship/joint venture or partnership between the
parties hereto. All sums payable by Company to Consultant hereunder shall be
paid in full without offset for employer taxes, unless Company is specifically
directed by any federal or state or governmental agency to deduct from the sums
payable to Consultant hereunder such amounts as may be required by law for the
purpose of paying worker's compensation insurance, payroll or social security
taxes of any types whatsoever, both state and federal, and in addition thereto,
such amounts as may be so specifically directed and required to be withheld for
United States Federal or California state income or withholding taxes.
20. PUBLICATIONS. Provided Consultant is available Company hereby agrees
to consult with Consultant on the terms of any press releases of Company
regarding Consultant. Company, in compliance with the provisions of this
paragraph 20, agrees to issue a press release announcing Consultant's
appointment to the Board, the provision of which notice is subject to
Consultant's approval, which approval shall not be unreasonably delayed or
denied.
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21. INSURANCE. Consultant agrees to submit himself, for physical
examination by any physician designated by the Board as required or advisable in
connection with the obtaining of any keyman insurance policy or similar coverage
which Company may reasonably wish to obtain. The cost and expenses for such
medical examinations and any such insurance shall be borne by Company. Company
shall be the beneficiary of any such insurance.
22. MODIFICATIONS; PRIOR AGREEMENTS. No modification, amendment,
deletion, addition or other change in this Agreement, or any provision hereof,
or waiver of any right or remedy herein provided, shall be effective for any
purpose unless specifically set forth in a writing signed by both parties
hereto. No waiver of any right or remedy in respect of any occurrence or event
on one occasion shall be deemed a waiver of such right or remedy in respect of
such occurrence or event on any other occasion. The parties hereto understand
and agree that this Agreement and the Transaction Agreement of even date
herewith is intended to supersede and replace any and all agreements previously
entered into, by and between Company and Consultant, written or oral, relating
to Consultant's consulting with Company and sets forth the parties' complete
understanding regarding the within subjects. No representation has been made
except as expressly set forth herein. Paragraph headings and captions appearing
herein are for convenience of reference only, and do not constitute part of this
Agreement.
23. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, including by facsimile, each of which will be deemed an original
and all of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Consulting Agreement on
the date set forth below.
"CONSULTANT"
Date: 1/7/97 /s/ Erice R. Weiss
---------------- ------------------------------------------
ERIC R. WEISS
"COMPANY"
PREMIERE RADIO NETWORKS, INC.
Date: 1/7/97 /s/ Steve Lehman
---------------- ------------------------------------------
By: SteveLehman
--------------------------------------
President
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TRANSACTION AGREEMENT
THIS TRANSACTION AGREEMENT is made and entered into as of as of January 7,
1997, by and between PREMIERE RADIO NETWORKS, INC. ("Company), a Delaware
corporation, and ERIC R. WEISS, an individual ("Weiss").
WITNESSETH
The parties hereto are to enter into the Consulting Agreement of even date
herewith (as amended, supplemented or otherwise modified from time to time, the
"Consulting Agreement"). Capitalized terms appearing herein and not otherwise
defined herein shall have the meanings specified in the Consulting Agreement.
Weiss has been instrumental in arranging and effecting the transaction (the
"Transaction") contemplated by that certain Agreement and Plan of Merger (the
"Merger Agreement") between Company and AME dated as of December 31, 1996. This
Agreement shall constitute the agreement as to the engagement of Weiss by
Company to provide legal and financial services to Company in connection with
the Transaction. In consideration of Weiss's services heretofore performed on
behalf of Company, the full value of which the parties acknowledge will be
enhanced by Weiss's performance under the Consulting Agreement, the parties
hereto agree as follows:
1. COMPENSATION. As Compensation for the successful completion of the
Transaction, Company shall pay Weiss Five Hundred Thousand Dollars ($500,000.00)
(the "Transaction Fee"), subject to the terms and conditions hereof. Company
shall pay $250,000 of such Transaction Fee to Weiss on the Closing Date (as
defined in the Merger Agreement) upon the consummation of the Merger, and shall
pay the remaining $250,000 in 24 equal monthly installments commencing one month
after the Closing Date, except as provided in paragraph 2 below.
2. TERMINATION. The parties hereto hereby agree that if the Consulting
Agreement shall terminate for any reason, Company shall continue to pay monthly
installments of the Transaction Fee only for so long and during such time as
Company shall be obligated to pay Retainer to Weiss under the contemplated
Consulting Agreement. If Company's obligation to make payments of Retainer
shall at any time terminate under the Consulting Agreement, Company shall then
and thereafter have no obligation to pay any further installment of Transaction
Fee hereunder. Notwithstanding the foregoing, if, within one year after any
Sale: (a) the engagement of Weiss is terminated for reasons other than those set
forth in paragraph 11(c), (d) and (e) of the Consulting Agreement, or (b) Weiss
voluntarily terminates his engagement within 60 days after either the diminution
of his responsibilities or the date on which Stephen Lehman ceases to be engaged
in the active senior management of Company, then Company shall continue to pay
installments of Transaction Fee to Weiss as though the Term had continued for
the lesser of one year or until the End Date. Weiss's removal or resignation
from the Board as a consequence of a Sale with respect to which Weiss shall not
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have provided a Non-reduction Notice to Company shall not be deemed to be a
diminution of Weiss' responsibilities for purposes of this paragraph 2. In
addition, within 30 days following the consummation of a Sale in connection with
which Weiss is removed or resigns from the Board, and with respect to which
Weiss shall not have provided a Non-reduction Notice to Company, Company may
terminate this engagement pursuant to paragraph 2, and such termination shall
have the same effect a termination by Weiss under paragraph 2(b).
3. SCOPE OF SERVICES. Weiss will, in connection with his engagement
hereunder, be responsible for the review and analysis of appropriate and
available background information regarding AME, and for providing Company
management with legal and financial services in connection with the Transaction.
Weiss understands and agrees that the primary goal of the Company in connection
with his engagement hereunder is to successfully consummate the Transaction.
4. NOTICE. Any notice or other communication required or permitted to be
given to the parties hereto shall be provided in the manner and to such
addresses as may be specified for the giving of notices in the Consulting
Agreement.
5. SEVERABILITY. If any provision or any portion of any provision of
this Agreement or the application of any such provision or any portion thereof
to any person or circumstances, shall be held invalid or unenforceable, the
remaining portion of such provision and the remaining provisions of this
Agreement, or the application of such provision as is held invalid or
unenforceable to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby.
6. GOVERNING LAW; RESOLUTION OF DISPUTES.
(a) The validity, interpretation, performance and enforcement of this
Agreement shall be controlled by and construed in accordance with the laws of
the State of California without regard to conflicts of laws principles. The
parties hereto submit to the jurisdiction of the courts of California in respect
to any matter or thing arising out of this Agreement or pursuant thereto.
Notwithstanding the foregoing, any controversy or claim arising out of or
relating to this Agreement, or any breach thereof, shall be settled by the
appointment of a retired judge of the Superior or Appellate courts of California
who shall act pursuant to Section 638(1) of the California Code of Civil
Procedure "to try any and all of the issues in an action or proceeding, whether
of fact or of law, and to report a state of decision thereon." The parties
stipulate to the use of the reference procedure and agree that the Superior
Court of Los Angeles County of the State of California may issue such orders as
are necessary to implement the parties' intent that any such controversy or
claim shall be resolved through the use of the reference procedure. THE PARTIES
EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY CONTROVERSY
OR CLAIM ARISING OUT OF THIS AGREEMENT OR THE BREACH HEREOF.
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(b) The parties shall be entitled to discovery as provided in the
California Code of Civil Procedure. However, the referee may regulate the
extent and scope of such discovery based upon the nature of the controversy, the
amounts involved and the expected benefits from any discovery.
(c) If the parties are unable to agree on the appointment of a retired
judge to serve as a referee, then the court shall appoint a retired judge to act
as the referee.
(d) The referee shall apply applicable substantive law and the rules
of evidence set forth in the California Evidence Code and applicable case
authority. The parties shall not be required to file formal pleadings and shall
take other steps as may be appropriate and necessary to assure that any
controversy be resolved as efficiently and expeditiously as possible.
(e) The decision reached by the referee shall be entered as a judgment
of the Superior Court appointing the referee and such decision shall be fully
appealable.
(f) All fees and expenses of the referee shall be initially borne on a
pro rata basis by the parties, but shall be recoverable by the prevailing party.
All fees and expenses of counsel to each party shall be initially borne by such
party, but the referee shall have the power to order that reasonable fees and
reasonable expenses of counsel be recovered by the prevailing party.
7. ASSIGNMENTS. Neither party shall have any right to assign this
Agreement or to delegate any rights, duties or obligations hereunder. Weiss
hereby expressly agrees that this Agreement is personal to him and that the
rights and interests of Weiss hereunder may not be assigned, nor may his
obligations and duties hereunder be delegated, except upon Weiss's death, any
rights remaining shall pass to Weiss's estate, beneficiaries, heirs, assigns, or
transferee, as applicable.
8. MODIFICATIONS; PRIOR AGREEMENTS. No modification, amendment,
deletion, addition or other change in this agreement, or any provision hereof,
or waiver of any right or remedy herein provided, shall be effective for any
purpose unless specifically set forth in a writing signed by both parties
hereto. No waiver of any right or remedy in respect of any occurrence or event
on one occasion shall be deemed a waiver of such right or remedy in respect of
such occurrence or event on any other occasion. The parties hereto understand
and agree that this Agreement and the Consulting Agreement are intended to
supersede and replace any and all Agreements previously entered into, by and
between Company and Weiss, written or oral, relating to Weiss's consulting with
Company and sets forth the parties' complete understanding regarding the within
subjects. No representation has been made except as expressly set forth herein.
Paragraph headings and captions appearing herein are for convenience of
reference only, and do not constitute part of this Agreement.
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9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, including by facsimile, each of which will be deemed an original
and all of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Transaction Agreement on
the date set forth below.
Date: 1/7/97 /s/ Eric R. Weiss
-------------- ----------------------------------------
ERIC R. WEISS
"COMPANY"
PREMIERE RADIO NETWORKS, INC.
Date: 1/7/97 /s/ Steve Lehman
-------------- ----------------------------------------
By: Steve Lehman
----------------------------------------
President
4
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 1st day of
January 1997 (the "Effective Date") by and between PREMIERE RADIO NETWORKS,
INC., a California corporation with an office for the conduct of its business at
15260 Ventura Boulevard, Sherman Oaks, California 91403 (the "Company"), and
DANIEL M. YUKELSON, an individual residing at 148 South Wetherly Drive, Beverly
Hills, California, 90211 (the "Executive").
In consideration of the mutual covenants and agreements herein set forth,
the parties hereto agree as follows:
1. EMPLOYMENT AND ACCEPTANCE; TERM.
(a) TERM. The Company hereby employs the Executive, and the
Executive agrees to be employed by the Company, for a term (the "Term")
commencing on the Effective Date and continuing for the period up and through
December 31, 1998.
(b) OPTION TERM. The company shall have an option (the "Option
Term") exercisable in its sole discretion to extend the term of this Agreement
for a term of one (1) year (the "Option Term") beyond the Initial Term by
written notification of such extension to the Executive at any time prior to
October 1, 1998.
(c) EXTENSION. The Company will advise the Executive at least three
(3) months prior to the expiration of the Option Term if the Option shall have
been exercised, or whether or not the Company intends to negotiate to extend the
term of this Agreement. If the Company does not exercise the Option, or if the
parties do not agree to extend the term of this Agreement prior to one month
before expiration of the Option Term, the Executive may seek other employment.
If the Company does not exercise the Option or the parties hereto do not agree
to extend the term of this Agreement upon expiration of the Option Term, if any,
Executive will be entitled to severance pay equal to one month's compensation
for each year of employment.
2. DUTIES.
(a) OFFICES. During the term of this Agreement, the Executive shall
be employed as the Vice President/Finance and Chief Financial Officer of the
Company and shall perform such duties and responsibilities as shall be
reasonably assigned to the Executive by the Chairman of the Board of the
Company, or which are from time to time assigned to or vested in him by the
Company's Board of Directors (the "Board"), and which are customarily incident
to the position of Vice President/Finance and Chief Financial
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Officer of a publicly traded independent creator, producer and distributor of
network radio programming and services.
(b) EXCLUSIVITY. The Executive shall devote substantially all of his
business time, labor, skill and energy to the business and affairs of the
Company and to the duties and responsibilities specified in Section 2(a) of this
Agreement; PROVIDED, HOWEVER, that the Executive may engage in other
activities such as charitable, educational, religious and similar types of
activities, to the extent that such activities do not prohibit or prevent the
performance of the Executive's duties under this Agreement, or inhibit or
conflict in any material way with the business of the Company.
(c) NON-COMPETITION. The Executive covenants and agrees that for so
long as he is actively employed by the Company he shall inform the Company of
each business opportunity related to the businesses of the Company of which he
becomes aware, and that he will not, directly or indirectly, exploit any such
opportunity for his own account, nor will he render any services to any other
person or business, or acquire any interest of any type in any other business,
which is in competition with the Company; PROVIDED, HOWEVER, that the foregoing
shall not be deemed to prohibit the Executive from acquiring, solely as an
investment, (i) up to 10% of any securities of a partnership, trust, corporation
or other entity so long as he remains a passive investor in such entity and such
entity is not, directly or indirectly, in competition with the Company, or (ii)
up to 5% of any securities of any publicly traded partnership, trust,
corporation or other entity provided he remains a passive investor in such
entity.
(d) LOCATION. The Executive shall be employed in the Los Angeles
Area. Should Company desire to change the location of Executive's employment,
the Company and Executive, at that time, shall endeavor to reach a mutually
agreed-upon amendment to this Agreement, if any.
3. COMPENSATION AND BENEFITS.
(a) SALARY. The Company shall, during the continuance of the
Executive's employment hereunder, pay to the Executive, and the Executive agrees
to accept, in consideration of his services, a salary (the "Base Salary") at the
rate of $109,000 during the Term hereof, payable in accordance with the
Company's normal payroll practices.
(b) BENEFITS. During the Term of this Agreement, the Executive shall
be entitled to participate in all group insurance, hospitalization, medical,
health and accident, profit-sharing, disability or similar plans or programs of
the Company, the Company's 401(k) Plan, and the Company shall pay to the
Executive a non-accountable automobile allowance in the amount of $500.00 per
month. Furthermore, the Company shall reimburse Executive for his monthly
health and dental plan premiums for Executive and his family, shall provide
Executive with a personal life insurance policy in the minimum face
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amount of $250,000, and shall provide Executive with disability coverage with a
minimum monthly disability benefit of $4,000.
(c) DEDUCTIONS. The Company shall deduct from the Base Salary and
all other cash amounts payable by the Company under the provisions of this
Agreement to the Executive, or, if applicable, to his estate, legal
representatives or other beneficiary designated in writing by the Executive (a
"designee"), all social security taxes, all federal, state and municipal taxes
and all other charges and deductions which now or hereafter are imposed by law
as charges on the compensation of the Executive or charges on cash benefits
payable by the Company hereunder to his estate, legal representatives or
designee.
(d) BONUS. The Executive shall be entitled to receive an annual
incentive bonus (the "Bonus") during the continuance of the Executive's
employment hereunder in an amount to be determined by the Board or its
designees. The Bonus shall be payable within a reasonable period of time not to
exceed ninety (90) days following the end of each twelve-month term of this
Agreement. In addition, Company shall pay Executive quarterly bonus payments of
$7,750 ($31,000 per annum), payable within fifteen (15) days of the end of each
calender quarter.
(e) OPTIONS. The Executive shall be entitled to receive employee
stock options in an amount to be determined by the Board or its designees.
4. REIMBURSEMENT OF CERTAIN EXPENSES; APPROVAL OF EXPENDITURES. The
Company shall reimburse the Executive, upon production of detailed accounts
and vouchers or other reasonable evidence of payment by the Executive, all in
accordance with the Company's regular procedures in effect from time to time
and in form suitable to establish the validity of such expenses for tax
purposes, all ordinary, reasonable and necessary travel, entertainment and
other expenses as shall be incurred by him in the performance of his duties
hereunder, including up to Two Thousand Five Hundred Dollars ($2,500.00) in
professional and/or educational expenses.
5. VACATION. The Executive shall be entitled to paid vacation time at
the rate of not less than two (2) weeks per calendar year during the term of his
employment hereunder.
6. INSURANCE. The Executive agrees to submit himself, for physical
examination by any physician designated by the Board as required or advisable in
connection with the obtaining of any keyman insurance policy or similar coverage
which the Company may wish to obtain. The cost and expenses for such medical
examinations and any such insurance shall be borne by the Company.
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<PAGE>
7. CONFIDENTIAL INFORMATION. All records, papers, models, programs and
other documents and those kept or made by the Executive relating to the business
or affairs of the Company and/or its clients or customers shall be and remain
the property of the Company, and to the extent available shall be delivered by
the Executive to the Company as required by the Board and, in any event, upon
the expiration or earlier termination of the Executive's employment by the
Company.
8. INDEMNIFICATION. The Company shall indemnify the Executive and
his legal representatives to the fullest extent permitted by the laws of the
State of California (or the State of Delaware if the Company shall have been so
reincorporated), and the Executive shall be entitled to the protection of such
insurance policies which the Company hereby agrees to maintain for the benefit
of its directors and officers, against all costs, charges or expenses whatsoever
incurred or sustained by him or his legal representatives in connection with any
action, suit or proceeding to which he or his legal representatives may be made
by reason of him being or having been an officer of the Company, or because of
actions taken purportedly on behalf of the Company. The Company shall, upon
request by the Executive, promptly advance or pay any amount for costs, charges
or expenses (including, but not limited to, legal fees and expenses incurred by
counsel retained by the Executive) in respect of his right to indemnification
hereunder, subject to a later determination as to the Executive's ultimate right
to receive such payment.
9. TERMINATION OF EXECUTIVE'S EMPLOYMENT. Notwithstanding the provisions
of Section 1 hereof, this Agreement may be terminated prior to the expiration of
the Term by the Board, in the name and on behalf of the Company, upon the
happening of any of the following events: (i) upon the death of the Executive;
(ii) upon the-Total Disability of the Executive; or (iii) upon the occurrence of
any material beach of any material covenant of the Executive contained in this
Agreement and the continuation of such breach for a period of thirty (30) days
following written notice by the company to the Executive of such breach, or in
the event of willful malfeasance in the performance of his duties hereunder
having a material adverse effect on the business of the Company.
10. CONSEQUENCES OF TERMINATION OF THIS AGREEMENT.
(a) DEATH. In the event that this Agreement is terminated in
accordance with clause (I) of Section 10 above, the Executive's estate, legal
representatives or designee shall be entitled to receive, in full satisfaction
of all obligations due to the Executive from the Company hereunder, the
following sums:
(I) all accrued but unpaid Base Salary and any unpaid Bonus in
respect of a fiscal year ended prior to the Executive's death.
(b) BREACH. In the event that this Agreement is terminated in
accordance with clause (iii) of Section 10 above, the Executive shall be
entitled to receive
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all accrued but unpaid Base Salary through the date of termination, and upon
payment of said sum the Company shall have no further obligations or liabilities
to the Executive hereunder.
11. CHANGE OF CONTROL.
(a) In the event that a "Change of Control" (as hereinafter defined)
of the Company occurs during the Term of this Agreement and within one year
thereafter the employment of Executive is either terminated for reasons other
than those set forth in Section 9, or the Executive voluntarily terminates his
employment within 60 days after the diminution of his responsibilities: (1) if
Executive so resigns, then the Company will pay Executive $140,000 upon the
effectiveness of Executive's resignation; and (2) if Executive is so terminated,
the Company will provide Executive with a combination of notice and severance
pay equal to at least $140,000. Following the expiration of any notice period,
on the effective date of Executive's termination, the Company will pay to the
Executive the balance of such $140,000 in a lump sum payment. During any notice
period, the Executive shall have the right to seek other employment including
the right to do so during regular business hours, provided that such job search
does not materially interfere in Executive's material duties for the Company.
(b) "Change of Control" for the purposes of this Agreement shall mean
any change of control which is required to be reported to the Securities and
Exchange Commission or if (i.) any person or entity acquires or controls thirty
percent (30%) or more of the Company's outstanding voting securities, or (ii.)
During any period of two consecutive years the persons who were directors of the
Company immediately prior to such period cease to constitute a majority of the
Board of Directors of the Company.
12. ASSIGNABILITY. This Agreement and the rights and obligations of the
parties hereunder may not be assigned by either party for any reason without the
prior written consent of the other party.
13. ARBITRATION OF DISPUTES. Any dispute or controversy between the
parties relating to or arising out of this Agreement or any amendment or
modification hereof shall be determined by arbitration in Los Angeles,
California by and pursuant to the rules then prevailing of the American
Arbitration Association. The arbitration award shall be final and binding upon
the parties and judgment may be entered thereon by any court of competent
jurisdiction. The service of any notice, process, motion or other document in
connection with any arbitration under this Agreement or the enforcement of
any arbitration award hereunder may be effectuated either by personal
service upon a party or by certified mail duly addressed to him or his
executors, administrators, personal representatives, next of kin, successors or
assigns, at the last known address or addresses of such party of parties. If
the Executive is the prevailing party on any issue in any such arbitration
proceeding, he
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shall be entitled to recover from the Company any actual expenses for attorney's
fees and disbursements incurred by him.
14. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of California applicable to contracts
executed in and to be performed solely within the State of California.
15. ABILITY TO FULFILL OBLIGATIONS. Neither the Company nor the Executive
is a party to or bound by any agreement which would be violated by the terms of
this Agreement.
16. NOTICE. Any notice, direction or instruction required or permitted to
be given hereunder shall be given in writing and may be given by telex,
telegram, facsimile transmission or similar method if confirmed by mail as
herein provided; by mail if sent postage prepaid by registered mail, return
receipt requested; or by hand delivery to any party at the address of the party
first above set forth. If notice, direction or instruction is given by telex,
telegram or facsimile transmission or similar method or by hand delivery, it
shall be deemed to have been given or made on the day on which it was given, and
if mailed, shall be deemed to have been given or made on the third business day
following the day after which it was mailed. My party may, from time to time,
by like notice give notice of any change of address and in such event, the
address of such party shall be deemed to be changed accordingly.
17. FURTHER ASSURANCES. The parties hereto agree that, after the execution
of this Agreement, they will make, do, execute or cause or permit to be made,
done or executed all such further and other lawful acts, deeds, things, devices,
conveyances and assurances in law whatsoever as may be required to carry out the
true intention and to give full force and effect to this Agreement.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes any
and all prior or contemporaneous oral and prior written agreements and
understandings. There are no oral promises, conditions, representations,
understandings, interpretations or terms of any kind as conditions or
inducements to the execution hereof or in effect among the parties. No custom
or trade usage, nor course of conduct among the parties, shall be relied upon to
vary the terms hereof. This Agreement may not be amended, and no provision
hereof shall be waived, except by a writing signed by all of the parties to this
agreement which states that it is intended to amend or waive a provision of
this Agreement. Any waiver of any rights or failure to act in a specific
instance shall relate only to such instance and shall not be construed as an
agreement to waiver any rights or fail to act in any other instance, whether or
not similar.
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19. SEVERABILITY. Should any provision of this Agreement be unenforceable
or prohibited by any applicable law, this Agreement shall be considered
divisible as to such provision which shall be inoperative, and the remainder of
this Agreement shall be valid and binding as though such provision were not
included herein.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original.
21. HEADINGS. All headings in this Agreement are for convenience only and
will not affect the meaning of any provision hereof.
22. SURVIVAL OF CERTAIN PROVISIONS. The provisions of Sections 8, 9 and
11 shall, to the extent applicable, continue in full force and effect
notwithstanding the expiration or earlier termination of this Agreement or of
the Executive's employment in accordance with the terms of this Agreement.
23. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Agreement shall inure to the benefit of, and be binding upon, the Company and
any corporation with which the Company merges or consolidates, and upon the
Executive and his executors, administrators, heirs and legal representatives.
IN WITNESS WHEREOF, the Executive has executed this Agreement and the
Company has caused this Agreement to be executed by a duly authorized officer as
of the day and year first above written.
PREMIERE RADIO NETWORKS, INC.
By: /s/ Steven C. Lehman
----------------------------------------
Name: Steven C. Lehman
Title: President and Chief Executive Officer
By: /s/ Daniel M. Yukelson
----------------------------------------
Daniel M. Yukelson
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 1st day of
January, 1997 (the "Effective Date") by and between PREMIERE RADIO NETWORKS,
INC., a Delaware corporation with an office for the conduct of its business at
15260 Ventura Boulevard, Sherman Oaks, California 91403 (the "Company"), and
TIMOTHY KELLY, an individual residing at 23547 Schoenborn St., West Hills, CA
91304 (the "Executive").
In consideration of the mutual covenants and agreements herein set forth,
the parties hereto agree as follows:
1. EMPLOYMENT AND ACCEPTANCE; TERMS
(a) INITIAL TERM. The Company hereby employs the Executive, and the
Executive agrees to be employed by the Company, for a term (the "Initial Term")
commencing on the Effective Date and continuing for a period of one (1) year.
(b) OPTION TERM. The Company shall have an option (the "Option")
exercisable in its sole discretion to extend the term of this Agreement for
an additional one (1) year (the "Option Term") beyond the Initial Term by
written notification of such extension (an "Extension Notice") to the
Executive at any time prior to October 31, 1997; provided that if the
Company shall exercise the Option the Executive may, in his sole discretion
by providing written notice to the Company within ten (10) days after the
date of the Extension Notice, decline to have the term of this Agreement
extended and cause this Agreement to terminate following the expiration of
the Initial Term.
2. DUTIES.
(a) OFFICE. During the term of this Agreement, the Executive
shall be employed as the Executive Vice President/Programming of the
Company and as such shall supervise the Company's current programming and
assist in the development and acquisition of new programs and services.
Executive shall also perform such duties and responsibilities as shall be
reasonably assigned to the Executive by the Chairman of the Board of the
Company, or which are from time to time assigned to or vested in him by the
Executive Committee of the Company's Board of Directors (the "Executive
Committee"), and which are customarily incident to the position of
Executive Vice President/Programming of an independent creator, producer
and distributor of comedy, entertainment and music related radio programs.
Except to the extent expressly set forth herein, Executive shall comply
with all policies and procedures of the Company in the performance of his
duties hereunder.
(b) EXCLUSIVITY. The Executive shall devote substantially all of
his business time, labor, skill and energy to the business and affairs of
the Company and to the duties and responsibilities specified in Section
2(a) of this Agreement; provided, however, that the Executive may engage in
other activities, such as charitable, educational, religious and similar
types of activities, to the extent that such activities do not prohibit or
prevent the performance of the
<PAGE>
Executive's duties under this Agreement, or inhibit or conflict in any material
way with the business of the Company.
(c) NON-COMPETITION. The Executive covenants and agrees that so
long as he is actively employed by the Company he shall inform the Company
of each business opportunity related to the business of the Company of
which he becomes aware, and that he will not, directly or indirectly,
exploit any such opportunity for his own account, nor will he render any
services to any other person or business, or acquire any interest of any
type in any other business, which is in competition with the Company;
provided, however, that the foregoing shall not prohibit the Executive from
acquiring, solely as an investment, (i) up to 10% of any securities of a
partnership, trust, corporation or other entity which is not publicly
traded so long as he remains a passive investor in such entity and such
entity is not, directly or indirectly, in competition with the Company, or
(ii) up to 5% of any securities of any publicly traded partnership, trust,
corporation or other entity provided he remains a passive investor in such
entity.
3. COMPENSATION AND BENEFITS.
(a) SALARY. The Company shall, during the continuance of the
Executive's employment hereunder, pay to the Executive, and the Executive
agrees to accept, in consideration of his services, a salary (the "Base
Salary") at an annual rate of $150,000 during the Initial Term and, if the
Option is exercised, at an annual rate of $170,000 during the Option Term,
payable in accordance with the Company's normal payroll practices. The
Base Salary may, in the sole discretion of the Executive Committee, be
increased.
(b) BENEFITS. During the term of this Agreement, the Executive shall
be entitled to participate in all group insurance, hospitalization, medical,
health and accident, profit-sharing, disability or similar plans or programs of
the Company.
(c) DEDUCTIONS. The Company shall deduct from the Base Salary and
all other cash amounts payable by the Company under the provisions of this
Agreement, including any severance payments paid pursuant to Sections 3(f) and
13 hereof, to the Executive or, if applicable, to his estate, legal
representative or other beneficiary designated in writing by the Executive (a
"designee"), all social security taxes, all federal, state and municipal taxes
and all other charges and deductions which now or hereafter are imposed by law
as charges on the compensation of the Executive or charges on cash benefits
payable by the Company hereunder or his estate, legal representative or
designee.
(d) ANNUAL BONUS. The Executive may receive an annual incentive
bonus (the "Annual Bonus") during the continuance of the Executive's
employment hereunder in an amount to be determined by the Compensation
Committee of the Board. The Annual Bonus shall be payable within a
reasonable period of time not to exceed ninety (90) says following the end
of each twelve-month period of this Agreement. Any such Annual Bonus shall
be in recognition of Executive's personal development and/or his
contributions to the acquisition of new programs
-2-
<PAGE>
and/or services or other contributions which significantly enhance the
profitability of the Company.
(e) QUARTERLY BONUS. The Executive may receive a quarterly bonus
(the "Quarterly Bonus") during the continuance of the Executive's employment
hereunder in an amount to be determined by the Executive Committee. Any such
Quarterly Bonus shall be in recognition of the departmental launch of new
programs and/or services precleared as expected to be profitable (excluding
programs launched through the efforts of personnel of the Cutler Productions
division of the Company, the Company's After Midnite subsidiary or any
personnel employed by companies acquired by the Company after the date hereof).
The Quarterly Bonus shall be payable within a reasonable period of time not to
exceed ninety (90) days following the end of each three month period of this
Agreement. Among the factors to be considered by the Executive Committee in
determining whether to award a Quarterly Bonus or the amount of any such
Quarterly Bonus shall be the anticipated profit to be earned by the Company in
the first year from such new product or service; provided that during the
Initial Term the Quarterly Bonus shall not exceed $8,750 in any quarter and
during the Option Term shall not exceed $6,250 in any quarter.
(f) SEVERANCE BENEFITS. In the event (i) the Company does not
exercise the Option and Executive is not employed by the Company following the
expiration of the Initial Term, (ii) the Company exercises the Option, but
Executive declines to have the term of the Agreement extended in accordance with
Section 1(b) hereof and Executive is not employed by the Company following the
expiration of the Initial Term, or (iii) the Company exercises the Option,
Executive is employed by the Company throughout the Option Term, but is not
employed by the Company following the expiration of the Option Term, then
Executive shall be entitled to receive severance payments in an aggregate amount
of $100,000, payable in six (6) equal monthly installments.
(g) AUTOMOBILE. The Company shall pay to Executive a non-accountable
automobile allowance of $500 per month.
4. REIMBURSEMENT OF CERTAIN EXPENSES; APPROVAL OF EXPENDITURES. The
Company shall reimburse the Executive, upon production of detailed accounts and
vouchers or other reasonable evidence of payment by the Executive, all in
accordance with the Company's regular procedures in effect from time to time and
in form suitable to establish the validity of such expenses for tax purposes,
all ordinary, reasonable and necessary travel, entertainment and other expenses
as shall be incurred by him in the performance of his duties hereunder.
5. VACATION. The Executive shall be entitled to paid vacation time at
the rate of four (4) weeks per calendar year during the term of his employment
hereunder.
6. TOTAL DISABILITY. The Company shall provide disability insurance
coverage to the Executive as of the Effective Date of this Agreement. If the
Executive becomes disabled during his employment hereunder so that he is unable
for a period of six (6) consecutive months to
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<PAGE>
perform his duties under this Agreement ("Total Disability"), the Company shall
pay to the Executive his full Base Salary and maintain in effect his group
health insurance coverage during such six (6) month period; thereafter, the
Company shall pay the Executive his full Base Salary and maintain in effect his
group health insurance coverage for an additional six (6) month period, after
which no further obligations shall be due to the Executive from the Company
hereunder. The Company shall have the right to offset against the foregoing
payments the amounts of any proceeds received by the Company and paid to the
Executive under any disability insurance policies maintained by the Company.
7. INSURANCE. The Executive agrees to submit himself, for physical
examination by any physician designated by the Executive Committee as required
or advisable in connection with the obtaining of any keyman insurance policy or
similar coverage which the Company may wish to obtain. The cost and expenses
for any such medical examinations and any such insurance shall be borne by the
Company.
8. CONFIDENTIAL INFORMATION. All records, papers, models, programs and
other documents and those kept or made by the Executive relating to the business
or affairs of the Company and/or its clients or customers (the "Premiere
Information") shall be and remain the property of the Company, and to the extent
available shall be delivered by the Executive to the Company as required by the
Executive Committee and, in any event, upon the expiration or earlier
termination of the Executive's employment by the Company. Executive shall
maintain the confidentiality of any Premiere Information provided or made
available to him.
9. INTELLECTUAL PROPERTY.
(a) Executive shall disclose in writing to the Company complete
information concerning all intellectual property, including, but not limited to,
original works of authorship, trademarks, service marks, and trade secrets,
(hereinafter sufficient to as "intellectual property") which are made,
developed, created, devised, conceived, perfected, reduced to practice or
discovered by Executive, either solely or in collaboration with others, during
the period of his employment by the Company, whether or not during regular
working hours, relating either directly or indirectly to the business, products,
programs, practices or techniques of the Company or resulting from any work
performed by Executive for the Company. The Company shall have complete control
(artistic and otherwise) over any such intellectual property.
(b) All copyrightable works with regard to Section 9(a) above, will
be deemed "work for hire" as defined in Section 101 of the Federal Copyright Act
and such copyrightable works shall exclusively belong to the Company. In the
event that Section 101 of the Copyright Act is found to be inapplicable,
Executive will assign all right, title and interest in and to such copyrightable
works to the Company. In addition, Executive will, upon request and without
further compensation therefore, but at no expense to Executive, assist the
Company in obtaining all registrations for such copyrights pursuant to Section
9(c) below.
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<PAGE>
(c) Executive will, at any time during his employment, or thereafter,
upon request and without further compensation therefore, but at no expense to
Executive, do all lawful acts, including the execution of papers and oaths and
the giving of testimony, that in the opinion of the Company, its successors or
assigns, may be necessary or desirable for obtaining registrations for
intellectual property, including, but not limited to trademarks, service marks,
and copyrights, in the United States and throughout the world.
(d) For avoidance of doubt, all programs and services developed by
Executive during the term of this Agreement shall be the property of the Company
and as between Executive and the Company, the Company shall have final control
over the development and distribution and other business aspects of the programs
and services.
10. INDEMNIFICATION. The Company shall indemnify the Executive and his
legal representatives to the fullest extent permitted by the laws of the State
of Delaware, and the Executive shall be entitled to the protection of such
insurance policies which the Company hereby agrees to maintain for the benefit
of its directors and officers, against all costs, charges or expenses whatsoever
incurred or sustained by his or his legal representatives in connection with any
action, suit or proceeding to which he or his legal representatives may be made
a party thereto by reason of his being or having been an officer of the Company,
or because of actions taken purportedly on behalf of the Company. The Company
shall, upon request by the Executive, promptly advance or pay any amount for
costs, charges or expenses (including, but not limited to, legal fees and
expenses incurred by counsel retained by the Executive) in response of his right
to indemnification hereunder, subject to a later determination as to the
Executive's ultimate right to receive such payment.
11. TERMINATION OF EXECUTIVE'S EMPLOYMENT. Notwithstanding the provisions
of Section 1 hereof, this Agreement may be terminated prior to the expiration of
the Initial Term and, if the Option is exercised, prior to the expiration of the
Option Term by the Executive Committee, in the name and on behalf of the
Company, upon the happening of any of the following events: (i) the death of the
Executive; (ii) upon the Total Disability of the Executive; or (iii) upon the
occurrence of any material breach of any material covenant of the Executive
contained in this Agreement and the continuation of such breach for a period of
thirty (30) days following written notice by the Company to the Executive of
such breach, or in the event of willful malfeasance in the performance of his
duties hereunder having a material adverse effect on the business of the
Company.
12. CONSEQUENCES OF TERMINATION OF THIS AGREEMENT.
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<PAGE>
(a) DEATH. In the event that this Agreement is terminated in
accordance with clause (i) of Section 11 above, the Executive's estate, legal
representatives or designees shall be entitled to receive, in full satisfaction
of all obligations due to the Executive from the Company hereunder, the
following sums:
(i) all accrued but unpaid Base Salary and any unpaid Annual
Bonus and Quarterly Bonus in respect to a year or quarter, respectively ended
prior to the Executive's death; and
(ii) an amount equal to the lesser of one year's Base Salary or
the amount of Base Salary that would have been due over the remainder of the
term of this Agreement, payable quarterly to the Executive's estate, legal
representatives or designee over a two (2) year period commending with the end
of the calendar quarter following the death of the Executive.
(b) DISABILITY. In the event this Agreement is terminated in
accordance with clause (ii) of Section 11 above, the Executive (or, if
applicable, his estate, legal representatives or designee) shall be entitled to
receive, in full satisfaction of all obligations due to the Executive from the
Company hereunder, the benefits set forth in Section 6 of this Agreement.
(c) BREACH. In the event that this Agreement is terminated in
accordance with clause (iii) of Section 11 above, the Executive shall be
entitled to receive all accrued but unpaid Base Salary through the date of
termination, and upon payment of said sum the Company shall have no further
obligations or liabilities to the Executive hereunder.
13. CHANGE OF CONTROL.
(a) In the event that a "Change of Control" (as hereinafter defined)
of the Company occurs during the term of this Agreement and within one year
thereafter the employment of Executive is either terminated for reasons other
than those set forth in Section 11, or the Executive voluntarily terminates his
employment within 60 days after the diminution of his responsibilities,
severance compensation in an amount equal to the sum of (i) Executive's Base
Salary at the time of such termination or resignation, plus (ii) four times the
average of the two highest Quarterly Bonuses paid to Executive in the year prior
to the Change of Control, will be paid promptly by the Company to Executive.
Amounts payable to Executive pursuant to this Section 13 shall not be reduced by
amounts earned by Executive from employment obtained by Executive following the
Change of Control. Amounts payable to Executive pursuant to this Section 13
shall be in lieu of any amounts which would otherwise be payable to Executive
pursuant to Section 3(f) hereof.
(b) "Change of Control" for the purposes of this Agreement shall mean
any change of control which is required to be reported to the Securities and
Exchange Commission or if (i) any person or entity acquires or controls 30% or
more of the Corporation's outstanding voting securities or (ii) during any
period of two consecutive years the persons who were
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<PAGE>
directors of the Company immediately prior to such period ceases to constitute a
majority of the Board of Directors of the Company; provided, however, that
control by Archon and its affiliates shall not be deemed a "Change of Control"
for purposes of this Agreement.
14. NON-SOLICITATION. For a period of 12 months following the termination
of this Agreement Executive shall not solicit or assist in the solicitation for
employment any employees of the Company or its affiliates and shall not attempt
or assist in any attempt to engage any persons under contract with the Company
or performing or assisting in any programs produced by the Company.
15. OTHER POSITIONS. Following the termination of Executive's
employment with the Company, regardless of the reason for such termination,
Executive shall at the request of the Company made from time to time immediately
resign from all positions as an officer or director or any other positions with
any subsidiary or affiliate of the Company and all positions as an officer or
director or any other positions with any other entity where Executive was
appointed or designated to such position by the Company.
16. ASSIGNABILITY. This Agreement and the rights and obligations of the
parties hereunder may not be assigned by either party for any reason without the
prior written consent of the other party.
17. ARBITRATION OF DISPUTES. Any dispute or controversy between the
parties relating to or arising out of this Agreement or any amendment or
modification hereof shall be determined by arbitration in Los Angeles,
California by and pursuant to the rules then prevailing of the American
Arbitration Association. The arbitration award shall be final and binding upon
the parties and judgment may be entered thereon by any court of competent
jurisdiction. The service of any notice, process, motion or other document in
connection with any arbitration under this Agreement or the enforcement of any
arbitration award hereunder may be effectuated either personal service upon a
party or by certified mail duly addressed to him or his executors,
administrators, personal representatives, next of kin, successors or assigns, at
the last known address or addresses of such party or parties. If the Executive
is the prevailing party on any issue in any such arbitration proceeding, he
shall be entitled to recover from the Company any actual expenses for attorney's
fees and disbursements incurred by him.
18. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of California applicable to contracts
executed in and to be performed solely within the State of California.
19. ABILITY TO FULFILL OBLIGATIONS. Neither the Company nor the Executive
is a party to or bound by any agreement which would be violated by the terms of
this Agreement.
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<PAGE>
20. NOTICE. Any notice, direction or instruction required or permitted to
be given hereunder shall be given in writing and may be given by telex,
telegram, facsimile transmission or similar method if confirmed by mail as
herein provided; by mail if sent postage prepaid by registered mail, return
receipt requested; or by hand delivery to any party at the address of the party
first above set forth. If notice, direction or instruction is given by telex,
telegram of facsimile transmission or similar method or by hand delivery, it
shall be deemed to have been given or made on the date on which it was given,
and if mailed, shall be deemed to have been given or made on the third business
day following the day after which it was mailed. Any party may, from time to
time, by like notice give notice of any change of address and in such event, the
address of such party shall be deemed to be changed accordingly.
21. FURTHER ASSURANCES. The parties hereto agree that, after the
execution of this Agreement, they will make, do, execute or cause or permit to
be made, done or executed all such further and other lawful acts, deeds, things,
devices, conveyances and assurances in law whatsoever as may be required to
carry out the true intentions and to give full force and effect to this
Agreement.
22. MISCELLANEOUS. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes any
and all prior or contemporaneous oral and prior written agreements and
understandings, including, without limitation the Employment Agreement dated
January 6, 1995 between the Executive and the Company (the "1995 Agreement").
Executive acknowledges that the Company has fully performed all its obligations
under the 1995 Agreement and Executive has no claims against the Company for any
breach or alleged breach of the 1995 Agreement. There are no oral promises,
conditions, representations, understandings, interpretations or terms of any
kind as conditions or inducements to the execution hereof or in effect among the
parties. No custom or trade usage, nor course of conduct amount the parties,
shall be relied upon to vary the terms hereof. This Agreement may not be
amended, and no provision hereof shall be waived, except by a writing signed by
all of the parties to this agreement which states that it is intended to amend
or waive a provision of this Agreement. Any waiver of any rights or failure to
act in a specific instance shall relate only to such instance and shall not be
construed as an agreement to waive any rights or fail to act in any other
instance, whether or not similar.
23. SEVERABILITY. Should any provision of this Agreement be unenforceable
or prohibited by any applicable law, this Agreement shall be considered
divisible as to such provision which shall be inoperative, and the remainder of
this Agreement shall be valid and binding as though such provision were not
included herein.
24. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original.
25. HEADINGS. All headings in this Agreement are for convenience only and
will not affect the meaning of any provision hereof.
-8-
<PAGE>
26. SURVIVAL OF CERTAIN PROVISIONS. The provisions of Sections 8, 9, 10,
14, 15 and 17, shall, to the extent applicable, continue in full force and
effect notwithstanding the expiration or earlier termination of this Agreement
or of the Executive's employment in accordance with the terms of this Agreement.
27. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Agreement shall inure to the benefit of, and be binding upon, the Company and
any corporation with which the Company merges or consolidates, and upon the
Executive and his executors, administrators, heirs and legal representatives.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the Executive has executed this Agreement and the
Company has caused this Agreement to be executed by a duly authorized officer as
of the day and year first above written.
PREMIERE RADIO NETWORKS, INC.
By: /s/ Steve Lehman
-----------------------------------------
Name:Steve Lehman
Title:President/Chief Executive Officer
/s/ Timothy Kelly
--------------------------------------------
TIMOTHY KELLY
The undersigned spouse of Timothy Kelly hereby irrevocably consents to the
terms of this Employment Agreement.
/s/ Evelyn Kelly
--------------------------------------------
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<PAGE>
<PAGE>
EXHIBIT 11
COMPUTATION OF PRIMARY AND FULLY DILUTED PER SHARE EARNINGS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
PRIMARY PER SHARE EARNINGS:
Weighted average shares outstanding .................................. 7,360,035 4,908,765 4,506,917
Net effect of dilutive stock options and warrants .................... 1,569,919 1,196,729 158,004
Total ................................................................ 8,929,954 6,105,494 4,664,921
--------- --------- ---------
Net income ........................................................... $2,436,168 $2,556,130 $1,985,386
Reduction in interest expense resulting from the assumed
exercise of stock options and warrants to purchase
common stock and the assumed reduction of outstanding
notes payable, net of income taxes.................................. 15,923 108,083 -
Increase in interest income resulting from the assumed
exercise of stock options and warrants to purchase common
stock and the assumed investment in short-term, cash
equivalent marketable securities, net of income taxes .............. 47,667 140,058 -
--------- --------- ---------
Net income, as adjusted .............................................. $2,499,758 $2,804,271 $1,985,386
--------- --------- ---------
--------- --------- ---------
Per share amount ..................................................... $0.28 $0.46 $0.43
----- ----- -----
----- ----- -----
1996 1995 1995
---- ---- ----
FULLY DILUTED PER SHARE EARNINGS:
Weighted average shares outstanding .................................. 7,360,035 4,908,765 4,506,917
Net effect of dilutive stock options and warrants .................... 1,577,122 1,224,213 158,004
--------- --------- ---------
Total ................................................................ 8,937,157 6,132,978 4,664,921
Net Income ........................................................... $2,436,168 $2,556,130 $1,985,386
Reduction in interest expense resulting from the assumed
exercise of stock options and warrants to purchase
common stock and the assumed reductic of outstanding
notes payable, net of income taxes ................................. 8,012 108,083 -
Increase in interest income resulting from the assumed
exercise of stock options and warrants to purchase
common stock and the assumed investment in short-
term, cash equivalent marketable securities, net of
income taxes ....................................................... 49,723 167,232 -
--------- --------- ---------
Net income, as adjusted .............................................. $2,493,903 $2,831,445 $1,985,386
---------- ---------- ----------
---------- ---------- ----------
Per share amount ..................................................... $0.28 $0.46 $0.43
----- ----- -----
----- ----- -----
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-78316) pertaining to the 1992 Stock Option Plan of Premiere Radio
Networks, Inc. of our report dated February 21, 1997, with respect to the
consolidated financial statements of Premiere Radio Networks, Inc. included in
the Annual Report (Form 10-KSB) for the year ended December 31, 1996.
Ernst & Young LLP
Los Angeles, California
April 8, 1997
